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Snapshot
Yes Bank Ltd (Yes Bank), founded by Mr. Rana Kapoor and his highly
competent top management team, is India’s new age private sector Bank. It is
one of the banks which have the distinction of obtaining RBI’s Greenfield
banking license. Yes Bank is recognized amongst the top five private banks in
terms of business size and is one of the fastest growing banks in recent times.
The total balance sheet size of the bank is Rs. 52,000 Crs with a total business
(advances & deposits) of Rs. 70,000 Crs as on 31st December 2010.
Investment Rationale
Strong growth in advances to continue: Going forward we expect the Bank
to continue to grow much ahead of the industry given that it is the youngest
bank in the sector with low credit base and an aggressive growth strategy.
Management has guided its loan growth to be around 2x the industry’s loan
growth. Management expects the bank’s total business to increase at a CAGR
of 35% till FY 2015 with a total business size of Rs. 2.25 lakh Crs.
Aggressive branch expansion plans in order to increase retail base: Yes Bank
is expanding its retail base aggressively. The bank plans to increase the
number of branches to 750 by 2015 from 185 as on December 2010. In our
view, extensive branch expansion will strengthen its asset base leading to
higher growth and increase its low cost deposits thereby enhancing the
bank’s CASA share.
Non‐interest income continues to aid top‐line growth: We expect the bank’s
fee income to expand further with an increase in business and to grow at a
CAGR of 26% over FY 2010‐2013E. Financial advisory and transaction banking
will continue to be the key focus areas for growth in non interest income.
Asset quality remains the best in the industry: The bank's asset quality
remains healthy with one of the lowest proportion of stressed assets (0.5% of
total loan book). We have conservatively built in higher delinquencies given
the fact that increased loans to retail and SME segment along with a
significant credit growth may also result in higher slippages. Nevertheless it is
noteworthy to mention, that even after factoring in an increase in NPAs it still
remains low as compared to its peer group.
Valuation & Recommendation
At CMP of Rs. 271, the stock is trading at 2.01x of its FY12E ABV. Looking at
the historical trend and Yes Bank’s growth phase we value it at 2.75x P/ABV of
FY 2012E. Based on our estimated book value of Rs.134.7 per share for FY
2012E and P/ABV target multiple of 2.75x we arrive at a target price of
Rs.370. Consequently, we recommend BUY on the stock with a target price
of Rs.370 indicating potential upside of 37%
Investment Rationale
Strong growth in advances to continue
Yes bank’s advances have grown at a CAGR of 52% over FY 2007‐FY 2010 compared
to 19% CAGR growth in the industry. Accordingly, the market share of the bank in
advances has expanded to 0.8% (in 9MFY11) from 0.3% in FY 2007. For 9MFY11, Yes
Bank’s advances grew 66.3% YoY against approximately 24.5% YoY growth in the
industry. In terms of business growth, Axis Bank and HDFC Bank had also followed
the similar growth pattern historically. HDFC Bank and Axis Bank had grown at CAGR
of 94% of and 60% respectively in initial years (FY1995‐ FY2000). Yes Bank continues
to follow the path of Axis Bank and HDFC Bank in its initial years of inception.
Management has guided that the bank’s loan growth would be around 2x the
industry’s loan growth. Management expects the bank’s total business to increase at
a CAGR of 35% till FY 2015 with a total business of Rs. 2.25 lakh Crs. In addition, the
bank has maintained its guidance of ~60% loan growth and ~70% deposit growth in
FY 2011. Going forward we expect the bank to continue to grow much ahead of the
industry given that it is the youngest bank in the sector with low credit base and an
aggressive growth strategy.
Focus on Knowledge Banking approach provides an edge
Yes Bank had identified some of the niche growth sectors right from its inception
which were not a major focus area for other banks. The bank developed its expertise
in these key sectors to target high growth. The key knowledge sectors of Yes Bank
include food and agri‐business, media and entertainment, information technology,
telecommunications, infrastructure, engineering and healthcare. Approximately 82%
of the bank's advances are into the knowledge sectors (9MFY11).
The bank leverages the experience and knowledge of its management team to offer
customized financial products to its clients. This helps the bank to build strong
customer relationships and also to cross‐sell its products more effectively. The
knowledge‐banking approach helps having better risk evaluation system which is
evident from its lower slippages and restructured assets. Going forward, Yes Bank
will continue to focus loan growth in its specialized segments. We believe that this
will enable the bank to maintain its high growth in advances with minimal NPAs.
Aggressive branch expansion plans in order to increase retail base
Yes Bank has always been dependent on Corporate & Institutional (C&I) loans and
Commercial loans with very less contribution from retail segment (Branch banking).
C&I loans constituted 73%, Commercial loans constituted 23% whereas Branch
banking constituted only 4% of the total loan portfolio of the bank as on FY 2009.
However, Yes Bank is now expanding its retail base aggressively which is evident
from the fact that it has been successful in increasing the contribution of loans from
branch banking from 4% in FY 2009 to 10% in Q3FY11.
Going forward, the bank plans to increase the number of branches to 250 by June
2011 and 750 by 2015 from 185 in 9MFY11 representing a CAGR of 38%. By
adopting such aggressive branch expansion plans Management intends to increase
its advances to retail and SME segment with a subsequent reduction from the C&I
segment. Going forward Management targets its loan mix to be at 40:30:30 from
C&I, Commercial and Branch segment by FY 2015.
In our view, this extensive branch expansion will strengthen its asset base and will
add large number of customers. Moreover the proportion of retail loans is also likely
to expand to 30% by 2015. Such extensive retail branch expansion strategy is also
aimed to increase the bank’s CASA share. Higher advances growth and higher CASA
will enable the bank to protect its Net Interest Margins (NIMs).
CASA to improve gradually
Yes Bank's proportion of low cost deposits i.e. current account saving account (CASA)
is amongst the lowest in the sector. However, in absolute numbers CASA has grown
at 81% CAGR during FY 2007‐FY 2010. The bank has historically relied more on
wholesale deposits to ramp up loan growth. In addition relatively lower branches
impacted the CASA mobilization of the bank. YES Bank's CASA mix is inclined towards
current account which constitutes approximately 85% of its low cost deposits.
Yes Bank is looking to derive value from planned branch expansion and increase
penetration to improve its CASA ratio. Management wants to increase the CASA
share to 30% by FY 2015. However, we expect a gradual improvement in the bank’s
CASA ratio from current 10.2% to 14.2% till FY 2013. We expect CASA deposits to
grow at a CAGR of 59% over FY 2010‐FY 2013. We believe that the increase in CASA
deposits will protect the bank’s net interest margins in the current scenario of rising
interest rates. Consequently, we expect a marginal decline in NIMs in FY 2011E and
FY 2012E.
Asset quality remains the best in the industry
The bank's asset quality remains healthy with one of the lowest proportion of
stressed assets (0.5% of total loan book). Exposure to MFI sector is less than 1% of
the loans and Management has stated that as on 9MFY11, there was no account
overdue. Also, it does not have any exposure to the new 2G players. The banks
restructured assets stand much lower than the peers. With focused loan growth
within the specialized segments, we expect that the bank would be able to maintain
its asset quality.
However it would be unreasonable to assume further improvement and therefore
we have conservatively built in higher delinquencies. In addition the fact that
increased loans to retail and SME segment with a significant credit growth may also
result in higher slippages. Nevertheless it is noteworthy to mention, that even after
factoring in an increase in NPAs it still remains low as compared to its peer group.
The bank’s provision coverage ratio stood at 76% as on December 2010.
Cost to income ratio to remain attractive
Management expects the branch network to increase to 250 by the end of June
2011 from the current levels of 185. Larger branch penetration will act as a catalyst
between growth in CASA and more market share as well as improvement in NIMs.
Productivity ratios of the bank remain as one of the best, regardless of having large
number of branch and employee additions. Most of the bank's branches are
comparatively new and yet to pick up in terms of productivity. Even in this scenario,
the bank has been able to limit its operating expenses while maintaining the growth
momentum.
Going forward, with the addition of number of branches and expansion of retail
business, the bank’s operating expenses are expected to increase significantly.
Despite the anticipated increase, cost to income ratio of Yes Bank will still stand far
lower than its peer group. Management has indicated that it will make efforts to
contain its cost to income ratio below 40% which it has been able to do so over the
last eight quarters.
Non‐interest income continues to aid top‐line growth
Yes Bank's non‐interest income broadly comprises of income from transaction
banking, financial markets (mainly treasury income), financial advisory (investment
banking and project advisory) and retail and other fees.
We expect the bank’s fee income to expand further with an increase in business as
the bank would be able to cross sell its products to larger customer base. Income
from distribution of third party products will pick up once new branches become
operational. Therefore we expect fee income to grow at a CAGR of 26% over FY
2010‐FY 2013E. Financial advisory and transaction banking will continue to be the
key focus areas for growth in non interest income.
Risk Concerns
• Lower than anticipated CASA movement can have an impact on NIMs.
• Yes Bank's growth plans are dependent on obtaining branch licenses. Any
delays in getting branch licenses from RBI could adversely impact
valuations.
• More than expected slippages from the retail segment can have an impact
on the company’s valuation and impact the target price.
Company Background
Yes Bank, founded by Mr. Rana Kapoor and his highly competent top management
team, is India’s new age private sector Bank. It began its operations in May 2004 and
is one of the banks which have the distinction of obtaining RBI’s Greenfield banking
license. The bank is recognized amongst the top five private banks in terms of
business size and is one of the fastest growing banks in recent times.
Yes Bank offers corporate and institutional banking, financial markets, investment
banking, corporate finance, branch banking, business and transaction banking and
wealth management services through its branch network spread across the country.
Business
Yes Bank operates in three segments, namely
• Commercial and Institutional Banking: The Corporate & Institutional
Banking (C&IB) division provides comprehensive financial and risk
management solutions to clients generally with a turnover of over Rs. 1,000
Crs. The bank provides financial solutions to the Large Corporate Groups,
Public Sector Enterprises, Central and State Governments, Multinational
Companies and Financial Institutions.
• Commercial Banking: Yes Bank has institutionalized Commercial Banking
(CB) to serve the specialized segment of companies generally with a
turnover between Rs. 100 crs to Rs. 1,000 crs. CB targets companies
operating across the key emerging sectors like Food and Agribusiness, Life
Sciences & Health Care, Media and Entertainment, Engineering,
Telecommunications, Information Technology and Infrastructure.
• Branch Banking: Branch Banking–Liabilities & Wealth Management,
Business Banking and Retail Banking customers together constitute the
Branch Banking business.
Yes Bank has a balance sheet size of Rs. 52,000 crs with a total business (advances &
deposits) of Rs. 70,000 crs as on 31st December 2010. The total numbers of branches
as on 31st December 2010 were 185 across 149 cities.
Peer Comparison
We are comparing Yes Bank with Axis Bank, ING Vysya Bank, HDFC Bank and IndusInd
Bank. We have noticed that Yes Bank is following the path of Axis Bank and HDFC Bank in
its growth strategy since its inception. The bank's advances have grown at a CAGR of
101% (FY 2005‐FY 2010) whereas HDFC Bank and Axis Bank had grown at CAGR of 94% of
and 60% respectively in initial years (FY 1995‐FY 2000). Yes Bank's market share in
advances expanded from 0.1% in FY 2005 to 0.8% in 9MFY11 which is similar to the
market share expansion of Axis Bank & HDFC Bank (HDFC Bank 0.4% and Axis Bank 0.6%
over FY 1995‐FY 2000). We believe that Yes Bank will continue to outgrow its peers in
terms of growth and business expansion.
Cost to income ratio of Yes Bank is most attractive among the peer group though it is
likely to increase going forward. Resulting from the lowest cost to income ratio, Return
on Equity (ROE) and ROA of Yes Bank is the highest amongst the peer group. Yes Bank
enjoys the best asset quality in the industry and has the lowest NPA’s amongst its peers.
Although we expect the bank to experience higher delinquencies going forward but we
still believe that the NPAs will stand far lower than its peer group. Capital Adequacy Ratio
(CAR) is also highest amongst the peer group. On the valuation front, PE and P/BV
multiples of Yes Bank looks fairly attractive as compared to some of its peers.
Valuation and Recommendation
Yes Bank continues to grow at a healthy pace, while maintaining spreads and asset
quality. We remain positive on the bank in the long term owing to the exponential
growth in its balance sheet with a diversified fee income and superior return ratios.
In addition, with business and CASA expected to improve going forward and scope to
improve other income, bank definitely deserves higher valuation multiple compared
to its peers. The company has historically traded in the range of 2.5x‐3.0x (as shown
in the P/BV Band below) except when market conditions were bad. At CMP of Rs.
271, the stock is trading at 2.01x of its FY12E ABV. Looking at the historical trend and
Yes Bank’s growth phase we value it at 2.75x P/ABV of FY 2012E. Based on our
estimated book value of Rs.134.7 per share for FY 2012E and P/BV target multiple of
2.75x we arrive at a target price of Rs.370. We recommend BUY on the stock with
target price of Rs.370 indicating a potential upside of 37%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Snapshot
Yes Bank Ltd (Yes Bank), founded by Mr. Rana Kapoor and his highly
competent top management team, is India’s new age private sector Bank. It is
one of the banks which have the distinction of obtaining RBI’s Greenfield
banking license. Yes Bank is recognized amongst the top five private banks in
terms of business size and is one of the fastest growing banks in recent times.
The total balance sheet size of the bank is Rs. 52,000 Crs with a total business
(advances & deposits) of Rs. 70,000 Crs as on 31st December 2010.
Investment Rationale
Strong growth in advances to continue: Going forward we expect the Bank
to continue to grow much ahead of the industry given that it is the youngest
bank in the sector with low credit base and an aggressive growth strategy.
Management has guided its loan growth to be around 2x the industry’s loan
growth. Management expects the bank’s total business to increase at a CAGR
of 35% till FY 2015 with a total business size of Rs. 2.25 lakh Crs.
Aggressive branch expansion plans in order to increase retail base: Yes Bank
is expanding its retail base aggressively. The bank plans to increase the
number of branches to 750 by 2015 from 185 as on December 2010. In our
view, extensive branch expansion will strengthen its asset base leading to
higher growth and increase its low cost deposits thereby enhancing the
bank’s CASA share.
Non‐interest income continues to aid top‐line growth: We expect the bank’s
fee income to expand further with an increase in business and to grow at a
CAGR of 26% over FY 2010‐2013E. Financial advisory and transaction banking
will continue to be the key focus areas for growth in non interest income.
Asset quality remains the best in the industry: The bank's asset quality
remains healthy with one of the lowest proportion of stressed assets (0.5% of
total loan book). We have conservatively built in higher delinquencies given
the fact that increased loans to retail and SME segment along with a
significant credit growth may also result in higher slippages. Nevertheless it is
noteworthy to mention, that even after factoring in an increase in NPAs it still
remains low as compared to its peer group.
Valuation & Recommendation
At CMP of Rs. 271, the stock is trading at 2.01x of its FY12E ABV. Looking at
the historical trend and Yes Bank’s growth phase we value it at 2.75x P/ABV of
FY 2012E. Based on our estimated book value of Rs.134.7 per share for FY
2012E and P/ABV target multiple of 2.75x we arrive at a target price of
Rs.370. Consequently, we recommend BUY on the stock with a target price
of Rs.370 indicating potential upside of 37%
Investment Rationale
Strong growth in advances to continue
Yes bank’s advances have grown at a CAGR of 52% over FY 2007‐FY 2010 compared
to 19% CAGR growth in the industry. Accordingly, the market share of the bank in
advances has expanded to 0.8% (in 9MFY11) from 0.3% in FY 2007. For 9MFY11, Yes
Bank’s advances grew 66.3% YoY against approximately 24.5% YoY growth in the
industry. In terms of business growth, Axis Bank and HDFC Bank had also followed
the similar growth pattern historically. HDFC Bank and Axis Bank had grown at CAGR
of 94% of and 60% respectively in initial years (FY1995‐ FY2000). Yes Bank continues
to follow the path of Axis Bank and HDFC Bank in its initial years of inception.
Management has guided that the bank’s loan growth would be around 2x the
industry’s loan growth. Management expects the bank’s total business to increase at
a CAGR of 35% till FY 2015 with a total business of Rs. 2.25 lakh Crs. In addition, the
bank has maintained its guidance of ~60% loan growth and ~70% deposit growth in
FY 2011. Going forward we expect the bank to continue to grow much ahead of the
industry given that it is the youngest bank in the sector with low credit base and an
aggressive growth strategy.
Focus on Knowledge Banking approach provides an edge
Yes Bank had identified some of the niche growth sectors right from its inception
which were not a major focus area for other banks. The bank developed its expertise
in these key sectors to target high growth. The key knowledge sectors of Yes Bank
include food and agri‐business, media and entertainment, information technology,
telecommunications, infrastructure, engineering and healthcare. Approximately 82%
of the bank's advances are into the knowledge sectors (9MFY11).
The bank leverages the experience and knowledge of its management team to offer
customized financial products to its clients. This helps the bank to build strong
customer relationships and also to cross‐sell its products more effectively. The
knowledge‐banking approach helps having better risk evaluation system which is
evident from its lower slippages and restructured assets. Going forward, Yes Bank
will continue to focus loan growth in its specialized segments. We believe that this
will enable the bank to maintain its high growth in advances with minimal NPAs.
Aggressive branch expansion plans in order to increase retail base
Yes Bank has always been dependent on Corporate & Institutional (C&I) loans and
Commercial loans with very less contribution from retail segment (Branch banking).
C&I loans constituted 73%, Commercial loans constituted 23% whereas Branch
banking constituted only 4% of the total loan portfolio of the bank as on FY 2009.
However, Yes Bank is now expanding its retail base aggressively which is evident
from the fact that it has been successful in increasing the contribution of loans from
branch banking from 4% in FY 2009 to 10% in Q3FY11.
Going forward, the bank plans to increase the number of branches to 250 by June
2011 and 750 by 2015 from 185 in 9MFY11 representing a CAGR of 38%. By
adopting such aggressive branch expansion plans Management intends to increase
its advances to retail and SME segment with a subsequent reduction from the C&I
segment. Going forward Management targets its loan mix to be at 40:30:30 from
C&I, Commercial and Branch segment by FY 2015.
In our view, this extensive branch expansion will strengthen its asset base and will
add large number of customers. Moreover the proportion of retail loans is also likely
to expand to 30% by 2015. Such extensive retail branch expansion strategy is also
aimed to increase the bank’s CASA share. Higher advances growth and higher CASA
will enable the bank to protect its Net Interest Margins (NIMs).
CASA to improve gradually
Yes Bank's proportion of low cost deposits i.e. current account saving account (CASA)
is amongst the lowest in the sector. However, in absolute numbers CASA has grown
at 81% CAGR during FY 2007‐FY 2010. The bank has historically relied more on
wholesale deposits to ramp up loan growth. In addition relatively lower branches
impacted the CASA mobilization of the bank. YES Bank's CASA mix is inclined towards
current account which constitutes approximately 85% of its low cost deposits.
Yes Bank is looking to derive value from planned branch expansion and increase
penetration to improve its CASA ratio. Management wants to increase the CASA
share to 30% by FY 2015. However, we expect a gradual improvement in the bank’s
CASA ratio from current 10.2% to 14.2% till FY 2013. We expect CASA deposits to
grow at a CAGR of 59% over FY 2010‐FY 2013. We believe that the increase in CASA
deposits will protect the bank’s net interest margins in the current scenario of rising
interest rates. Consequently, we expect a marginal decline in NIMs in FY 2011E and
FY 2012E.
Asset quality remains the best in the industry
The bank's asset quality remains healthy with one of the lowest proportion of
stressed assets (0.5% of total loan book). Exposure to MFI sector is less than 1% of
the loans and Management has stated that as on 9MFY11, there was no account
overdue. Also, it does not have any exposure to the new 2G players. The banks
restructured assets stand much lower than the peers. With focused loan growth
within the specialized segments, we expect that the bank would be able to maintain
its asset quality.
However it would be unreasonable to assume further improvement and therefore
we have conservatively built in higher delinquencies. In addition the fact that
increased loans to retail and SME segment with a significant credit growth may also
result in higher slippages. Nevertheless it is noteworthy to mention, that even after
factoring in an increase in NPAs it still remains low as compared to its peer group.
The bank’s provision coverage ratio stood at 76% as on December 2010.
Cost to income ratio to remain attractive
Management expects the branch network to increase to 250 by the end of June
2011 from the current levels of 185. Larger branch penetration will act as a catalyst
between growth in CASA and more market share as well as improvement in NIMs.
Productivity ratios of the bank remain as one of the best, regardless of having large
number of branch and employee additions. Most of the bank's branches are
comparatively new and yet to pick up in terms of productivity. Even in this scenario,
the bank has been able to limit its operating expenses while maintaining the growth
momentum.
Going forward, with the addition of number of branches and expansion of retail
business, the bank’s operating expenses are expected to increase significantly.
Despite the anticipated increase, cost to income ratio of Yes Bank will still stand far
lower than its peer group. Management has indicated that it will make efforts to
contain its cost to income ratio below 40% which it has been able to do so over the
last eight quarters.
Non‐interest income continues to aid top‐line growth
Yes Bank's non‐interest income broadly comprises of income from transaction
banking, financial markets (mainly treasury income), financial advisory (investment
banking and project advisory) and retail and other fees.
We expect the bank’s fee income to expand further with an increase in business as
the bank would be able to cross sell its products to larger customer base. Income
from distribution of third party products will pick up once new branches become
operational. Therefore we expect fee income to grow at a CAGR of 26% over FY
2010‐FY 2013E. Financial advisory and transaction banking will continue to be the
key focus areas for growth in non interest income.
Risk Concerns
• Lower than anticipated CASA movement can have an impact on NIMs.
• Yes Bank's growth plans are dependent on obtaining branch licenses. Any
delays in getting branch licenses from RBI could adversely impact
valuations.
• More than expected slippages from the retail segment can have an impact
on the company’s valuation and impact the target price.
Company Background
Yes Bank, founded by Mr. Rana Kapoor and his highly competent top management
team, is India’s new age private sector Bank. It began its operations in May 2004 and
is one of the banks which have the distinction of obtaining RBI’s Greenfield banking
license. The bank is recognized amongst the top five private banks in terms of
business size and is one of the fastest growing banks in recent times.
Yes Bank offers corporate and institutional banking, financial markets, investment
banking, corporate finance, branch banking, business and transaction banking and
wealth management services through its branch network spread across the country.
Business
Yes Bank operates in three segments, namely
• Commercial and Institutional Banking: The Corporate & Institutional
Banking (C&IB) division provides comprehensive financial and risk
management solutions to clients generally with a turnover of over Rs. 1,000
Crs. The bank provides financial solutions to the Large Corporate Groups,
Public Sector Enterprises, Central and State Governments, Multinational
Companies and Financial Institutions.
• Commercial Banking: Yes Bank has institutionalized Commercial Banking
(CB) to serve the specialized segment of companies generally with a
turnover between Rs. 100 crs to Rs. 1,000 crs. CB targets companies
operating across the key emerging sectors like Food and Agribusiness, Life
Sciences & Health Care, Media and Entertainment, Engineering,
Telecommunications, Information Technology and Infrastructure.
• Branch Banking: Branch Banking–Liabilities & Wealth Management,
Business Banking and Retail Banking customers together constitute the
Branch Banking business.
Yes Bank has a balance sheet size of Rs. 52,000 crs with a total business (advances &
deposits) of Rs. 70,000 crs as on 31st December 2010. The total numbers of branches
as on 31st December 2010 were 185 across 149 cities.
Peer Comparison
We are comparing Yes Bank with Axis Bank, ING Vysya Bank, HDFC Bank and IndusInd
Bank. We have noticed that Yes Bank is following the path of Axis Bank and HDFC Bank in
its growth strategy since its inception. The bank's advances have grown at a CAGR of
101% (FY 2005‐FY 2010) whereas HDFC Bank and Axis Bank had grown at CAGR of 94% of
and 60% respectively in initial years (FY 1995‐FY 2000). Yes Bank's market share in
advances expanded from 0.1% in FY 2005 to 0.8% in 9MFY11 which is similar to the
market share expansion of Axis Bank & HDFC Bank (HDFC Bank 0.4% and Axis Bank 0.6%
over FY 1995‐FY 2000). We believe that Yes Bank will continue to outgrow its peers in
terms of growth and business expansion.
Cost to income ratio of Yes Bank is most attractive among the peer group though it is
likely to increase going forward. Resulting from the lowest cost to income ratio, Return
on Equity (ROE) and ROA of Yes Bank is the highest amongst the peer group. Yes Bank
enjoys the best asset quality in the industry and has the lowest NPA’s amongst its peers.
Although we expect the bank to experience higher delinquencies going forward but we
still believe that the NPAs will stand far lower than its peer group. Capital Adequacy Ratio
(CAR) is also highest amongst the peer group. On the valuation front, PE and P/BV
multiples of Yes Bank looks fairly attractive as compared to some of its peers.
Valuation and Recommendation
Yes Bank continues to grow at a healthy pace, while maintaining spreads and asset
quality. We remain positive on the bank in the long term owing to the exponential
growth in its balance sheet with a diversified fee income and superior return ratios.
In addition, with business and CASA expected to improve going forward and scope to
improve other income, bank definitely deserves higher valuation multiple compared
to its peers. The company has historically traded in the range of 2.5x‐3.0x (as shown
in the P/BV Band below) except when market conditions were bad. At CMP of Rs.
271, the stock is trading at 2.01x of its FY12E ABV. Looking at the historical trend and
Yes Bank’s growth phase we value it at 2.75x P/ABV of FY 2012E. Based on our
estimated book value of Rs.134.7 per share for FY 2012E and P/BV target multiple of
2.75x we arrive at a target price of Rs.370. We recommend BUY on the stock with
target price of Rs.370 indicating a potential upside of 37%.
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