Yes Bank share price continued to hit fresh record high on Wednesday, up 1.25 percent intraday at Rs 1,634 as CLSA raised profit estimates by 6-7 percent and target price to Rs 1,920 (from Rs 1,780 earlier) after its recent fund raising.
With maintaining buy rating on the stock, the brokerage house says, “The recent capital raise of USD 750 million will drive 6-7 percent upside to FY18-19 profit estimates, but rise in shares will limit upside to EPS and return on equity may compress a bit as balance sheet is under-leveraged.”
Over FY16-19, the research house expects Yes Bank to deliver 27 percent profit/23 percent EPS CAGR led by topline growth and steady asset quality.
The brokerage house says bank’s recent capital raise can lift net worth by 30 percent and Tier I CAR to 15 percent, hence making it well capitalised for the next leg of growth.
It believes the next leg of growth will be led by the retail segment where the bank will grow through cross-sells to existing liability customers as well as new acquisitions.
Yes targets to raise its share of retail loans from 30 percent now (consumer loans are just 8 percent) to 45 percent by FY20. It has also beefed up the management team for the retail segment by bringing talent from larger/ retail banks.
In corporate lending, while the bank should continue to gain share, CLSA sees some pressure post the recent cut in lending rates by larger banks.
The bank’s CASA franchise continues to scale up well and has reached 33 percent of deposits in December 2016.
According to CLSA, the bank can deliver 35 percent CAGR in CASA deposits over the next two years which should lift the CASA ratio to 38 percent of deposits by March 2019. This can provide leeway to lower interest rates on savings deposits from 6 percent now versus 4 percent for incumbents.
Yes Bank had recently lowered rates on large-ticket savings deposits (above Rs 1 crore) by 50bps. The research house sees scope for up to 100bps cut to rack rate over next 2-3 years. Every 50bps cut can lift earnings by 4 percent, it feels.
At 14:26 hours IST, the stock was quoting at Rs 1,628.35, up Rs 14.55, or 0.90 percent on the BSE.
Posted by Sunil Shankar Matkar