No, thank you

IPO WATCH

Yes Bank's IPO is priced aggressively considering that the bank has no track record, and is entering the business at a time when competition is stiff in the banking industry.

At a time when the biggies of the banking sector are battling it out on the fields for market-share, Yes Bank, a new private sector bank, does a daring feat of entering the markets. And that's not all - it is also asking for a value similar to that of ICICI Bank.

Based on lower of the offer price band of Rs 38-45, Yes Bank's price to book value (P/BV) stands at 3.5-4.2 times. If the offer goes through fully, the bank would garner Rs 266 crore and its book value would stand at Rs 17.8 per share implying a P/BV of 2.13 times. Compared to this, some of the established banks like ICICI Bank with a P/BV of 2.10 looks cheap.

However, if one takes into account the non-performing asstes and compares based on the adjusted book value, Yes Bank looks relatively cheap. 
 

How peers compare
	ICICI  Bank	HDFC  Bank	UTI  Bank	Centurion  Bank*	Kotak Mahindra Bank*	Yes  Bank (post-issue)
Adj. book value (Mar 31, '05)	154.2	144.4	80.6	4.9	118.9	17.8
CMP	408.6	576.3	231.45	14.85	392.35	38
P/ABV (times)	2.65	3.99	2.87	3.03	3.3	2.13
* Book value (not adjusted)

Being a new bank, Yes Bank does not have any significant NPAs yet. Should you still say yes to Yes Bank? Perhaps, no.

Yes Bank got its banking license in May 2004 and has only six month of operational experiance. During the period, the bank has made a net interest income of Rs 18.13 crore and an other income of Rs 18.16 crore. The year ended with a loss of Rs 3.7 crore.

"Despite a short span of business operations and just two operational branches, the bank has managed to clock decent performance in its business," says Sejal Doshi, analyst at Angel Broking. But the history is too short to take a call on the bank's business.

Clearly, if one were to invest in Yes Bank, it has to be based on the credentials of its leadership. Rana Kapoor and Ashok Kapur, the promoters, have about 65 years of cumulative experience between them. Both were involved in setting up and managing Rabo India, a wholesale non-banking finance entity.

The bank's top executives come with experience from various domestic private and foreign banks. 
 

The Yes team
Name	Designation	Age	Qualification	Previous employer
Rana Kapoor	Managing director and chief executive	47	MBA (Rutgers' Unniversity, USA); BA (Delhi University)	Rabo India Finance
Ashok Kapur	Chairman	62	NA	Rabo India
H Srikrishnan	Executive director	43	MBA (LIBA, Chennai); B Com	HDFC Bank
Ajay Mahajan	President, financial markets and private banking	37	MBA (FMS); BE (Bits, Pilani)	Bank of America
Anuratna Chadha	President, corporate and institutional banking	39	MBA (IIM-A); B Com (Delhi University)	Citibank NA
Munish Dayal	President, business banking	39	MBA (FMS); B Com (Delhi University)	Citibank NA
Ramchandran Chellam	Chief financial officer	45	CA	Bank Muscat
B Chandramouli	Chief operating officer	44	CAIIB; B Sc (University of Madras)	HDFC Bank
Along with them, the bank has five country heads who are responsible for different areas of banking business.

"The bank's strong management will enable it to succeed," says Vineet Birla, analyst at Pranav Securities.

"Yes Bank is banking heavily on its talent pool and is positioning itself as one of the preferred employers in the financial sector and it has been successful in attracting talent from varied fields of operations," adds Doshi.

However, given the competition in the banking sector, the going may not be easy for new banks. The bank's competitors already have far superior scale and resources. And on the face of it, the bank's strategy does not seem any different from that of its peers.

"For the first few years deposit mobilisation will be difficult," says Birla. Since the bank does not have much retail deposits, it relies on inter-bank borrowings for its lending activities. In a rising interest rate scenario, this will hit its spreads.

Also, the bank's advances are concentrated in a few sectors which makes it vulnerable to risks and the cyclical nature of the business. It has about 18 per cent exposure to food and agri-business which depends heavily on monsoons and 17.5 per cent each to life sciences and infrastructure sector. Top three sectors form over 53 per cent of the bank's Rs 761 crore loan book.

While competition is stiff among banks, the management sounds creditworthy and may be able to build a solid business for itself despite the tough environment. However, the pricing does not make the issue very alluring.

It needs to be recalled that even HDFC Bank came with its maiden public offer at par, that too, when the competition was far less in the banking sector. It may be worthwhile to wait and watch the bank perform for while before saying yes to Yes Bank.