Yes Bank’s stock is down 13% in the last few weeks on the news of a deferment of its $1 billion equity capital raise.
Yes Bank’s stock is down 13% in the last few weeks on the news of a deferment of its $1 billion equity capital raise. This raised two obvious questions among investors on: the overall growth trajectory and the momentum of the retail story.
In our view, the near-term growth trajectory is not materially altered, nor is the retail story momentum. In the last two years, people, products and processes have been put in place for retail and incremental investment is minimal. All of this along with fast expanding distribution.
With this, the bank is on the cusp of very rapid growth. Hence, we believe that Yes Bank, trading at 3.5x FY17 book, could trade at a similar multiple one-year out (FY18), for a RoA that is comparable to peers and superior RoEs.
With retail deliverables falling in place, we think the bank has the potential for a re-rating, as we have seen with peer banks in the past. We reiterate our Buy rating and PO of R1,590 (pre-dilution).
We estimate an EPS CAGR of ~25% in FY17-19E (pre-dilution). In the last 2-3 years, the bank has clearly been focused on liability customer acquisitions and building a branch-centric model, thus moving toward a ‘retail’ model. We believe that the quality of earnings growth will also become more granular, driven by expanding margins and fees, well supported by loan growth. As the capital raise falls in place, we believe the growth trajectory could be 30%+ CAGR in FY17-19 vs. estimated 25% now.