The issue, which will conclude later in the day, was subscribed 48 per cent at the end of Day 2 of the bidding process. YES Bank has fixed a price band of Rs 12-13 for the public issue. At the upper end of the price band, the FPO demands an adjusted price-to-book value of 0.85 times. Other banks trading at similar valuations are IDFC Bank (0.9 times), SBI (0.5 times core banking business) and Federal Bank (0.9 times).
On Tuesday, the bank raised nearly Rs 4,100 crore through anchor allotments ahead of its follow-on public offer’s opening. It allotted 3,41,53,84,614 equity shares to a total of 14 anchor investors. More than half of the anchor book was subscribed by Bay Tree India Holdings.
“Our concern for YES Bank is fresh formation of bad loans that would keep provision highs and return ratio compressed for a longer time. Retail deposit is key for any bank for lower cost of funds. But YES Bank has witnessed sizable withdrawal of deposits over the past two quarters,” Angel Broking said.
“Rebuilding Casa and deposits is a challenging task and would take time. Overall, the bank will take longer to revive and build a decent RoE number. Considering these factors, we recommend a ‘neutral’ rating on the FPO,” said Angel Broking.
Nirmal Bang Institutional Equities said as the bank has reduced rates, attracting sizable retail deposits could remain a challenge for some time given the recent ‘episodes’.
“Therefore, rebuilding of the liabilities shall remain one of the key monitorables. Overall, we think that the near term performance is unlikely to be enticing enough to attract any meaningful interest from institutional investors. Also, given the broader valuations in the BFSI basket, we think there are other investment opportunities available that offer higher visibility, lower stress baggage and an overall better franchise,” it said.
This brokerage has an ‘avoid’ rating on the FPO.
“While we agree that the issue is priced cheaply, the valuation should be seen in context of the uncertainties, the likely stress and overall (poor) financial performance that is expected in the foreseeable future,” Nirmal Bang said.
Kotak Mahindra Capital Company, SBI Capital Markets, Axis Capital, Citigroup Global Markets India, DSP Merrill Lynch, HSBC Securities and Capital Markets (India), ICICI Securities and YES Securities (India) are the book running lead managers appointed to the issue.