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Investment Thesis
• Early stage of growth uptrend –
relatively small with just 185 branches
and 0.8% market share in loans.
• Likely to deliver volume growth ahead
of system in coming years.
• Has lower legacy problem loans
versus peers (impaired loan ratio is
only 0.5%).
• 10-15% of total revenues come from
capital-market-linked business, which
will be strong in a conducive macro
environment.
• Focuses on the large/mid-sized
corporate segment.
• Liability franchise is still weak, with a
CASA ratio of only 10.2% – hence is
vulnerable to a spike in short rates.
• Stock is currently trading at 11x
F2012e earnings, 1.7x BV, 6.6x Core
PPOP.
Key Value Drivers
• Loan growth
• Margin stability
• Non-interest income (has high capital
market linkages)
• Asset quality (LLP)
Potential Catalysts
• Trend in short rates
• Execution of branch expansion
strategy and low-cost deposit
accumulation.
• More evidence that growth story is
panning out
Key Risks
• Spike in short rates, hurting margins.
• Disruptive rise in interest rates, leading
to weakness in asset quality and
slowdown in growth momentum.
Price Target Rs370 Derived from probability-weighted residual income model.
Bull
Case
Rs485
3.1x F2013e
BVPS
Margins hold up, growth momentum stronger than expected:
More stable margins owing to more benign trend in funding costs,
better pricing power and stronger CASA traction. Better than
expected macro backdrop implies that loans and capital
market-linked income grow faster.
Base
Case
Rs400
2.5x F2013e
BVPS
Early-stage growth story plays out, near term we see some
margin compression: Delivers loan growth of ~27% in F2012-13;
underlying margins compress by 25 bps from current levels owing
to past rise in short rates filtering through; fee income sees some
rebound given robust macro and capital market linkages.
Bear
Case
Rs165
1.0x F2013e
BVPS
Disruptive rise in rates: Yes Bank continues to grow ahead of
system but weighed down by macro forces – loan growth of 15% in
F12-13; capital market-linked revenues suffer on account of
slowdown in capital flows; potential asset quality issues causes
LLP/Loan to rise to 130 bps in F11-12; short rates spike due to
inflation/ liquidity concerns, hurting margins.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Investment Thesis
• Early stage of growth uptrend –
relatively small with just 185 branches
and 0.8% market share in loans.
• Likely to deliver volume growth ahead
of system in coming years.
• Has lower legacy problem loans
versus peers (impaired loan ratio is
only 0.5%).
• 10-15% of total revenues come from
capital-market-linked business, which
will be strong in a conducive macro
environment.
• Focuses on the large/mid-sized
corporate segment.
• Liability franchise is still weak, with a
CASA ratio of only 10.2% – hence is
vulnerable to a spike in short rates.
• Stock is currently trading at 11x
F2012e earnings, 1.7x BV, 6.6x Core
PPOP.
Key Value Drivers
• Loan growth
• Margin stability
• Non-interest income (has high capital
market linkages)
• Asset quality (LLP)
Potential Catalysts
• Trend in short rates
• Execution of branch expansion
strategy and low-cost deposit
accumulation.
• More evidence that growth story is
panning out
Key Risks
• Spike in short rates, hurting margins.
• Disruptive rise in interest rates, leading
to weakness in asset quality and
slowdown in growth momentum.
Price Target Rs370 Derived from probability-weighted residual income model.
Bull
Case
Rs485
3.1x F2013e
BVPS
Margins hold up, growth momentum stronger than expected:
More stable margins owing to more benign trend in funding costs,
better pricing power and stronger CASA traction. Better than
expected macro backdrop implies that loans and capital
market-linked income grow faster.
Base
Case
Rs400
2.5x F2013e
BVPS
Early-stage growth story plays out, near term we see some
margin compression: Delivers loan growth of ~27% in F2012-13;
underlying margins compress by 25 bps from current levels owing
to past rise in short rates filtering through; fee income sees some
rebound given robust macro and capital market linkages.
Bear
Case
Rs165
1.0x F2013e
BVPS
Disruptive rise in rates: Yes Bank continues to grow ahead of
system but weighed down by macro forces – loan growth of 15% in
F12-13; capital market-linked revenues suffer on account of
slowdown in capital flows; potential asset quality issues causes
LLP/Loan to rise to 130 bps in F11-12; short rates spike due to
inflation/ liquidity concerns, hurting margins.
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