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BofA-Merrill Lynch
YES Bank (Buy)
CMP: ₹359.35
Target: ₹500
YES Bank is engaged in providing banking services, including corporate and institutional banking, financial markets, investment banking, corporate finance, branch banking, business and transaction banking, and wealth management.
YES Bank’s initiatives on retail and a digital focus raise the visibility of sustainable and, importantly, granular EPS growth (a CAGR of 25 per cent) in FY17-20E (after a 1-2 per cent increase in EPS). RoAs today, at about 1.8 per cent, are comparable with peer banks, despite a smaller retail franchise. The ‘J’ curve to be visible in retail in the next year should also drive ‘all-around’ operational performance. We believe YES Bank has longer-term compounding potential. We raise our target to ₹500 (vs. ₹460), implying a P/B of 4x FY19E, or nearer to other retail banks’ multiples. Longer term, (FY20 and beyond), we estimate that YES Bank’s market cap should almost double to $25 billion (assuming no capital raise) on sustained compounding of earnings. We reiterate our Buy rating and highlight YES Bank as one of our top picks in the sector.
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