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Yes, a long induction catalysis
Action: Initiate with a Neutral rating and a TP of INR380
We initiate our coverage of Yes Bank with a Neutral rating and TP of
INR380, as we believe current valuations fairly price in the balance
between a robust asset franchise and a flat near-term outlook on assetreturn
ratios on increasing LLPs and operating costs. We would wait for a
meaningful uptick in Yes Bank’s low-cost (CASA) deposits and its retail
loan book to turn more positive, while a sharp deterioration in NPLs from
here would turn us more cautious.
CASA – a long gestation catalyst
Despite an impressive track record over the past few years, we believe
Yes Bank will face an uphill course in the next one to two years. While Yes
has started to focus on CASA, savings deposit accretion is a long
gestation process. Current RBI regulations that require mandatory branch
additions outside the CASA rich metro & urban areas heavily tilt the scales
against a rapid growth in CASA per branch, which was possible for some
of the earlier private sector banks (HDFC Bank and Axis Bank). Despite
the increase in its savings deposit interest rate, Yes Bank is unlikely to
realise significant market share gains. While a higher savings deposit rate
is ensuring increased customer acquisition for Yes, we believe
strengthening of these new relationships will take some time. A slow
CASA growth could curtail the super-normal loan growth rates enjoyed by
Yes Bank going forward, in addition to increasing the cost ratios.
Valuation
YES currently trades at 2.2x our FY13F ABV and 10.3x our FY13F EPS.
At our TP of INR380, YES would trade at 2.4x our FY13F ABV and 11.6x
our FY13F EPS for an ROA of 1.4% and ROE of 23.6%.
Valuation
Initiate with Neutral; TP of INR380
We estimate Yes Bank’s loan book to grow at a CAGR of 21% over FY12-14F. We
expect this to drive a revenue and PAT CAGR of 29% and 20%, respectively, over this
period after factoring in LLPs of 25bps for FY13F. We expect Yes Bank to show ROA
and adjusted ROE of 1.4% and 23.6%, respectively, for FY13F. Yes Bank currently
trades at 2.2x FY13F ABV, slightly below its historical mean of 2.6x one-year forward
ABV. At our TP of INR380, the implied P/ABV for FY13F is 2.4x. We arrive at our TP of
INR380 using a three-stage residual-income valuation method that uses the following
assumptions:
• We estimate loan book growth of 21% for both FY13F and FY14F, vs management’s
guidance of 20-22% over FY12-14.
• We estimate fee income to grow at 27% in FY13F and by 21% in FY14F.
• We expect NIMs to show 2.9% and 3.0% for FY13F and FY14F, respectively, from
2.8% for 3QFY12.
• On the bad-loan front, we are building in an increase in GNPLs to INR2.6bn (0.5% of
loan book) by FY13F from the INR0.7 bn in 3QFY12. We’re also taking NNPLs to
INR650mn for FY13F from INR144mn in 3QFY12.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Yes, a long induction catalysis
Action: Initiate with a Neutral rating and a TP of INR380
We initiate our coverage of Yes Bank with a Neutral rating and TP of
INR380, as we believe current valuations fairly price in the balance
between a robust asset franchise and a flat near-term outlook on assetreturn
ratios on increasing LLPs and operating costs. We would wait for a
meaningful uptick in Yes Bank’s low-cost (CASA) deposits and its retail
loan book to turn more positive, while a sharp deterioration in NPLs from
here would turn us more cautious.
CASA – a long gestation catalyst
Despite an impressive track record over the past few years, we believe
Yes Bank will face an uphill course in the next one to two years. While Yes
has started to focus on CASA, savings deposit accretion is a long
gestation process. Current RBI regulations that require mandatory branch
additions outside the CASA rich metro & urban areas heavily tilt the scales
against a rapid growth in CASA per branch, which was possible for some
of the earlier private sector banks (HDFC Bank and Axis Bank). Despite
the increase in its savings deposit interest rate, Yes Bank is unlikely to
realise significant market share gains. While a higher savings deposit rate
is ensuring increased customer acquisition for Yes, we believe
strengthening of these new relationships will take some time. A slow
CASA growth could curtail the super-normal loan growth rates enjoyed by
Yes Bank going forward, in addition to increasing the cost ratios.
Valuation
YES currently trades at 2.2x our FY13F ABV and 10.3x our FY13F EPS.
At our TP of INR380, YES would trade at 2.4x our FY13F ABV and 11.6x
our FY13F EPS for an ROA of 1.4% and ROE of 23.6%.
Valuation
Initiate with Neutral; TP of INR380
We estimate Yes Bank’s loan book to grow at a CAGR of 21% over FY12-14F. We
expect this to drive a revenue and PAT CAGR of 29% and 20%, respectively, over this
period after factoring in LLPs of 25bps for FY13F. We expect Yes Bank to show ROA
and adjusted ROE of 1.4% and 23.6%, respectively, for FY13F. Yes Bank currently
trades at 2.2x FY13F ABV, slightly below its historical mean of 2.6x one-year forward
ABV. At our TP of INR380, the implied P/ABV for FY13F is 2.4x. We arrive at our TP of
INR380 using a three-stage residual-income valuation method that uses the following
assumptions:
• We estimate loan book growth of 21% for both FY13F and FY14F, vs management’s
guidance of 20-22% over FY12-14.
• We estimate fee income to grow at 27% in FY13F and by 21% in FY14F.
• We expect NIMs to show 2.9% and 3.0% for FY13F and FY14F, respectively, from
2.8% for 3QFY12.
• On the bad-loan front, we are building in an increase in GNPLs to INR2.6bn (0.5% of
loan book) by FY13F from the INR0.7 bn in 3QFY12. We’re also taking NNPLs to
INR650mn for FY13F from INR144mn in 3QFY12.
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