Retain ‘outperform’ on YES Bank given the strong growth and improving profitability. It is our top pick in the sector with a target price of R1,000. We are introducing FY18e estimates; however, we continue to value the stock on an FY17 basis.
Q4FY15 profit numbers were in line with our estimates despite excess provisioning. Loan growth of 35%-plus, customer assets growth of 25%, stable margins, improving CASA % ratios despite strong overall balance sheet growth and stressed assets under 1% of the loan book are all very good numbers, considering the tough economic circumstances. We do not view the capital raising as negative for YES Bank and will be supportive of any such raise and will encourage investors to participate in the offering.
Stressed assets have gone up 24 bps q-o-q to 92 bps but remain way below some of their private sector peers.
Bank’s board has approved a capital raising of $1 billion. They raised close to $500 million in May 2014. The CET-1 stands at 11% and will be easily running down at the rate of 100 bps over the next 12 million. If they manage to raise $1 billion in the next 12 months, then our current FY16e and FY17e BVPS will go up by 43% and 37% respectively to R470 and R530, respectively. As a result the stock will trade at 1.5x FY17e P/BV after capital raising versus current multiple of 2.1x.