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Morgan Stanley
YES Bank (Overweight)
CMP: ₹795.40
Target: ₹930
We arrived at ‘Overweight’ rating on YES Bank for the following reasons: a) Early stage of growth uptrend — relatively small, with just 580 odd branches and 0.8 per cent market share in loans; b) Likely to generate volume growth ahead of system in the coming years; c) Entered new growth cycle, with much better asset quality than peers — impaired loan ratio is only about 0.9 per cent (including SR); d) Improving liability profile with improvement in SA ratio to about 12.5 per cent from 1.7 per cent over the past three years; e) A stabilising macro and improving macro indicators puts YES in a sweet spot with less pressure on the bond book and improving cost of funds, aiding NIMs progression; F) Valuations appear inexpensive (at 12.0x F2016e earnings) in the context of 23 per cent EPS growth and about 20 per cent average RoE during F2015-17e. Key downside risks: a) Spike in short rates, hurting margins; b) Disruptive rise in interest rates, weak asset quality and growth slowdown; c) Structural increase in provisioning due to the RBI’s dynamic provisioning policy; d) No respite from RBI on liquidity coverage ratio guidelines.
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