Global investment advisory firm Morgan Stanley initiated its coverage on YES Bank with ‘underweight’ rating.

The stock, which rose 3.3 per cent or ₹0.80 at ₹24.75, tumbled to a low of ₹21.90, but closed at ₹22.10, down 7.72 per cent over the preivous day’s close.

Fund raising

A day after the Board of private sector lender approved allotment of 361.61 crore equity shares and 255.97 crore warrants to private equity majors — The Carlyle Group and Advent — following the Reserve Bank of India’s nod for the same, Morgan Stanley said though this would help it pursue growth opportunities, its expects the price to fall ₹20.50

Having cleaned its balance sheet, we expect YES Bank’s loan growth and margin profile to improve as the macro recovery gains pace. “We expect loan growth to accelerate to a 20 per cent CAGR in FY23-25, vs 15 per cent in FY23 (3 per cent CAGR in FY20-22),” it said

Morgan Stanley expects a core PPoP CAGR of over 50 per cent in FY23-25, which, coupled with benign credit costs (0.7 per cent average for FY23-25), will drive RoA improvement to 1 per cent by F25, vs an estimated 0.4 per cent in FY23.

Already priced-in

“Valuations, however, at 1.6x F24 book, are already pricing this in, we believe. More importantly, we see limited improvement beyond 1% RoA given high competitive intensity in retail deposits as well as assets,” the investment advisory firm said in a note.

“Our Price Target implies 1.3x Dec-24 P/BV, which we think is fair in the context of 10 per centg FY25 RoE. Current valuations at 1.6x F24 book are already pricing in strong earnings over next few years. Much stronger execution on funding and/or high margin retail assets could lead us to revisit our thesis,” it further said.

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