Buy Yes Bank - Fairwealth Institutional Research

Yes Bank has come a long way since the commencement of its business in 2004 as a wholesale bank. It overcame its small size as compared to its peers by adopting a knowledge based approach and built loan book in the initial years. After having good exposure in the corporate segment, bank is on the path of aggressively expanding its footprint in retail business. Yes Bank raised interest rates on saving accounts to 7% after the announcement of deregulation of saving interest rates by RBI. Consequently, CASA should expand along with a rise in the retail portion of the loan book. Wholesale Banking supported the loan book in a good manner and now the bank is shifting its focus towards retail banking to take it to the next level of growth.

Investment Thesis:

- Exponential Business growth with robust profitability: The exponential growth in business has resulted into improved market share at ~0.92% in FY11 as compared to 0.33% in FY07. We believe that Yes Bank will be able to increase the market share to ~1.5% till FY15. We expect this growth momentum to continue above the industry average with loan and deposit growth in the range of 25%-30% in FY13.

- CASA growth driven by branch expansion: It plans for pan India presence with the initial focus in North and West India which are liability rich corridors. With strong branch network expansion plan and penetration to retail segment, management plans to increase CASA share to 30% by FY15.

- Retail banking- to be the crucial part of next growth phase: With a strong foothold in the Corporate & Institutional Banking space, YES bank is set to shift its focus towards the retail segment. Aggressive branch expansion in next two years will help the bank to improve the contribution of its retail lending franchise to the overall loan book. We believe the management is being fairly ambitious by setting a target of reaching 750 branches from the current number of branches.

- Asset Quality one of the best in the industry: YES bank has enjoyed one of the best asset quality in the industry, thanks to the higher exposure to corporate and institutional banking. GNPAs stands at 0.22% with NNPAs at just 0.05% and healthy provision coverage ratio at 79.2% as on FY12.

- Q2FY13 result remains strong: Yes Bank continued to record good set of numbers in the second quarter of FY13. The growth in profit was mainly driven by strong net income growth. NII grew by 35.9% YoY (11.0% QoQ) largely on the back of robust growth in customer assets Reported NIMs improved sequentially by 10 bps to 2.9% as yields on advances remained steady sequentially at 12.4% as against a decline of 30 bps in cost of funds to 8.7%. Advances grew (22.9% YoY, 9.0% QoQ) to Rs 42019cr and Deposits on the other hand grew by 18.6% YoY (4.1% QoQ). The bank continues to witness strong uptick in CASA which stands at 17.3% from 16.3% in Q1FY13. Asset quality also remained stable during the quarter.

Valuation: In view of substantial growth potential and healthy financials, we recommend BUY on Yes Bank with a target of Rs 490 which provides ~16% potential upside in next 12 months.

Source : Equity Bulls

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