YES Bank up 3%; bullish analysts say relax, loans secured

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Moneycontrol Bureau

Share of YES Bank rose 3 percent intraday on Thursday, after the massive 8 percent fall yesterday on UBS downgrade. Today the stock is riding high on positive stance maintained by two brokerages. Macquarie, Bank of America Merill Lynch and Antique have reiterated buy rating on the stock citing attractive valuations.

With a target price of Rs 1100 per share, BoA ML says that ‘what is on the books, in most instances it is very well collateralised and secured not only by cash flows, but also, shares, other assets, but also fixed deposits, which is not yet reported, as collateral cover’.

According to brokerage,YES Bank has built a very strong contingent buffer to cushion any negative earnings impact which may come from sudden spikes in credit costs. It is optimistic that the private lender is well placed to capture faster growth in market share.

"We estimate strong earnings per share (EPS) CAGR over FY15-18, driven by faster and diversifying growth in loans, margin expansion and rising granularity in fee income. Return on equity (ROE) should expand to 21-22 percent by FY17 led by rising return on assets (ROAs) and not just leverage," it says in a report.

Macquarie also maintains outperform rating with a target price of Rs 1020 and suggests using weaking as an oppurtunity to buy. It notes that proportion of risk weighted assets (RWA) to total assets for YES Bank is better than average of its private sector peers over the years, infact better than IndusInd and ICICI Bank.

"Many of the exposures taken on the books of some of the stressed groups were in the last 2-3 years when problems crystallised and hence they have clearly avoided taking exposures to stressed group projects like gas based power projects. In many of the group companies where they have lent to the holding company, the loans are well secured by the operating company cash flows/shares," it elaborates.

 Antique, on a similar strong footing, says credit cost has been extremely low at 30-35 basis points  over the last three years and has built in credit costs at 75-80 bps for FY17. It does not foresee any material risk to the bank in terms of asset quality, even though YES Bank's risky exposures to highly leveraged corporates, with weak collateral, have resulted in a sharp correction in its stock price.

Antique has a target price of Rs 985 per share as it continues to believe that the biggest driver for earnings growth is likely to be improving liability mix, leading to better margins.

According to the brokerage, the bank's asset quality is still one of the best in the industry and provides an attractive entry point at current levels.

"It has been able to liquidate its exposures in Suzlon Energy, Kingfisher Airlines, among others without much loss due to its very strong collateral. It had large exposures to infrastructure groups like GMR, GVK, Jaiprakash but is unscathed in terms of asset quality. Hence, we believe that the bank would be able to maintain its robust asset quality going forward and do not foresee a significant jump in credit cost,” it says in a report.

Earlier, UBS had downgraded the stock to sell and slashed target price to Rs 740 from Rs 1000 per share. One of the major concerns that the brokerage points out is the private lender's increased exposure to financially stressed companies, which is up 300 percent in three years.

However, the bank's CFO and Senior Group President of Financial Markets, Rajat Monga said in an interview to CNBC-TV18 that the numbers mentioned in the UBS report are exaggerated as it talks about loan proposals and not necessarily exposures or loan outstanding.

At 09:25 hrs Yes Bank was at Rs 810.90, up Rs 13.55, or 1.70 percent on the BSE.

Posted by Nasrin Sultana