Yes Bank – A Rediscovery

  • 02 Apr 2014
  • CMP: Rs 415
  • Large Cap – Mkt Cap 14,900 crores.
  • Advice:  Buy

JainMatrix Investments has published a report on Yes Bank for its Subscribers. A partial report is available below. Edited from it are Financial metrics, Risk factors, Bench-marking, Financial Projections and 2 year target prices for YB stock. The JainMatrix Investment service is available for a subscription fee.

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Key Reasons to Invest:

  • The 24% fall since May ’13 is temporary in nature and gives an opportunity to invest at lower levels
  • Aggressive growth will continue in 20-35% range, with stable NIMs and profitability
  • Investments in Retail and SME will provide next phase of expansion
  • Resurgent share price indicates a recovery has started

Description and Profile

  • Yes Bank (YB) started in 2003, received the only greenfield bank license by RBI in last 15 years.
  • Based in Mumbai, Yes Bank’s FY13 revenue was Rs 9551 crore and net profit of 1300 cr.
  • Its market cap is 14,929 cr and it is among the top 6 private banks in India.
  • The leaders are Rana Kapoor (Founder, MD, CEO), Alok Gupta, Aditya Sanghi and Ajay Desai.
  • Share pattern %: Promoter 25.6, FIIs 39.6, MFs/DII 19.3, Retail/HNI 11.9, Corporate 2.5& Others 1.1.
  • YB has employee strength of over 9000, the bank branches are 550 and about 1,150 ATMs in India.
  • YB is focused on its Retail and MSME Loan portfolio, which has grown sharply, see Fig 1.
Business Segments, JainMatrix Investments

Fig 1 – Business Segments, JainMatrix Investments, click image to enlarge

Recent News and Updates

  • The recent Q3FY14 results were good. Net profit at 415.6 cr grew 21.4% YoY. NIM at 665 cr grew 13.9% YoY. NIM is at 2.9%. However results were not as good as Q2FY14.
  • RBI has permitted YB along with 5 other banks and 3 financial institutions to import gold under the 80:20 scheme. This is expected to lower gold cost and help the country’s external balances.
  • YB has raised USD 500 m in foreign currency loans and deposits in FY14 after regulatory relaxations introduced in the fiscal. RBI relaxed regulations by raising the borrowings limit from 50% to 100% of Tier I capital and concessional FCNR (B) deposit swap window. The loan facilities will be used to scale up general corporate lending and small and medium enterprise loan portfolios.
  • Ongoing Promoter legal tussle: Madhu Kapur, widow of Yes Bank co-founder Ashok Kapur, opposed in court the nomination of three directors to the lender’s board, an initiative led by her brother-in-law Rana Kapur. And, the Bombay HC admitted the plea.
  • Revised monetary policies favor YB. The RBI’s move to boost liquidity has brought down the Marginal Standing Facility rate from 10.25% (in July’13) to 9.0% (in Jan’14). This is positive for YB due to significant wholesale funding.
  • Savings rates deregulation in Oct’11 has aided retail customer acquisition, as YB aggressively hiked savings interest rates and shifted focus to growing the retail business.

Unique Strengths and Superior Strategies

  • YB has a vision to become “A global bank” and “India’s #4 private sector bank by 2015”. They have invested 60-75 cr. to expand branch network, and plan to open 100 new branches.
  • Their Vision-2015 was to create human capital of 12,750 employees, have 900 branch strength and a balance sheet of 150,000 cr. The bank is stretching to meet these objectives.
  • YB is focused on research and knowledge lead banking services. It pioneers lending to new sectors that have high potential growth prospects.
  • YB has a diversified and De-risked Credit Book.
Diversified Credit Book, JainMatrix Investments

Fig 2 – Diversified Credit Book, JainMatrix Investments

  • YB practices a strong employee value proposition of “Creating and Sharing value” with a vision to build their organization driven by professional entrepreneurship.
  • YB is focusing on the SME sector with access to finance and to help them excel in future.
  • YB has aggressively grown the CASA deposits to 20.9% from 18.3% last year. YB offers the savings bank interest rate of 7%, which is highest in the industry.
  • In an economy that used to be denied good banking, Yes Bank is building its brand around positivity, good services and fast approvals.

Stock Evaluation, Performance and Returns

  • YB had its IPO in July’05 priced at Rs 45. It was 31 times oversubscribed. At CMP of Rs 414 today, the stock has given a 28% CAGR return since IPO.
  • The share has risen well, but is volatile. After IPO, price rose to 277 in early 2008, fell to 41 in Mar ’09 and peaked at 547 in May ’13. Today, it is 24% below this peak price.
  • The Price fall around July-Aug’13 was much sharper for YB (56%) than the CNX Bank (33%).
  • This fall is linked to the events of 1) Taper of the monetary easing by Fed Bank in USA 2) A sharp fall in INR/USD value. 3) A case against YB by Promoter/owner Madhu Kapur.
  • Also YB which was an investment & trading favorite and had touched its all-time high of 547 in May’13, may have fallen more sharply due to exits by the trading community.
  • Total Income, NII & Other income and Profits have grown at 38%, 36% and 41% CAGR over 6 years.
Yes Bank Financials, JainMatrix Investments

Fig 3 – Yes Bank Financials, JainMatrix Investments

  • While total income has grown rapidly, margins have fallen a little in the last 3 years. This is natural as Yes Bank is growing into a Large Cap from a Mid Cap size. See Fig 3.
Yes Bank, Book Value, dividends, JainMatrix Investments

Fig 4 – Yes Bank, Book Value, dividends, JainMatrix Investments

  • The first dividend of Rs 1.5 was paid in ‘10, and since dividend has shown a steady increase, Fig 4.
  • The P/B ratio has fallen over 6 years, in spite of price rise, due to rapid growth in Book Value.
  • While NIM% has been flat for 5 years, other financial metrics like RoNW, RoE, CAR and CASA are showing YoY improvements. NIM has been between 2.7-3.2% over the past 5 years. This is low by industry standards as CASA is low. Capital Adequacy is at 18.3%, which is good. The ranges of ROE (20-25%) and RONW (15-23%) for last 5 years are high and growing.
  • The PE chart 5 shows that average PE over the last 6 years has been 15, with a range 5-25.
Yes Bank PE and EPS charts, JainMatrix Investments

Fig 5-6 – Yes Bank PE and EPS charts, JainMatrix Investments

  • PE has fallen today to 9.55 and is in the lowest quartile. This fall was in spite of EPS growth, Fig 6.
  • Price and EPS quarterly graph, shows that EPS has been rising very steadily. The Share Price has been roughly following EPS, except for the last one year.
  •  We expect the EPS of YB to stay within the channel in Fig 6.
  • It appears from Fig 6 that the price fall is not based on financials/ EPS but due to other reasons.
  • Gross & Net NPA rose by Q3FY14 to 0.39% & 0.08%, but are still at lowlevels for the industry.
  • Beta of the stock is 1.98 (Reuters) indicating high volatility.
  • Dividend yield is 1.46%, which is good for the banking sector.
  • PEG is at 0.36 – indicates safety and an undervalued stock.

Opinion, Outlook and Recommendation

  • India is under-banked. There is potential for Banks to invest in new sectors and stimulate growth.
  • The banking industry is a proxy to the overall economy, and should grow at 12-17% p.a.
  • YB as a new private bank is well placed to exploit the trend of Private sector growing faster than PSBs, will continue to be in the 20-35% range for the next 3 years.
  • The recent price fall of 24% since the peak in May ’13 provides an opportunity to invest in YB.
  • In Mar’14 YB crossed its 200DMA and has stayed above it for 2 weeks already. It is a bullish sign and may signal a long positive period for the stock.
  • YB will continue on the path of solid stock performance and dividends over the next decade. Invest now and systematically to gain for the long-term.
  • Our Call is a BUY.

JainMatrix Knowledge Base:

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Disclaimer:

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Either JM or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

Yes Bank: The Brave Warrior of Indian Banks

_____________________________________________________________

This report has been refreshed, read the latest April 2014 report Yes Bank – A Rediscovery

  • Date: September 12, 2012                               
  • CMP: Rs 333  Its a Large Cap with Mkt Cap Rs 11,833 cr               
  • Valuation: Today’s is Rs 414, available at 24% discount
  • Mar’14 target is 790 
  • Advice:  Buy now and systematically. 

Summary:

Key Reasons to Invest:

  • Aggressive growth (will continue in 35-45%), stable NIMs and profitablility
  • Investments in Retail and SME will provide next phase of expansion
  • Vision for 2015 is achievable and inspiring
  • The 14% fall since Mar ’12 gives an opportunity to invest at lower levels

Risks:

  • Global and India slowdown continues
  • Exposure to troubled sectors – Airlines, Power

This is an update of the Mar’12 Report by JainMatrix Investments – LINK

Yes Bank – Description and Profile

  • Yes Bank (YB) started in 2003, received the only New Bank license issued by RBI in 15 years.
  • Leaders are Rana Kapoor, Founder, MD & CEO and Aalok Gupta, EVP & Country Head- Retail
  • Promoter stake is 26%; other shareholders are FIIs 43%, MFs/ DII 14%, Individual – Retail /HNI 9.5%, Bodies Corporate/etc. 7.5%.
  • The firm has 4,875 employees; branches doubled in 1.5 years to 380 in 275 cities, with 650 ATMs.
  • Market cap is at 9,300 crores, putting it at #12 among Indian banks, and #7 in private sector.
Yes Bank - Growth Parameters, JainMatrix Investments

Fig 1 – Yes Bank – Growth Parameters, JainMatrix Investments (click any graphic to enlarge)

Superior Strategies and Execution

  • YB has a Vision 2015 (Version 2.0) which is an inspiring combination of soft and hard targets – “The Best Quality Bank of the World in India”; and 900 Branches, 12,750 employees, 2000 ATMs, Advances –`100,000 cr., Deposit base –`125,000 cr. and Balance Sheet –`150,000 cr. (as of now).
  • Seasoned, capable bankers in the Management team provide stability.
  • The focus is on Retail and SME banking involves growth in branches and investments in Sales and retail products. Recent deregulation of Savings Account interest rates allowed YB to introduce highest rates of 7%. The CASA is up from 10% in March ‘10 to15% by March ’12. Fig 1,
  • The firm rapidly enters high potential sectors for advisory, loan and banking services, with a Knowledge based approach to lending. Advances grew 45% CAGR in 4 years (industry growth 22%). With this approach, YB is pretty much The Brave Warrior of Indian Banks.
  • The Loan Book is well diversified, and the banks credit exposure to sensitive sector (due to asset price fluctuation) like capital markets, real estate, power, iron & steel and textiles are below the industry average. Here is a view of the top ten sectors as part of the Loan Book Distribution, Fig 2.
Yes Bank, Loan Book Distribution, JainMatrix Investments

Fig 2 – Yes Bank, Loan Book Distribution, JainMatrix Investments, (click any graphic to enlarge)

 

  •  In business development, mistakes are made, but YB learns from these, and exits fast (example – in 2007, the category of foreign exchange derivative products sold to SMEs turned loss making. There were litigations against YB (and several other banks too). These are now resolved.
  • Growth will be organic as executives feel that organic growth costs less compared to available assets

 

Industry Note

  • Scheduled Banks in India are Public Sector (27), Private Old (22), Private New (8) and Foreign (38).
  • Total number of (scheduled bank) savings accounts was 12.1 crore in 2011. But 80% are inactive, giving 2.4 cr. active accounts. The gross penetration is 10%, and active accounts penetration is 2%. Thus India is underbanked. (RBI data).
  • The FY12 credit growth of Indian banks was in line with the RBI projection of 16%.
  • Market share in savings accounts of banks dropped – SBI/associates (30.3 to 29.2%), other nation-alized banks (49 to 47.8%), foreign (5.8 to 5.2%), but Private banks grew (14.9 to 17.8%) by FY12.
  • The global Basel III requirements require banks to hold top quality capital equal to 7% of their assets adjusted for risk, will be phased in between 2013 and 2019. Aimed at improving financial stability and avoiding a repeat of the crisis of 2008, they will increase the cost of capital for banks.
  • Channels: By 2011, there were 93,800 ATMs in India, about 70% of them in Metro/ urban locations. Mobile banking is also an important banking channel, due to penetration of smartphones and 3G.

Stock Evaluation, Performance and Returns

  • YB had its IPO in July’05 priced at Rs 45. It was 31 times oversubscribed. At CMP of Rs 333 today, the stock has given a 28.5% CAGR return since IPO.
Yes Bank, Price Trend, JainMatrix Investments

Fig 3 – Yes Bank, Price Trend, JainMatrix Investments

  • The share has risen well, but is volatile. After IPO, price rose to 277 in early 2008, fell to 41 in Mar ’09 and peaked at 389 in Mar ’12. Today, it is 14% below this peak price. See Fig 3.
  • EPS has grown at 59.5% CAGR over 5 years, Fig 4.
Yes Bank - Quarterly Income and EPS, JainMatrix Investments

Fig 4 – Yes Bank – Quarterly Income and EPS, JainMatrix Investments

  • Quarterly Income and Profit too have grown rapidly (Fig 5), with NII + Other Income, NII and Net Profit growing at 46.5%, 57.4% and 59.6% CAGR over the last 5 years.
Yes Bank, Quarterly Income Profit, JainMatrix Investments

Fig 5 – Yes Bank, Quarterly Income Profit, JainMatrix Investments

  • The maiden dividend of Rs 1.5 was paid in 2010. Thereafter dividend has shown a steady increase.
  • The P/B ratio has fallen over 6 years, in spite of price rise, due to rapid growth in Book Value, Fig 6.
Yes Bank - Price, Dividends, BookValue, JainMatrix Investments

Fig 6 – Yes Bank – Price, Dividends, BookValue, JainMatrix Investments

  • Price and PE chart Fig 7, shows that average PE has been 15, while the PE range has been between 5 and 25. PE today is 11.2 and clearly in the ‘below average’ quartile. This PE fall has happened in spite of earnings growth, Fig 8.
Yes Bank, Price and PE Chart, JainMatrix Investments

Fig 7 – Yes Bank, Price and PE Chart, JainMatrix Investments

  • Price and EPS quarterly graph, Fig 8, shows that EPS growth has been improving. The Share Price has been roughly following EPS. We expect the EPS of YB to stay within the channel in Fig 8.
Yes Bank, Price and EPS Chart, JainMatrix Investments

Fig 8 – Yes Bank, Price and EPS Chart, JainMatrix Investments

  • NIM has been between 2.7-3.2% over the past 5 years. This is low by industry standards as CASA is low. Capital Adequacy is at 16.5%, which is good.
  • Gross & Net NPA are at 0.28% & 0.06%, among the lowest NPA levels in the industry.
  • ROE and RONW are between 20-24% in FY12, which is excellent.
  • Beta of the stock is 1.61 (Reuters) indicating high volatility.
  • PEG is at 0.33 – indicates safety and great value.

Benchmarking and Financial Projections

In a benchmarking exercise, we compare YB with 3 firms in the same or related industry, Table 9.

Yes Bank, Benchmarking Aanalysis, JainMatrix Investments

Table 9 – Yes Bank, Benchmarking Analysis, JainMatrix Investments

  • Conclusions: Compared to peer Banks, YB holds its own on most parameters. YB looks particularly strong on EBITDA and Profit per employee ratios indicating high productivity.
  • Bajaj Finance has the flexibility of an NBFC, and has performed better on many parameters. See Research Report on Bajaj Finance.

In a Financial projections exercise, we project YB financials till FY 2014, See table 10.

Yes Bank - Financial Projections, JainMatrix Investments

Table 10 – Yes Bank – Financial Projections, JainMatrix Investments

Risks:

  • Current Economic and Government data indicate a slowdown across industry, a rising govt fiscal deficit, current account deficit, and weak rupee. Further, oil prices are high and other commodity prices are falling. Decision-making is slowing in the government, as past decisions are being revisited in Telecom and Coal. These point to a slowdown that can affect YB.
    • YB will continue to lead on performance parameters. But if there is a sector slowdown, the performance will be affected. The poor Indian economic data if seen in the context of an international slowdown, suddenly looks better than many other countries. Currently the Indian market indices are holding up well due to FII confidence and fund inflows. So there may be a cushion to the fall in Indian Indices.
  • YB is an aggressive player that enters new potential sectors and can make mistakes that can affect the overall brand. These can impact sentiment and valuations.
  • Infrastructure woes: Ratio of Non-fund based exposure to Power Sector to net worth is high at 49% (Macquarie Research). This sector while critical for the India growth, is in a stressed condition, and awaiting government driven systemic improvements. Also exposure to troubled Airline sector. Airline companies owe RS 770 Cr to YB.
    • The Loan Book details in Fig 2 and the calibrated approach to loans exposure build confidence that YB has a safer approach than industry.

Opinion, Outlook and Recommendation

  • India is underbanked. There is potential for Banks to invest in new sectors and stimulate industry growth. In Retail, the consumption play is bank accounts, personal/housing loans, credit cards, etc.
  • The banking industry is also a proxy to the overall economy, and one can expect, as a thumb rule, the industry to grow at 2-3 times the GDP growth. The Indian economy is well placed to grow at 6-9% per annum over the next decade. Basis this, the Banking sector will grow at 15-24% p.a.
  • YB is well placed to exploit the trend of Private sector growing faster than PSBs, and its own growth rate will be superior to the peers. The strategies followed and good execution means that the growth will continue to be in the 35-45% range for the next 3 years.
  • The recent price fall of 14% since the peak in Mar ’12 provides an opportunity to invest in YB.
  • The share price is currently poised at its 200 DMA of 333. The expectation is that it will take support at these levels before rising higher.
  • The valuation and projection/ targets for YB are:
    • Current valuation is of 414, indicating it is available at a 24% discount at CMP
    • The target for March ‘14 is 790 (a 137% appreciation)
  • YB will continue on the path of solid stock performance and dividends over the next decade. Invest now and systematically to gain for the long-term.

JainMatrix Knowledge Base

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Disclosure: It is safe to assume that if the JainMatrix website recommends a stock, the researcher has already invested in it.

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Disclaimer:

These reports and documents have been prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permission of JainMatrix Investments. Any questions should be directed to the director of JainMatrix Investments at punit.j@jainmatrix.com .  Also see: https://jainmatrix.wordpress.com/disclaimer/

Consult your financial planner for deciding about your investment funds.

‘Bottom Fishing in 2012’ Review of Portfolio – April’12

Date: April 18, 2012

In Jan this year, JainMatrix Investments published a report, ‘Bottom fishing in 2012’ …… To read this now, click on LINK

  • The report indicated that: ‘A bottom is in place, and the price reversal has started‘; there is ‘a change in sentiment‘, and ‘a coordinated rise’ in the share prices.
  • A lot has happened since then, including a crude oil price rise, a Union Budget, and even a lowering of Interest Rates by RBI !!

Lets review the suggested portfolio at the three months milestone – how has it performed?

 Company

Reported 

Jan 17th

Review Feb 20th

Gain/ Loss %

Review

Apr 18th

Gain/ Loss %

Sector

Mkt Cap k Crores

Find out more?

BGR Energy Systems

229

339

48

358

42

Power

M – 2.6

LINK

KEC International

49.1

61

24

63.8

30

Power

S – 1.6

LINK

IRB Infrastructures

153

208

36

198

30

Infra

M – 6.6

Yes Bank

285

364

28

370

30

Bank

L – 13

LINK

Titan Industries

185

232

25

240

27

Consumer

L – 21.3

LINK

Hanung Toys & Textiles

128

140.6

10

147

15

Consumer

S – 0.4

LINK

Binani Industries

121

124.1

2.5

122

1

Cement +

S – 0.4

Diamond Power Infra

111

138

24

110

-1

Power

S – 0.4

Adani Port & SEZ (Mundra)

135

150.5

12

130

-4

Ports, SEZ

L – 26

LINK

Average

 

 

23.2

 

20.6

 

 

 

NIFTY

4,967

5,564

12

5,300

7

Sensex

16,466

18,289

11

17,392

6

CNX Midcap

6,764

7,925

17.2

7,700

14

k – ‘000

BSE Small Cap

6,290

7,116

13.1

6,914

10

M-midcap

Observations:

  • Definitely the portfolio is down compared to Feb evaluation. Even so, since Jan, it has gained 20.6%!!
  • It has outperformed even the best of these Indices, CNX Midcap by over 6%!!
  • There are several changes in the ranking of individual stocks.
  • Note the added Link to the Report on IRB Infrastructure, added in this period.

Based on the above, we strongly suggest:

  • This portfolio will appreciate. Invest but with a minimum one year perspective.
  • Subscribe to reports from JainMatrix Investments. Receive actionable, high quality insights and recommendation for Equity investments. Boost your returns.
  • This is an aggressive portfolio. Do not put all your eggs in one basket. Invest monthly in a SIP form.

Note:

  • Past performance is no indication of future results.
  • Spread the cheer. Share this letter with friends and fellow investors; invite them to also subscribe.
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Disclaimers:

Disclosure: It is safe to assume that if the JainMatrix website recommends a stock, the researcher has already invested in it.

These reports and documents have been prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permission of JainMatrix Investments. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

Also see: https://jainmatrix.wordpress.com/disclaimer/

Bottom fishing in 2012 ……

————————————————————————————————————————————

JainMatrix Investments has published a review of this portfolio, please click  on the link  October Review

Article Published  January 17th 2012

A Happy New Year to you!                                                             January 17th 2012

In my first post of 2012, I’d like to mull over a very basic question. There are a number of fundamentally good companies, firms in good sectors that are showing QoQ growth and profits, with upside potential and great order booked numbers. I’d like to invest in such firms.

But my worry has been that along with the Sensex, these firms have seen their share price falling week after week. The question is:  How much can a good company fall? More importantly, when can we be sure that the share price fall is complete, a bottom is in place, and the reversal has started?

If we can answer this for a few companies, it can be a great investing opportunity. I suggest the following 9 firms as turnaround candidates.

1.      Hanung Toys & Textiles: CMP 128.

  • This mid sized consumer products firm has 75% revenues from exports. Its share has jumped by 67% in the last 1 month, on high volumes.
  • My fundamental analysis indicates it’s a buy. In my report called Hanung – Look for the rebound, I had predicted such a reversal. Here’s a link to the report
  • Here is a one month view of this stock:
JainMatrix Investments, Hanung Toys

Hanung Toys – One month view (click to enlarge)

  • But the two-year view of the stock shows the extent of fall. The converse of this is that this share has a long climb before it, to even reach past highs.
JainMatrix Investments, Hanung Toys

Hanung Toys – Two year view. Click to Enlarge

2.      KEC International. CMP 49.1

Background:

  • KEC is a power transmission EPC firm owned by the RP Goenka group
  • It has increased EPS 30% CAGR for 5 years, and over 50% of the revenues from international projects.
  • A recent US acquisition in the transmission towers – SAE Towers – gives it 30% growth in balance sheet and a foothold in the America geography
  • Overall margins have been steady at 10% for the last 4 years
  • Recent small but synergistic diversifications in India give it an entry into Power Systems and Cables, and new verticals like Railways, Telecom and Water.

Situation:

  • In the last 4 weeks, the share has gained 53%, again on good volumes.
  • Here are the details, in a one month view:
JainMatrix Investments, KEC International

KEC International – One month view

  • Here is a two-year view of the stock that shows the extent of the fall. One of the issues is poor sentiments in the Power sector. However, for KEC, the fall is overdone.
JainMatrix Investing, KEC International

KEC International – Two year view

3.      BGR Energy Systems CMP 229

  • It is a leading power generation EPC firm. A detailed analysis is available on the link
  • The stock is up 35% in the last 2 weeks
JainMatrix Investments, BGR Energy Systems

BGR Energy Systems – One month view

The fall in the last two years has been massive, as we can see:

JainMatrix Investing, BGR Energy Systems

BGR Energy Systems – Two year view

4.      Diamond Power Infrastructure – CMP 111

  • This Gujarat based small cap is an integrated power sector player into Cables, transmission towers, transformers and conductors
  • It has aggressively expanded capacities, and maintains a higher proportion of in house manufacture in its EPC projects.
  • In the last month, the share has risen 51% from its low.
JainMatrix Investments, Diamond Power Infrastructure

Diamond Power Infrastructure – One month view

  • If you see the two-year chart, the extent of the fall is obvious. Again this is partly due to a poor perception of the Power sector combined with the fall of the Sensex. The fall is overdone, and the stock should bounce back.
JainMatrix Investments, Diamond Power Infrastructure

Diamond Power Infrastructure – Two year view

5.      Titan Industries, CMP 185

  • It is the Tata group company that owns the Titan and Tanishq brands
  • It is a large Cap, consumer-oriented firm with a big retail presence. A detailed analysis is available at link
  • The share is up 21% in the last one month, as we can see:
JainMatrix Investing, Titan Industries

Titan – One month view

  • The one-year view of Titan shows that it has fallen sharply in this period. It surely has some catching up to do.
JainMatrix Investments, Titan Industries

Titan – One year view

6.      Mundra / Adani Port and SEZ, CMP 135

  •  This Port and SEZ major is part of Adani group. It is an infrastructure stock.
  • A detailed report is available on Link
  • A recent development in this stock was the acquisition of Abbot Point Port in Australia. This was seen as an expensive acquisition, and this was one reason for the recent fall
  • This share is up by 25% from a recent one month low, as we can see:
JainMatrix Investing, Mundra / Adani Port and SEZ

Mundra Port – One month view

  • The high for Mundra/ Adani was 184.5 in mid 2009 and the share is now 36% lower than this in spite of the recent rise:
JainMatrix Investments, Mundra / Adani Port and SEZ

Mundra Port – Two year view

7.      IRB Infrastructure – CMP 153

  • This is a leading Roads Developer and Operator in India.
  • It is on a rapid growth path even in the current slow environment. It has a very good portfolio of projects, many of which are operational / toll roads, giving it a predictable and visible cash flow. It has restricted new business bids to larger and more lucrative road projects, where it has competitive advantages. Order Booked are around 10,000 crores.
  • In the medium term, the IRB stock has been suffering from a sentiment driven fall. In the last few weeks, however, it has recovered 24% from a low of 123.5 to the current 152 level
JainMatrix Investments, IRB Infrastructure

IRB Infrastructure Developers – One month view

Over a 2-year period, we can see that the stock has fallen significantly, and this should reverse in a falling interest rate scenario.

JainMatrix Investments, IRB Infrastructure

IRB Infrastructure – Two year view

8.      Binani Industries – Cement and metals manufacturer. CMP 121

  • It is a holding company with interests in Cement, Zinc, Glass Fiber, composites, etc.
  • However, the significant valuable asset is Binani Cement, which was recently merged into the holding company. This itself has a turnover of 2000 crores, and had a market cap of 1600 crores (before merger).
  • Other assets are not significant loss making entities. As of now, Binani Industries has a market cap of just 360 crores. The stock is under valued.
  • The share price has rebounded by 39% from recent lows.
JainMatrix Investments, Binani Industries

Binani Industries – One month view

The 2-year picture of Binani Industries shows the spike in 2011 around the time of the merger with Binani Cement, and a subsequent fall.

JainMatrix Investments, Binani Industries

Binani Industries – Two year view

9.      Yes Bank, CMP 285

  • It is a leading private sector bankA detailed analysis of this stock is available on the link
  • The share has shot up in the last month by 24% from a recent low.
JainMatrix Investments, Yes Bank

Yes Bank – One month view

  • The two-year view of the stock indicates that the current price is significantly below the highs, even though business performance is steady.
JainMatrix Investments, Yes Bank

Yes Bank – Two year view

Risks:

  • A close look at any of the 2-year charts of these shares indicates that there are several 20-40% bounces on the way down. There is a small probability that this too is just a bounce. However, several factors build my confidence that this is more than just a small reversal.
  1. We have indications (see article) that the interest rate cycle has peaked in India; that the Inflation too has peaked. So this could be a sign of economic improvements.
  2. The INR has weakened considerably. This can be a booster to export oriented firms.
  3. The coordinated fashion in which above nine firms (and others in the market) have risen indicates a change in sentiment, and perhaps lowering of investment negativity.
  4. At the beginning of the New Year, many investors, especially foreign, open their books and make fresh investments.
  • Investment in turnaround companies is inherently a higher risk approach, but with potentially higher returns. Take this approach only if you have a high-risk appetite.
  • One view of the above stocks can be that the best is already past, and the resurgence in the last month is unlikely to be repeated. My view is that at this stage fresh investments in these stocks are less risky than a month ago; the reversal is more likely to be sustained, and most of these stocks have a long way to rise before they are back at their highs, even though on valuation parameters, many should be near their all time highs.
  • It is possible that an external negative event takes place that makes share prices fall below these recent lows. However at this juncture, this looks like a small probability event.
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Disclaimer:

These reports and documents have been prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permission of JainMatrix Investments. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

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The Demographic Dividend in India

And how you can profit from it.

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We’re hearing the term ‘Demographic Dividend’ bandied about quite a bit, when describing India. What does it mean, and what are the implications?

What’s happening here?

In the last 10 years India has added 181 million people to its population. The population of India, at 1,201 billion, is almost equal to the combined population of the US, Indonesia, Brazil, Pakistan, Bangladesh and Japan put together (1214.3 million).

A news report – India will account for the highest working age population in the next 10 years, the International Labor Organization (ILO) has said in its report. And … between 2010 and 2020, the working age population between 15 and 64 years in a group of countries will increase by 212 million and “over 64 per cent of the increase will occur in only one country – India.”

India is going to experience this Demographic Dividend (DD) over the next few years. This has a few different forms and implications.

  • A large number of people will enter the working population age, providing labor availability across skill sets – unskilled to highly skilled industries and jobs
  • There will be fewer kids per family. This means families will upgrade lifestyles, providing better food, education and medicine to the fewer family members. Also, more women will enter the workforce in this period.
  • In the working age of 20-60, people save more, and the economy has more resources freed up to invest in productive loans, projects, infrastructure and industrial asset creating.

How do you as an investor gain from this?

The Demographic Dividend in India is both a risk and an opportunity. As an investor, your best way to play this trend is to look for the winners on the economic industrial landscape that will gain from this.

Here is a group of firms – some winners, some not.

Sector/ Stock Likely Trends and Outlook
Banks Larger Banks are plays on the overall economy. Reserve Bank of India, the regulatory authority, expects average industry growth rate to be 20% during FY11.The banks sector will gain tremendously from the DD.
  • HDFC BANK
This fast growing bank combines rapid credit growth with high asset quality, hurtling ahead with 30% year on year growth on key parameters. More people with jobs and salaries and growing businesses means continued growth for HDFC Bank.
  • ICICI BANK
This bank has emerged from a two-year cleansing up of its balance sheet, and has vowed high growth balanced with better asset quality. It already has the widest reach across India in terms of Bank branches. Looks certain to gain from DD.
  • Yes Bank
Yes Bank is an aggressive high potential new generation bank. The recent fall in prices by 28% makes this an attractive entry point for long-term investment. See article – Note on Yes Bank
InfoTech/ IT software Indian software services firms started off looking for business all over the world, riding on technology staff shortages and cost arbitrages. The newer trend is to move up the value chain and strengthen sales & marketing in India, to ride on a maturing domestic industrial and services base.
  • INFOSYS Technologies
This large, well-managed Indian software services firm will gain from DD in the form of controlling costs of skilled software resources. INFY reaches out far and wide across India, hiring top talent. They also come closer by setting up in smaller towns, offering better working conditions, while servicing global customers.
  • WIPRO
Wipro reaches out to customers offering the full suite of software services, BPO and engineering solutions. Expected to gain from DD in terms of controlling resource costs and domestic business growth.
  • (iGate) PATNI COMPUTERS
This firm has been among the larger players in Indian software services, but has not seen the scaling up associated with the other top players. Nor been able to grow fast in new locations in India. But the acquisition by iGate should see a reversal, and improve the long-term prospects. But in the next 1-2 quarters, there will be higher costs of integration and attrition, before the dust settles.
  • MAHINDRA SATYAM
With a corporate restructuring and change of ownership behind it, this firm will hope to resurrect its battered reputation over the next few years. The wheels of justice grind slowly in India, so there’s still uncertainty in the air.
Others
  • TATA MOTORS
This India based automobile major has extended its business from trucks and commercial vehicles a decade ago to passenger cars and SUVs, as well as acquired the marquee brands of Jaguar Land Rover. This acquisition looked expensive 2 years ago, but displayed a stunning turnaround last year.The innovative ‘Tata Nano’ project has stabilized and will gain from DD, offering an affordable safe transportation to middle class Indians. Export plans look feasible and profitable.A slew of new product launches in the commercial vehicles in India helps Tata Motors maintain an astonishing 65% market share in the category. DD drives increases in logistics investments, and TTM is the leader here.Global plans, good technologies and the Indian manufacturing base can make TTM an understated global leader of the future.
  • DR REDDY
DD for the Pharmaceuticals sector is very positive as a lot more people spend a lot more on healthcare & medicines. For RDY, rapid growth in domestic business shows this firm is on top of DD trends. RDY should also gain from M&As in a very fragmented domestic industry.Growth from exports also shows the firm is gaining from Indian industry advantages – like lower cost of manufacture, as well as the market opportunity from a number of blockbuster drugs in developed markets going off patent.Recent acquisitions are aimed at growing the global generics business.
  • Petronet LNG
Petronet LNG is a gem of a stock that has given equity investors safe and high returns for the last 7 years.See link – Note on Petronet LNG
  • Bharti Airtel
Bharti is the top telecom company in India by revenues and market share. It has weathered the storm of hyper competition of 2008-10 like a leader, maintaining prices, and signaling the reversal in 2011. It’s a cost and efficiency leader, also pushing into new businesses like DTH, Telemedia (broadband, IPTV and fixed line) and Enterprise (end to end telecom services). With it’s acquisition of Zain, it has now got access to the growth engine of the next decade – Africa.  See link – Note on Bharti Airtel

Some of the above firms will certainly continue to win in the next decade.

Happy investing!

  • Check back on the website www.jainmatrix.com for updates.
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Disclaimer:

These reports and documents have been prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permission of JainMatrix Investments. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

Also see: https://jainmatrix.wordpress.com/disclaimer/

My investment rupee says Yes Bank

Yes Bank is an aggressive high potential new generation bank. The recent fall in prices by 28% makes this an attractive entry point for long term investment.

There is an updated report of Yes Bank available at link The Brave Warrior of Indian Banks by JainMatrix Investments includes Q1FY13 results, news updates and FY15 projections.

Yes Bank  – Description and Profile

  • Incorporated in 2003, Yes Bank received the only greenfield (Start up/New Bank) license awarded by the RBI in the last 15 years
  • Founded by bankers Rana Kapoor and Ashok Kapur, (combined stake 32.6%). Other shareholders are Rabobank 18.20%, AIF Capital (private equity), Orient Global (investment firm), Swiss Re, Khazanah Nasional (Malaysia Govt) all 3.5-5% each.
  • It has 185 Branches currently of which 14 were added in Q3 FY11.
  • Market cap is at Rs. 9,300 crores, putting it at #12-13 among all Indian banks, and #7 in private sector
  • The firm has about 4000 employees, including 970 hired already in FY11

Yes Bank has superior strategies

In spite of over a hundred banks as competition, Yes Bank stands out for the following reasons:

  • Seasoned, capable bankers as Management team
  • The firm is nimble and agile, and rapidly enters new high potential industries sectors for advisory, loan and banking services
  • Focus on Knowledge based approach to lending. Loans exposure is to sectors like Food and Agribusiness, Engineering, Infrastructure & Logistics, TMT (Technology, Media & Telecom) and Healthcare.
  • There are four business verticals in the bank: a) Corporate & Institutional Banking b) Commercial Banking c) Business Banking-SME d) Retail Banking.
  • The business focus was Corporate banking till now and on select sectors while providing the entire value chain in those niche sectors. Having achieved some scale, the bank is now widening focus into SMEs and Retail.
  • Aggressive Retail growth plans will help increase low cost CASA deposits, and increase margins. The RBI has granted license for 91 additional branches, so the total may increase to 250 by June ’11
  • Mistakes are made, but it learns from these, and exits fast (example – in 2007, there were a lot of complaints against complex foreign exchange derivative products sold to SMEs, that turned loss making. There were litigations against Yes Bank (and several other banks too). All these have been resolved.
  • Growth has been organic, and may remain as such. The executives believe that for Yes Bank, organic growth comes at a lower cost compared to available banking assets

Stock evaluation, performance and returns

  • It’s IPO in July 2005 was priced at Rs 45. It was 31 times oversubscribed. The maiden dividend was paid in 2010.
  • At CMP of Rs 277 today, the stock has shown a 33% annualized return over the last 6 years! (See Fig 1)
  • Income and Profit too have grown steadily (Fig 2)

Yes Bank, Stock appreciationFig 1 – Yes Bank stock performance (click to enlarge) Source: JainMatrix graphics

Yes Bank, Revenue, ProfitFig 2 – Quarterly income and Profit have grown steadily over the last 5 years Source: JainMatrix graphics

  • NII – the difference between Interest from Loans and Cost of loans – has grown at 41.5 % annually over the last 5 years. This is phenomenal, and indicates good margins
  • NII plus Other Income – Add to this income from fee based services like investment banking, advisory services, etc –  have grown at 37%

Yes bank, Price Earnings trendFig 3 – Price and PE Graph (click to enlarge) Source: JainMatrix graphics

  • After IPO, made at a high valuation, the PE stayed high for a few years (fig 3). The patient investor got rewarded in 2008-2011 period, where the share price rose rapidly.
  • There has been a recent fall, the PE now is low at 14.4 and this gives investors another opportunity to enter

Yes bank, EPS trendFig 4 – Price and EPS Graph Source: JainMatrix graphics

  • EPS (adjusted for equity dilutions) growth has been 36% CAGR over the last 5 years. The EPS quarterly graph (fig 4) shows an amazing parabolic rise. I would say it is a great company just achieving critical mass of size, brand and reach.
  • PEG is at 0.4 – indicates underpriced status, a very good investment opportunity
  • RoE is at around 20% – healthy statistic.
  • Price/Book is 3.08, this is fair for a mid sized fast growing bank.
  • Gross and Net NPAs are at 0.23% and 0.06%. This shows remarkable credit assessments and good processes
  • CASA ratio stands at mere 10.1% as on Q3FY11. This is low by general banking ratios, but this is being addressed aggressively.

Opinion, Outlook and Recommendation

  • India is an underbanked country. The RBI is actively encouraging new banks, and vast swathes of Rural India remain unbanked. The potential for Yes Bank to grow is large.
  • At the same time, competition in urban areas is high, due to presence of public sector, private as well as MNC banks.
  • RBI expects average industry growth rate to be 20% during FY11.  Yes Bank is expected to grow at a far faster rate than industry. It has well-defined, sustainable growth strategies in place.
  • Yes Bank will grow at 35-45% in terms of Profits and NII + fee Income for the next 5 years. With this trajectory, Yes Bank will join the ranks of large well managed private banks like HDFC Bank and Axis Bank
  • The fall in share price by 28% from the Nov 2010 peak to date has made current valuations attractive
  • However a look at the graph of DMA of the stock (fig 5) shows that the stock stays for long periods of time above or below the 200 DMA. It recently went below the 200DMA, so my advice is to wait for the stock to go above this before investing.
  • However retail investors can start to Invest systematically.

Yes Bank technical analysisFig 5 – Price and DMA chart (click to enlarge) Source: JainMatrix graphics

Risks:

  • High competition
  • High interest rates and increased Costs – particularly employee costs
  • Execution risks in rapid bank branch growth
  • Current weakness may mean a period of falling prices before the appreciation resumes (fig 5)

Disclaimer:

These reports and documents have been prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permission of JainMatrix Investments. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

Also see: https://jainmatrix.wordpress.com/disclaimer/
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