November 24, 2016 / 16:37 IST
Anand Rathi's research report on Yes Bank Strong loan growth, an improving CASA ratio and a shift in the loan book toward the higher-yielding MSME and retail segments would boost YES’s margins. We expect the bank to deliver high return ratios through FY17-19. We upgrade our recommendation to a Buy, from a Sell earlier. We estimate a strong, 25%, CAGR in loans over FY17-19 and a better CASA ratio of 32% (up 400bps yoy) in FY17. NIM would improve 12bps to 3.33% in FY17, driven by increasing higher-yielding MSME and retail loans in the asset portfolio and a better funding mix.
Our Nov’17 TP of Rs 1,699 is based on the capital excess/deficit method as banks have to meet the 8% core tier-1 ratio by FY19. This implies a 3.8x multiple on its FY18e book vs. its three-year average 6.6x book multiple. Our valuation factors in a 9.3% CoE, a 23% adjusted RoE and 6% terminal growth. Risks. Downside: Lower-than-estimated loan growth, morethan- estimated slippages and credit costs originating from the corporate book.
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