Moneycontrol Bureau
Bank of America Merrill Lynch (BoAML) has reiterated its buy rating on YES Bank and target price of Rs 1,150, an upside potential of more than 70 percent. It feels asset quality risk already priced in and is betting on retailisation. The stock gained more than 1 percent intraday Monday.
The stock fell 20 percent from the recent peak (1-month), on concerns about asset quality. In the noise about the bank’s asset quality, the brokerage believes that the ‘build-up’ of its branch banking franchise is clearly being ignored. A large part of this is already visible on liability side. The focused approach toward customer acquisition and building a branch-centric model should ultimately lead to the desired/expected full ‘retail’ model, it says.
According to research note, what will aid the “retail-isation” faster is the under-utilised distribution (around 40-45 percent of current branches) and the plan to increase branches by around 2.5 times, to 1,500, by March 2018 (against 662 now).
BoAML says the market should pay a premium for the fast “retail-ising” model. The other driver is likely to be the expected uptick in the macro and rate cuts, given the still-higher wholesale balance sheet and low loan market share (around 110 basis points), it adds. Return on equity is forecast to rise to around 23 percent by FY18E against around 20 percent for FY16E.
The brokerage feels a lot of risk related to asset-quality is already in price/estimates.
The bank has, in the last more than 2 years, has only financed projects in renewables, roads and a few airports. This has led to a rise in riskweighted assets, though this is still lower than the peer average, it says.Moreover, the bank has avoided ‘consortium lending’ to ‘large levered groups’ and, hence, it ends up with ‘exclusive collateral’ in most cases.Stress test also concluded that stress, if any, would impact book value (over non-performing loan estimates) by only around 6 percent (FY16), but this is largely cushioned by the 50 basis points balance sheet buffer, it feels.
At 11:23 hours IST, the scrip of Yes Bank was quoting at Rs 648.05, up Rs 1.70, or 0.26 percent on the Bombay Stock Exchange.Posted by Sunil Shankar Matkar
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