Yes Bank - Retail Franchise: Building Foundation Mantra to Scalability ::Edelweiss report link

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We recently met Mr. Pralay Mondal, Head Retail, Yes Bank (Yes), along with business heads of all retail verticals to get an insight of the bank’s business dynamics and strategic plans. Our interaction reinforces our belief that Yes has structural levers in place-investment in retail infrastructure over past 3-4 years beefed up with an experienced management team - which will propel NIMs by ~50bps and RoA to 1.8% by FY17E. We believe the bank has been subject to undue skepticism about its volatile business model. Commendably though amidst this din, the bank has worked relentlessly towards laying a strong foundation and mark its presence in retail franchise. Thus, we expect perceived volatility in business model to reduce and help ride the cyclical downturns with minimal impact on valuations. We introduce FY17 estimates and roll forward our valuations to 2.5x FY17E P/BV with TP of INR980 (> 30% upside).

Laying foundation to scale up later - Winning formula in place

It was heartening to learn that despite current low base management has not aggressively pursued growth but was focusing on building a quality franchise (reflected in KPIs). Taking into account that building and reaping retail benefits will play out in the longer term, management laid out its 5-pronged strategy: 1) customer acquisition; 2) branch-centric model; 3) focus on sales; 4) building customer franchise; and 5) maintaining strong leadership position (refer page 2).

Embarked on journey to derisk the model

While concerns surround the bank’s volatile business model, it has been striving to de-risk its business model: i) retail assets/branch banking share to jump to 30% by FY17 (17% in FY14); and ii) share of retail liabilities to inch up to 51.5% by FY17E (from ~39% in FY14). Against this backdrop and with an experienced management at the helm, we expect NIMs to improve by 50bps by FY17 (highest among our coverage universe).

LINK

https://www.edelweiss.in/research/Yes-Bank--Retail-Franchise-Building-Foundation-Mantra-to-Scalability;-Visit-Note/27881.html