Both Axis bank and Yes bank reported their financial year results, and here's the story. Axis reported Rs.50 b profits for the year, and Yes had Rs.17 b profits.
Yes also had losses of Rs.15 b for the latest quarter weighing in heavy provisions. While people are fretting over those losses, they don't get that when an investment turns sour, it just can't be called sweet; taste it to know it. Postponing provisioning for non-performing assets doesn't make sense even when the regulator or laws allow it; that will be stupid. On that front, Yes bank has probably done the right thing.
Yes bank's book value is Rs.116 per share, while that of Axis is Rs.263 per share. With these numbers, their stocks are trading 2x and 2.8x respectively. But that is not the way to look at it. They have more NPAs, including stressed assets, that are not yet provided for. Including them in book value will inflate equity. Adjusting for full provisions on estimated NPAs, the stocks are trading 2.68x (Yes) and 3.43x (Axis).
Both banks have decent regulatory capital ratios: Axis (12.7%) and Yes (11.3%) in Tier 1 capital. Loan book is growing for both banks. Axis has better CASA (44%) compared to Yes (33%). Axis also has lower cost of funds (5.69) and Yes (6.5%), and slightly better net interest margins (3.44%) compared to Yes (3.2%).
Yet considering the current stock price, for a return of 13-15% in the next 3 years, Axis will have to grow 20% and Yes, 15%. Of course there will be people who will shoot for Axis in terms of higher growth and better book. At its current price though, Yes bank could give a return of 8% with a 10% growth rate. This is based on the reported gross NPAs and stressed assets; any hidden NPAs should bring the book equity and returns lower.
There is also a good chance that the Yes bank stock will be hit hard in the next trading sessions, and that should give opportunities for better returns. Axis bank is also likely to do well, but its stock price as of now is a little on the higher side.
