Buy Yes Bank; target of Rs 453: Edelweiss

Edelweiss' research report on Yes Bank

Yes Bank reported a mixed bag in Q1FY19—while core operating performance was strong, moderating NII growth and higher provisions proved to be dampeners. Key positives: 1) robust and broad-based loan growth momentum (>50% YoY) with RWA/Asset improving to 81.6% (86.6% in FY17), which is a credible showing in our view; and 2) ‘retailisation’ momentum (CASA at >35%, retail/business banking up >50% and retail fees up >28% QoQ) sustained. Key factors to watch out for: a) slippages higher at 1.1% (with >55% arising from one account; excluding this, slippages were below trend); b) while credit cost was curtailed at 15bps, higher investment depreciation (INR920mn; the bank used RBI dispensation) fed into higher provisions. We maintain the thesis that despite noise on asset quality, the bank’s strengths – loan underwriting and long-term business momentum (retailisation) – will aid it post best-in-class return ratios. Maintain ‘BUY’.

Outlook

At CMP, the stock is trading at 2.5x FY20E P/ABV, attractive for a bank that has delivered >30% EPS CAGR in the past five years and is estimated to clock >30% ÇAGR over FY18–20. Maintain ‘BUY/SO’ with TP of INR453.