Buy Yes Bank; target of Rs 1666: Edelweiss

Yes Bank reported strong Q3FY17 operating performance (NII >30% YoY, PAT >30% YoY), a commendable feat amidst tough operating environment. Key highlights: a) robust operating performance - NII up >30% on sturdy loan momentum (up >38% YoY, hinting market share gain) and superior NIMs; b) sound asset quality sustained, with credit cost contained at 8bps (9mFY17 at 34bps versus 60bps guidance for FY17); and c) demonetisation lent further impetus to liability franchise with CASA growth at >13% QoQ, taking CASA + retail TD to >59% (48% in FY15), ahead of expectations.

Sound structural levers and progress towards branch banking will aid the bank clock bestin- class return ratios and fuel re-rating. We are building in capital raising in FY18; even post capital raising, the bank will be able to deliver decent RoE of >20%. The stock is trading at 2.0x FY19E P/ABV and 10.5x FY19E P/E, attractive for a bank that has delivered >30% earnings CAGR in past 5 years and estimated to clock >30% over FY16- 19E. As we roll forward to FY19E, our revised TP is pegged at INR 1,666 (2.5x FY19E P/ABV; earlier INR 1,425). Maintain ‘BUY/SO’ and retain Yes Bank as our top pick.