Yes Bank FPO Financial Analysis (Avoid)

Yes Bank is coming up with a follow on public offer (FPO) of an issue size of ₹15000 crore out of which ₹200 Crore is reserved for eligible employees. The equity shares offered for fresh issue would have face value of ₹2 each and come with a price band of ₹12-₹13.

Objects of the offer:

Ensuring adequate capital to support growth and expansion, including enhancing the Bank’s solvency and Capital Adequacy Ratio.
For general corporate purposes.

WHY FPO?

As of March 31, 2020, the Bank’s CET (Common Equity Tier) 1 ratio was at 6.3%. The RBI had prescribed a minimum CET 1 ratio of 7.375% by March 31, 2020. This minimum CET 1 ratio requirement will increase to 8% by September 30, 2020. In order to comply with the requirements of the RBI with respect to CET 1 ratio and support the Bank’s growth plans, it is important to have adequate equity capital. Hence, to boost capital as per the regulatory norms, Yes bank is launching FPO. Further, FPO route offers freedom in pricing the issue unlike the QIP (Qualified Institutional placement) route.

Pricing of FPO

The price band for the FPO is fixed at ₹12-₹13 which is half than its current market price of ₹25.6 (closing price on NSE, Friday).The lower pricing implies a 50% dilution for the existing shareholders assuming that they don’t buy additional equity in the upcoming FPO. The FPO is priced at a discount to woo the new investors and making capital raising easier for the issuer. FPO would also lower the burden of existing shareholders to infuse additional capital in the troubled private sector bank.

SBI would invest ₹1760 Crore(11.73% of total FPO size) in FPO of Yes bank.

It is worth to note here that there is a lock in period of 3 years from the commencement of revival scheme to the extent of 75% of an investor’s stake in the bank.

Yes bank’s key developments

Obtained certificate of commencement of business in 2004
Specializes in merchant banking, digital banking, brokerage business, asset management and investment banking
Branches increased to 1,135 as of March 31, 2020 from 631 as of March 31, 3015 to 1,000 as of March 31, 2017. Yes Bank’s extensive network of branches includes 250 hub branches, 850 spoke branches.
In March 2020, the Government of India notified the “YES Bank Limited Reconstruction Scheme 2020” and the Board was reconstituted with eight eminent professionals with vast experience within the banking industry. Under the reconstruction scheme, State Bank of India-led consortium of banks (HDFC, ICICI, AXIS, KOTAK) infused nearly ₹10,000 crore in Yes Bank in March.SBI is the major stakeholder with 48% share in Yes bank.

Since the implementation of the Reconstruction Scheme, they have formulated new strategic objectives which aim at augmenting deposit base and liquidity buffers, optimizing operating costs, building stronger governance and underwriting framework and focusing on stressed assets resolution over the next 6 to 12 months.

Financial Review Financial Performance

Total income has increased to ₹38,008.1 crore in FY 20 but it can be seen from the table that interest earned has decreased by 12% to ₹26052.1crore from ₹29623.7 crore in FY 19. This decrease is due to rise in NPA’s and reduction in interest income from investments.
There is a net loss of ₹(16432.1) crore in FY 20 as against profit of ₹1709.2 crore in FY 19 due to NPA of ₹32877.5 crore in FY20 (NPA being ₹7882.5 in FY 19).
Provisions and contingencies have significantly increased to ₹28312.4 crore in FY 20.
Deposits have reduced significantly by 53.7% to ₹105311.1 crore in FY 20 from ₹227557.0 crore in FY19 which shows lower confidence among depositors leading to deposit withdrawals.
Total assets have reduced by 32% to ₹257832.1 crore from ₹380859.6 crore in FY 19.

Table 1 - Financials and Ratios (Amount in INR Million)
Title	FY 2020	FY 2019	FY 2018
Total Income	38008.1	34299.2	25561.7
of which Interest earned	26052.1	29623.7	20268.5
of which other income	11956.0	4675.4	5293.1
Total expenses	26128.1	26172.6	17802.9
Net Profit	(16432.5)	1709.2	4233.2
Provisions and contingencies	28312.4	6417.3	3525.5
Net profit margin	-63.1%	5.8%	20.9%
Reserves and Surplus	19184.8	26424.4	25291.9
Borrowings	113790.0	108424.1	74893.5
Deposits	105311.1	227557.9	200688.6
Total Assets	257832.1	380859.6	312449.6
Cash and bal with RBI	5943.6	10797.7	11425.7
Bal with other banks	2486.7	16187.1	13328.0
EPS	-56.1	7.4	18.4
Return on net worth	-81.9%	6.4%	17.7%
NAV	17.3	116.1	111.8
Gross NPA	16.8%	3.2%	1.3%
Net NPA	5.0%	1.9%	0.6%

Warning signs of the FPO and Conclusion

The proposed FPO would result in dilution of shares of existing shareholders and the new retail investors should be aware that FPO is largely aimed at fulfilling the capital need arising due to the regulatory norms. The discounted price offer is a blow to the existing investors of Yes bank and the lower price may indicate the real price of Yes bank; the market has not taken the move positively as stock prices have tumbled after the FPO price declaration.

Further, already bad and risky assets would further be impacted due to COVID and overall economic stagnancy. Additionally weaker net profit margins, reducing deposits, and interest income point towards deteriorating fundamentals. Hence only those investors who have high-risk appetite may invest else one should refrain from subscribing.

Reviewer recommends Avoid to the issue.

Review By CA Priyanka Choudhary on 13th Jul 2020

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.

User Reviews

1. Vinay Jain Jul 15 2020 12:17:47 PM Reply

Are we expecting more NPA after this level or a majority of NPAs are booked in the last balance sheet? Please confirm

2.1. Priyanka Jain Jul 15 2020 12:25:53 PM

Yes, more NPA`S are expected due to economic slowdown on account of pandemic and risky asset profile of the bank.