Stock Market

Analysts turn bullish on Yes Bank: What’s so impressive now

Yes Bank stock is returning to buyers’ portfolio after falling drastically on fund raising plan deferment. Shares of the private lender rose 2 percent intraday on Wednesday as brokerage firms are turning bullish. However, it will need to climb 16 percent to touch its 52-week high at Rs 1450 on September 7, just a day before its qualified institutional placement (QIP) was launched.

Earlier, Yes Bank pulled the plug on its billion dollar fund-raising plan via QIP. MD & CEO Rana Kapoor blamed it on confusion over QIP guidelines. In a statement to the exchanges, Yes Bank said that due to extreme volatility on September 8 trading day because of misinterpretation of new QIP guidelines. “Yes Bank has been advised by its appointed merchant bankers to defer its proposed QIP,” it said.

However, both Deutsche Bank and Bank of America Merrill Lynch recommend buying the stock with target price of Rs 1400 and Rs 1590 per share respectively.

So, why bullish now?

BoAML says that despite deferment of capital raise fundamentally, nothing has changed as asset quality continues to remain comfortable with sufficient buffers in place.

“Despite the bank having relatively smaller retail mix, its return on asset (RoA) is comparable with private peers. Improving fee income quality, a SME/retail thrust and favorable liability positioning should mean better quality of RoA. In addition, softening wholesale rates, better traction in retail deposits and reduction in saving rates could continue to drive up margins gradually,” it says in a note.

The brokerage firm expects Yes Bank’s earnings per share (EPS) CAGR at over 25 percent and RoA at nearly 1.9 percent by FY18, comparable with peer banks, despite a smaller retail franchise today. After the recent stock price correction, the bank trades at nearly 3.4x FY17E adjusted book and BoAML sees the stock to continue to trade at similar multiples one-year out (FY18) for nearly 22-23 percent return on equity RoE.

Echoing a similar view, Deutsche Bank thinks Yes Bank’s business is in a sweet spot and valuations are comforting.

It is positive that corporate growth will remain steady at 25 percent but its pricing power is due to weaker competition, resulting in better net interest margins (NIMs) and fees. Deutsche Bank also thinks that strong retail growth from a very low base will enable the bank to grow at over 25 percent for the next three years. It expects credit costs of 70 basis points in FY17 and FY18 and asset quality is likely to be stable.

“Current Tier 1 capital of 10.3 percent with RoEs at over 20 percent is comfortable for the next 12-18 months, after which Yes Bank will have to enter capital conservation mode. The recent setback seems temporary and business remains as usual. We would worry only if it were unable to raise money beyond 12 months, a low probability event,” Deutsche Bank says.

At 11:40 hrs Yes Bank was quoting at Rs 1,223.05, up Rs 18.50, or 1.54 percent on the BSE.

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