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Near term margin concerns, but long term growth outlook intact
Balance sheet growth to be about twice industry average for Yes at 15% in FY12.
YES is no more wholesale funded than other banks as it is in the middle of the pack in terms of proportion of top 20
depositors.
Expects NIM to be better than 2.7-2.9% as liquidity to come in April and cost of funds likely to be reduced as deposits are
repriced earlier.
Restructured loans are low despite high loan growth because risky consumer lending proportion is small. Focus sectors are
agri, telecom, IT and infrastructure which have not been hit as badly as others like cement, steel, metals and commodities.
Expects to set up 100 branches over the next year.
Will have to raise capital after one year.
Valuation and risks
Despite superior return ratios, YES trades at a discount to private banks – at 9x FY12e PE and 2x FY12e PB. However,
given the structural shift expected to happen over the next few years, the gap should progressively narrow as YES proves
its ability to maintain higher margins and outgrow its peers on both balance sheet and earnings.
We expect FY11-13e EPS CAGR at 37% with the ROE likely to improve to 25% from 20% and ROA at 1.5%. We value
Yes Bank using a weighted average combination of PE (75%), PB (15%), and economic profit model (EPM, 10%). Our
target PE and PB multiples for the stock are 13.5x and 2.3x, respectively.
Downside risks: Tight liquidity leading to slower growth, asset quality risks and slower branch expansion.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Near term margin concerns, but long term growth outlook intact
Balance sheet growth to be about twice industry average for Yes at 15% in FY12.
YES is no more wholesale funded than other banks as it is in the middle of the pack in terms of proportion of top 20
depositors.
Expects NIM to be better than 2.7-2.9% as liquidity to come in April and cost of funds likely to be reduced as deposits are
repriced earlier.
Restructured loans are low despite high loan growth because risky consumer lending proportion is small. Focus sectors are
agri, telecom, IT and infrastructure which have not been hit as badly as others like cement, steel, metals and commodities.
Expects to set up 100 branches over the next year.
Will have to raise capital after one year.
Valuation and risks
Despite superior return ratios, YES trades at a discount to private banks – at 9x FY12e PE and 2x FY12e PB. However,
given the structural shift expected to happen over the next few years, the gap should progressively narrow as YES proves
its ability to maintain higher margins and outgrow its peers on both balance sheet and earnings.
We expect FY11-13e EPS CAGR at 37% with the ROE likely to improve to 25% from 20% and ROA at 1.5%. We value
Yes Bank using a weighted average combination of PE (75%), PB (15%), and economic profit model (EPM, 10%). Our
target PE and PB multiples for the stock are 13.5x and 2.3x, respectively.
Downside risks: Tight liquidity leading to slower growth, asset quality risks and slower branch expansion.
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