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Buy Yes Bank (YESB.BO)
Return Potential: 37% Equity Research
Saying Yes to GARP; upgrading Yes Bank to Buy
Source of opportunity
Concerns of margin pressure from a sharp rise in wholesale rates are
reflected in a 29% decline in the share price of Yes Bank (YESB) from its
recent peak in September 2010 (and 19% underperformance vs. BSE
Sensex). We believe current valuations (2x P/B for ROE of 22%) offer an
attractive entry point and we upgrade Yes to Buy from Neutral. We are
expecting 23% CAGR in earnings from FY11E-13E strong loan growth but
post factoring in margin compression of about 15bp over FY10-FY12E on
rising wholesale costs despite a likely uptick in CASA.
Catalyst
YESB has delivered 53% CAGR in loans over FY08-10 (from a low base),
and we expect the strong growth momentum to continue (42% CAGR over
FY11E-13E), although this will be moderate vs. the past. YESB’s asset
quality remains healthy with Gross NPLs at 0.2% of loans and coverage
ratio at 76% as of Q3FY11. We forecast addition of 550 branches over
FY10-FY15E, which we believe would imply increased ability to attract lowcost liabilities with incremental focus on retail/SME segment, but on a
balance sheet basis the change would require growth to moderate. We are
building a CASA improvement of about 750bp to about 18.5% by FY13E
from current stagnant levels of 10%-11%.
Valuation
The stock is currently trading at 2.04X FY12E P/BV and 10.3X FY12E P/E, vs.
RoE of 21.7% and RoA of 1.34% for FY2012. Our 12-m target price of Rs370
(unchanged) is arrived at using GS CAMELOT methodology and it implies
38% potential upside. We fine-tune EPS estimates.
Key risks
Downside Risk: Faster than expected growth leading to risk of higher
NPLs, Rising wholesale borrowing rates, Frequent capital raising
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Buy Yes Bank (YESB.BO)
Return Potential: 37% Equity Research
Saying Yes to GARP; upgrading Yes Bank to Buy
Source of opportunity
Concerns of margin pressure from a sharp rise in wholesale rates are
reflected in a 29% decline in the share price of Yes Bank (YESB) from its
recent peak in September 2010 (and 19% underperformance vs. BSE
Sensex). We believe current valuations (2x P/B for ROE of 22%) offer an
attractive entry point and we upgrade Yes to Buy from Neutral. We are
expecting 23% CAGR in earnings from FY11E-13E strong loan growth but
post factoring in margin compression of about 15bp over FY10-FY12E on
rising wholesale costs despite a likely uptick in CASA.
Catalyst
YESB has delivered 53% CAGR in loans over FY08-10 (from a low base),
and we expect the strong growth momentum to continue (42% CAGR over
FY11E-13E), although this will be moderate vs. the past. YESB’s asset
quality remains healthy with Gross NPLs at 0.2% of loans and coverage
ratio at 76% as of Q3FY11. We forecast addition of 550 branches over
FY10-FY15E, which we believe would imply increased ability to attract lowcost liabilities with incremental focus on retail/SME segment, but on a
balance sheet basis the change would require growth to moderate. We are
building a CASA improvement of about 750bp to about 18.5% by FY13E
from current stagnant levels of 10%-11%.
Valuation
The stock is currently trading at 2.04X FY12E P/BV and 10.3X FY12E P/E, vs.
RoE of 21.7% and RoA of 1.34% for FY2012. Our 12-m target price of Rs370
(unchanged) is arrived at using GS CAMELOT methodology and it implies
38% potential upside. We fine-tune EPS estimates.
Key risks
Downside Risk: Faster than expected growth leading to risk of higher
NPLs, Rising wholesale borrowing rates, Frequent capital raising
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