BofA- ML on Yes Bank

Yes Bank Ltd
Management meet re-affirms
positive stance on bank; Buy
„Management meeting reaffirms growth trajectory on track
We recently met with Yes Bank to get an operating-level update and also insight
on recent news flow with regard to a single large promoter shareholder filing a
case against the bank in High Court for their nomination to the board. This has
resulted in significant stock volatility in the last few sessions. While the promoter
case is subjudice, we believe that impact on business may be ‘nil’, but stock
sentiment could remain weak in the near term. We reiterate our Buy rating and
believe that there is an opportunity to buy into any correction.
Loan growth at +20-25%; NIMs higher by ~15-20bps in FY14
Yes Bank re-affirmed that loan growth will be at +20-25%. However, FY14
customer asset growth could see a slowdown, as falling rates could lead to slower
new credit substitute demand and the bank selling down its existing invst. book to
realize portfolio gains. NIMs are expected to rise by ~15-20bps in FY14, led by a)
rising CASA (est. to rise by ~350-400bps in FY14) and b) substituting investments
for loans (higher yields). However, specific to 1QFY14, NIMs could be flat, qoq.
Not ‘overtly’ worried on NPL; ~50bps credit costs guidance
While no material NPL (barring the usual run-rate of ~Rs200-300mn/qtr) /
restructuring is in the pipeline, the bank indicated that ~Rs1bn of restructured MFI
(micro-fin.) exposure could, at some point in FY14, turn to NPL. However, it is
confident of maintaining, all inclusive, ~50bps of credit costs, similar to FY13.
Introduce FY16 earning estimates; RoEs to remain at +25%
We introduce our FY16 est., post the FY13 annual report. We believe bank is on
track to deliver +25% EPS growth in FY14/15 (tweak-up FY15 EPS by <2 even="" nbsp="" p="">in challenging macro environment. RoEs to remain above avg., at ~25%, and,
hence, we retain ourBuy rating and PO of Rs625, for upside potential of 30%.

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Price objective basis & risk
Yes Bank Ltd (YESBF)
We set our PO on Yes Bank at Rs625. Yes Bank is among the smaller new
private banks delivering earnings growth of +25% and ROE of +24-25%, the
highest across all banks. While it is likely to raise capital, we believe the risk
return is still likely to be stacked in its favor given the high ROE and its ability to
gain market share, off a very low base. Moreover, it is now benefiting from an
expanding CASA (its weak link) and is likely to be among the bigger beneficiaries
of falling rates given the high share of its wholesale funding. Hence, the stock
could rise from 2.5x FY14E adj. BV (average multiple) now to 3.0-3.1x FY14E adj.
BV (pre dilution), or closer to 0.5SD above average. Alternatively, our PO is
based on Gordon model theory of 20-21% sustainable RoEs, long term growth of
9% and CoE of 13.0%, given market share gains driven by distribution expansion
that will ensure that volume and fee growth that will outpace any incremental
spike-up in credit costs and finally high B/s buffer (+90% provision coverage).
Downside risks are a sharp rise in NPLs and an inability to manage growth.