Buy Yes Bank; target of Rs 1005: IIFL

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26 Aug, 2025 12:21

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  IIFL's research report on Yes Bank
"Yes Bank's customer assets (loans + credit substitutes) grew by strong 26% yoy in Q1 FY16 led by robust growth of 35% yoy in advances (our expectation was 30% yoy). Credit substitutes' portfolio shrunk further by 10% on sequential basis (was down 16% yoy) and as a proportion of customer assets and investments stood at multiquarter low of 11.5% and 24.6% respectively. Within loans, the mix moved substantially towards the Corporate Banking portfolio which grew by 8% qoq while the Retail/Business Banking credit declined by 6% qoq. The share of the latter came down to 32% from 35% in the previous quarter. The Retail/Business Banking segment comprises of multiple products viz consumption financing, micro lending, CV/CE/ME financing, supply chain financing, SME and emerging corporate financing. About 75% of the Corporate Banking portfolio is to companies rated 'A' or higher. Further, the overall customer assets of the bank remain well diversified with low exposure to the perceived stressed sectors."

"In our view, Yes Bank would deliver 30% CAGR in advances over FY14-17 driven by improvement in the credit environment, benign wholesale funding rates (will ensure that wholesale spreads are reasonably healthy), brisk network expansion (key for retail/SME growth) and a robust capital position (Tier-1 ratio at 10.9%). The Board has already approved an equity capital raising plan of up to US$1bn to support brisk balance sheet growth in the longer run."

"We believe that robust loan growth, NIM expansion and a stable credit cost would drive strong 25% earnings CAGR for Yes Bank over FY15-17 notwithstanding continued significant investments in the network. During this period, average RoA and RoE is estimated to be at impressive 1.6% and 20% respectively. Current valuation at 2.1x FY17 P/ABV (material discount to Axis Bank) is reasonable in the context of the envisaged impressive RoE delivery and earnings growth. The planned capital raising of US$1bn would boost book value and thus make stock valuation more attractive. Retain BUY recommendation and 12-month target price to Rs 1,005", says IIFL Research Report.

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