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  1. Analyst Corner: Outperform on Yes Bank, target Rs 825, says IDFC Institutional Securities

Analyst Corner: Outperform on Yes Bank, target Rs 825, says IDFC Institutional Securities

We rate Yes Bank an 'outperformer' and raise target to Rs 825 as we roll...

By: | Published: October 31, 2014 11:46 PM

We rate Yes Bank an ‘outperformer’ and raise target to Rs 825 as we roll forward valuations to to 2.5x Q4FY16e price-to-book value (P/BV) from 2.0x Q2FY16e) to reflect higher economic leverage. The stock remains among our top picks. Yes Bank is a leveraged play on an economic growth revival and lower interest rates – and believe the outlook continues to improve, albeit gradually.
Management’s risk appetite is also recovering with loan growth expected to remain over 25% in near term. We expect NIMs to continue to improve medium term and with healthy fee income, should lead to ROEs of 20-21% over FY16-17e. Moreover, its valuations remain amongst the cheapest relative to peers (2.0x one-year forward P/BV). Yes Bank’s Q2FY15 profits were up 30% y-o-y, well above our estimates — primarily on a higher revenue momentum — both NII and non-interest income. NIMs were up 20 bps q-o-q to 320 bps, largely expected due to impact of recent capital raising. Expect NIMs to rise by 15-20 bps annually over the next two years. Core fee income growth remains strong (+51% y-o-y) led by financial advisory (+46% y-o-y) and transaction banking (+71% y-o-y).
Loan growth gains further momentum (up 5% q-o-q, 30% y-o-y), but remains skewed towards corporate loans. Customer assets also grew at healthy 22% y-o-y (5% q-o-q) despite higher sell-downs. Expect over 25% in the near term.

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