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Edelweiss
YES Bank (Buy)
CMP: ₹741.65
Target: ₹980
We recently met Pralay Mondal, Head Retail, YES Bank, along with business heads of all retail verticals to get an insight of the bank’s business dynamics and strategic plans. Our interaction reinforces our belief that YES Bank has structural levers in place — investment in retail infrastructure over past 3-4 years beefed up with an experienced management team — which will propel NIMs by about 50 bps and return on assets (RoA) to 1.8 per cent by FY17E. We believe the bank has been subject to undue scepticism about its volatile business model.
It was heartening to learn that despite current low base management has not aggressively pursued growth but was focusing on building a quality franchise. Taking into account that building and reaping retail benefits will play out in the longer term, management laid out its 5-pronged strategy: 1) customer acquisition; 2) branch-centric model; 3) focus on sales; 4) building customer franchise; and 5) maintaining strong leadership position.
We expect perceived volatility in business model to reduce and help ride the cyclical downturns with minimal impact on valuations.
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