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Yes Bank
Initiation; Overweight ; YESB.BO, YES IN
The ayes have it
• Initiate with O/W, Mar-12 PT Rs350. Yes Bank’s differentiated
approach looks set to pay off as it leverages a superior wholesale
franchise into a wider retail base. We see sustained high growth,
supported by supernormal (albeit slightly shrinking) ROAs.
• We think the stock’s recent underperformance on concerns over
wholesale funding is overdone. Wholesale funding is a non-issue, in
our view, because Yes' large floating rate loan book and the structural
improvement in THE CASA ratio cushions the negative impact. We also
think asset quality concerns are being overplayed – FY12 GDP growth
slowing to ~7.75% is unlikely to trigger significant defaults.
• Supernormal and sustainable returns. Yes looks set to sustain its
supernormal ROAs at ~1.5% on our estimates. The push into retail will
dilute the historical advantages in costs and fees, but expanding margins
should compensate. Credit costs at <40bps are in a sweet spot – we think
the focus on wholesale should mute the inevitable spike in a downturn.
• Strong wholesale bank, building retail critical mass. Yes' superiority
(over midsize peers) in the wholesale space stems from combating its
size disadvantage with more nimble decision-making and a focused,
sectoral approach to marketing. Its relatively weak retail face is now
being addressed and is attaining critical mass.
• Valuation, price target, key risks: The near term appears challenging,
given Yes’ exposure to MFI and infrastructure and the general
perception that it is a beta stock. However, we think its 15-20% discount
to peers, at 1.85x FY12E P/B and 11x FY12E PE is undeserved. Our
Gordon Growth based Mar-12 PT of Rs350/share implies 2.3x PBV and
a peer-comparable 13x FY12 P/E, and offers 27% upside potential.
• Key risks. a) Execution of the retail roll-out, given the bank’s wholesale
DNA and the need for brand-building and b) the dependence on capitalraising, which exposes growth to stock market cycles.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Yes Bank
Initiation; Overweight ; YESB.BO, YES IN
The ayes have it
• Initiate with O/W, Mar-12 PT Rs350. Yes Bank’s differentiated
approach looks set to pay off as it leverages a superior wholesale
franchise into a wider retail base. We see sustained high growth,
supported by supernormal (albeit slightly shrinking) ROAs.
• We think the stock’s recent underperformance on concerns over
wholesale funding is overdone. Wholesale funding is a non-issue, in
our view, because Yes' large floating rate loan book and the structural
improvement in THE CASA ratio cushions the negative impact. We also
think asset quality concerns are being overplayed – FY12 GDP growth
slowing to ~7.75% is unlikely to trigger significant defaults.
• Supernormal and sustainable returns. Yes looks set to sustain its
supernormal ROAs at ~1.5% on our estimates. The push into retail will
dilute the historical advantages in costs and fees, but expanding margins
should compensate. Credit costs at <40bps are in a sweet spot – we think
the focus on wholesale should mute the inevitable spike in a downturn.
• Strong wholesale bank, building retail critical mass. Yes' superiority
(over midsize peers) in the wholesale space stems from combating its
size disadvantage with more nimble decision-making and a focused,
sectoral approach to marketing. Its relatively weak retail face is now
being addressed and is attaining critical mass.
• Valuation, price target, key risks: The near term appears challenging,
given Yes’ exposure to MFI and infrastructure and the general
perception that it is a beta stock. However, we think its 15-20% discount
to peers, at 1.85x FY12E P/B and 11x FY12E PE is undeserved. Our
Gordon Growth based Mar-12 PT of Rs350/share implies 2.3x PBV and
a peer-comparable 13x FY12 P/E, and offers 27% upside potential.
• Key risks. a) Execution of the retail roll-out, given the bank’s wholesale
DNA and the need for brand-building and b) the dependence on capitalraising, which exposes growth to stock market cycles.
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