India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Credit to grow twice the industry average: Yes Bank has become
the fourth largest private sector bank in India within six years of
launching operations. As its balance sheet has reached sizable scale, we
expect credit growth to slow down, but we still expect it to grow at
twice the industry average, which is in line with the management’s
expectations. The bank has broken new ground by adopting a
knowledge based model rather than traditional banking. It has a very
healthy CAR of 16.5%, which likely will enable it to grow its balance
sheet without any capital constraints.
NIMs to bounce back after slight moderation: We expect NIMs to
compress by 10 bps to 2.8% in FY12, and before rebounding to 2.9% in
FY13. NIMs will be stressed in FY12 due to higher rates on bulk
borrowings, on which the bank is still heavily dependent on. However,
with expansion of branch network leading to higher CASA and easing
bulk rates, NIMs will bounce back in FY13. It has higher yield on loans
as it focuses on under-penetrated new knowledge driven sectors like IT,
pharma, food and agriculture, logistics and biotech, make 54% of its
corporate loan book, which other banks are not as well exposed to on
account of higher risk perception.
Best asset quality: Its asset quality remains the best and its gross
NPAs are lowest among banks in our coverage universe. Slippage
decreased to 0.2% in FY11 as compared to 0.7% in FY10. Exposure to
restructured assets is limited to 0.2% of advances. Such low levels of
slippages are unsustainable. We have factored slippage of 0.7% for
FY12-13E. Credit costs will increase sharply as there is limited scope for
recovery.
Operating expenses likely to remain high: Going forward, Yes Bank
has huge expansion plans including increasing its branch network from
the current 214 to 400 in FY13 and 750 by FY15. As a result, we expect
cost-to-income ratio to have a limited downside.
Valuation: At the CMP the stock is trades at 12.1x and 9.2x FY12E and
FY13E earnings, and at 2.4x and 2.0x P/ABV FY12E and FY13E
respectively. Yes Bank has shown an exemplary performance over the
past six years. Given the exponential growth in its balance sheet, higher
return ratios, healthy traction from fee income and low delinquencies,
Yes Bank definitely deserves a premium valuation. We expect ROA of
1.3% and ROE of 23.6% in FY13E. We initiate coverage on the stock
with a BUY rating and price target of Rs360 based on P/ABV of 2.3x
FY13E.
No comments:
Post a Comment