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Asset quality: 2008‐09 cycle a test: Yes Bank has delivered rapid growth post
Lehman, with ~70% growth between FY09-11 which raises asset quality risks in
the current environment, especially its SME exposure. Though we expect credit
costs to move up to ~70bps over FY11-13E, we do not expect large negative
surprises given (1) <1% exposure to power projects limiting risks of lumpy
slippages and (2) 2008-09 cycle was an asset quality test for Yes after rapid
growth over FY06-09 and low delinquency trends in that cycle provides
confidence on underwriting and asset quality.
High ROEs consistently: Yes Bank has maintained ROEs >20% even in years of
equity issuance. Yes' high ROE is a combination of stable margin, low opex and
credit costs We expect ROAs to remain >1.5% despite expected increase in
credit costs as higher than balance sheet growth in fees would help to offset
some credit costs pressure.
Limiting factor still to build on the retail franchise: The only limiting factor for
further re-rating is unproven retail liability franchise. CASA growth has kept pace
with high B/S growth but that is of a very low SA base. Building on a liability
franchise would be an uphill task with retail brand acceptability being a much
more difficult task than building a corporate banking franchise. SA deregulation
is a very positive development and better branch penetration should aid in
improving the retail franchise.
Accumulate; PT of Rs325/share: Our Sep-12 PT of Rs325/share based on twostage
Gordon growth implies ~15% upside from current levels and more
potential upside if Yes is able to deliver on its retail strategy. Slow growth could
impact banks like Yes which are significantly adding to branch presence but it is
also an opportunity to consolidate and build on retail franchise.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Asset quality: 2008‐09 cycle a test: Yes Bank has delivered rapid growth post
Lehman, with ~70% growth between FY09-11 which raises asset quality risks in
the current environment, especially its SME exposure. Though we expect credit
costs to move up to ~70bps over FY11-13E, we do not expect large negative
surprises given (1) <1% exposure to power projects limiting risks of lumpy
slippages and (2) 2008-09 cycle was an asset quality test for Yes after rapid
growth over FY06-09 and low delinquency trends in that cycle provides
confidence on underwriting and asset quality.
High ROEs consistently: Yes Bank has maintained ROEs >20% even in years of
equity issuance. Yes' high ROE is a combination of stable margin, low opex and
credit costs We expect ROAs to remain >1.5% despite expected increase in
credit costs as higher than balance sheet growth in fees would help to offset
some credit costs pressure.
Limiting factor still to build on the retail franchise: The only limiting factor for
further re-rating is unproven retail liability franchise. CASA growth has kept pace
with high B/S growth but that is of a very low SA base. Building on a liability
franchise would be an uphill task with retail brand acceptability being a much
more difficult task than building a corporate banking franchise. SA deregulation
is a very positive development and better branch penetration should aid in
improving the retail franchise.
Accumulate; PT of Rs325/share: Our Sep-12 PT of Rs325/share based on twostage
Gordon growth implies ~15% upside from current levels and more
potential upside if Yes is able to deliver on its retail strategy. Slow growth could
impact banks like Yes which are significantly adding to branch presence but it is
also an opportunity to consolidate and build on retail franchise.
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