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Global research firm Bank of America Merrill Lynch (BoAML) has increased its target price on Yes Bank to Rs 500 (from Rs 460 per share earlier), implying a price-to-book value of 4x FY19, or nearer to other retail banks’ multiples.
It has reiterated buy rating on the stock and highlighted the bank as one of its top picks in the sector.
In longer term, (FY20 and beyond), it feels that Yes Bank's market cap should almost double to USD 25 billion (assuming no capital raise) on sustained compounding of earnings.
BoAML said bank's initiatives on retail and a digital focus raise the visibility of sustainable and, importantly, granular EPS growth (a CAGR of 25 percent) in FY17-20 (after a 1-2 percent increase in EPS).
It feels the ‘J’ curve to be visible in retail in the next year should also drive ‘allaround’ operational performance.
On the retail side, a large part of the groundwork is behind, especially with respect to reach, service, leadership, technology and processes, it said.
BoAML believes Yes Bank has longer-term compounding potential.
The research house said what was a range of 25-30 percent growth (loan) is now trending toward the upper end of the range, as sustainable growth is ahead.
It believes that the bank will soon hit its own goal of 40 percent CASA by FY20 (around 37 percent now) and will have liability side pricing to raise its margin profile.
Yes Bank has simultaneously been one of the few to bank on a ‘sustainable’ lending approach, with a focus on 14 ‘knowledge sunrise’ sectors for its business banking and SME customers, giving it an edge, with acquisition through branches, tieups with industry bodies and the supply chain.
At 13:22 hours IST, the stock price was quoting at Rs 350.60, up Rs 0.60, or 0.17 percent on the BSE.
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