Buy stocks of Yes Bank; target of Rs 407

“Yes Bank is the one of the youngest new generation private sector banks with an assets size of more than ~Rs 70 bn. At present, the bank caters to its client base with a branch network of 356 and more than 600 ATM across the country. The bank has a very ambitious plan with a strategic roadmap to achieve the balance sheet size of Rs 1,500 bn with a pan India branch network of 900 and employee base of 12,750 by 2015.”

“Yes Bank’s track record is above the industry standard across the business segments and we expect this trend to continue going forward. We expect banks advance and deposit base to grow at a CAGR of more than 25% between FY12 and FY15 while earnings of the bank is expected to grow at a CAGR of more than 35% during the same period. YBL’s Version 2 has a target CASA ratio of 30% till FY15 which is currently stood at 15%. With continuous increase in CASA ratio, YBL would be able to minimize its cost of funding which would eventually enhance the NIM of the bank from the current level of 2.7% to 3% level in the coming years. However, YBL’s strategic loan book distribution (more inclined to working capital funding) gives its an edge over its peer in terms of yield and quality of asset as well as helps the bank to maintain the NIM at higher level. YBL’s higher other income and low operating cost would also help the bank to sustain the margin in the long run. YBL has consistently delivered higher returns in term of both RoE and RoA and expected to maintain at current level going forward. We expect YBL to sustain its RoE well above the 23% mark while RoA of the bank would remain above the current level of 1.5%. In Addition, YBL is well capitalized with a total CAR of 17.9% with high quality of assets where its GNPA and NNPA expected to stands at 0.5% and 0.2% level which is amongst the best in the industry. Moreover, we expect YBL’s PCR (Provision Coverage Ratio) to remain above the 75% level which further boost the confidence about the bank’s quality of assets.”

“Considering strong CASA growth, higher NIM, superior asset quality and healthy return ratios, we expect YBL to deliver outstanding performance in the coming years. We expect YBL’s advances and deposit base to grow at a CAGR of more than 25% from FY12 to FY15E. We estimate FY13E and FY14E Net income to stand at Rs 33.6 bn and Rs 43.1 bn respectively. We initiate the company with a “BUY” rating and have valued the company on Gordon Growth Model to arrive at a Target price of Rs 407 (around ~2.1x times FY14E ABV.) implying an upside of 22% from current levels,” says BP Equities research report.