Yes Bank
Yes Bank
Research: JP Morgan
Rating: Overweight
CMP: Rs 254
JP Morgan has an ‘overweight’ rating on Yes Bank and increases the March ’09 target price to Rs 293, with 21% upside potential. It has a high return on equity (RoE), high growth and zero non-performing loans (NPLs). It reported a 116% growth in Q3 profit, with 1.5% return on assets (RoA) and 20.5% RoE despite its November issuance.
While the stock has outperformed the Sensex over the past year, it now presents an excellent entry point, given its flat absolute performance over the past month. Catalysts include its upcoming equity placement, wide launch of its retail initiatives, likely addition of 100 branches by July ’08 and launch of non-banking businesses over the next 12 months.
Improved low-cost mix, firm margin trends, robust fee growth and 104% deposit growth have boosted the bank’s operating profit 111% year-on-year (y-o-y). NPLs continue to remain nil. Retail loans are not a priority for the bank currently, since its growth is driven by small and medium enterprise (SME) loans.
High balance sheet growth, low margins, high fees, low operating expenditure and low provisions drive 10-20% increase in EPS over FY08E-FY10E. JP Morgan also factors in an equity issuance of Rs 500 crore in FY09, assuming 2 crore shares at Rs 250 per share. The stock trades at 3.5x book versus the target of 3.76x, based on Gordon Growth Model, assuming 23.6% normalised RoE
