Yes Bank - Target Price of Rs. 600 - Dolat Capital

Yes Bank should be one of the key beneficiary of interest rate cuts by the RBI as bulk deposit rates start to soften ahead of retail rates. Nearly two thirds 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 front 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.

- Focus on diverse sectors and working capital loans has helped the bank maintain its impeccable asset quality. The management believes that almost 1% of total loans would require dynamic monitoring and could see additional provisioning. However, the overall asset quality should remain well under control. We believe that despite the rise in delinquency and the NPL levels that we are factoring over the next two year, Yes Bank's asset quality should remain amongst the best 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 high 26% CAGR in net profit for the bank over the next 2 years. We have a Buy rating on the stock with target price of Rs 600 based on PBR of 3x on our FY14E BVPS forecasts.

Source : Equity Bulls

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