Yes Bank has gained shareholder approval to raise up to $1 billion of equity capital. That entails a large dilution of 15%. We wouldn’t be too worried and would encourage investors to participate in the capital raising which is most likely to be in the form of a qualified institutional placement (QIP), in our view. We build in the capital raising and revise our EPS estimates. We increase our TP by 17% to R1,325 driven by the increase in BVPS due to the capital raise.
The stock has delivered a return of 290% since the January 2010 capital raising and 91% since the previous capital raising in May 2014.
Investors have always had reservations about Yes Bank’s squeaky clean balance sheet and its record low levels of NPLs. RBI’s recent asset quality review (AQR) which included a detailed review of the books of banks and tried to resolve discrepancies in reporting/classification of NPLs has vindicated our stance that YES Bank’s books are clean.
Valuations post the capital raise are compelling at 1.9x FY18E P/BV for a sustainable ROE of 20%. Maintain ‘outperform’ with a revised TP of R1,325.