Buy Yes Bank - Target Price Rs. 565 - Dolat Capital

- Yes Bank will be one of the key beneficiaries of interest rate cuts by the RBI as bulk deposit rates start to soften ahead of retail rates. Nearly 62% of Yes Bank's total deposits is sensitive to bulk deposit rates and should benefit as rates soften over the next one year.

- While the bank intends to improve the proportion of retail assets, the increase would only be gradual. On the retail side, walk in customers are preferred for the retail deposit franchisee build up rather than for loan sourcing. Corporate loans would remain the prime driver for the bank's growth over the next 2 years.

- Yes Bank's focus on diverse sectors and working capital loans has helped the bank maintain its impeccable asset quality. We do not expect any major asset quality threat over the next 2 years and its gross NPLs should remain one of the lowest in industry.

- Fee based income contributes almost 30% to the net income with financial advisory and trade related being the main drivers. Advisory stream is expected to remain strong as activity in the loan syndication market is expected to remain high over the next few months.

- Despite the challenging environment over the past year, the bank was able to improve its NIM and maintain its asset quality. We believe that Yes Bank should able to deliver high growth with improvement in NIM and asset quality over the next two years. We expect a 29% CAGR in net profit for the bank over the next 2 years, one of the highest among banks. We have a buy rating on the stock with target price of Rs. 565 based on PBR of 2.9x on our FY14 BVPS forecasts.

Source : Equity Bulls

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