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Investment Pick

Investment Pick. Yes Bank. Strong play on economic growth revival. Bottoming out of economic growth, sharp improvement in CAD and expected improvement in liquidity augur well, given Yes Bank’s high share of bulk and short-term business. 

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Investment Pick

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  1. Investment Pick Yes Bank

  2. Strong play on economic growth revival • Bottoming out of economic growth, sharp improvement in CAD and expected improvement in liquidity augur well, given Yes Bank’s high share of bulk and short-term business.  • The bank has yet again demonstrated strong execution capabilities, by emerging largely unscathed from a period of moderating economic growth and severe liquidity tightness.  • Rapid branch expansion, customer acquisition, deepening of existing relationships and innovative technology would help Yes Bank to grow rapidly when economic growth revives and risk aversion reduces.  

  3. Superior execution capabilities; well-tested across cycles • Since its inception, Yes Bank has seen two cycles of economic growth moderation (FY09 and FY12-14). It has emerged largely unscathed and stronger from each of these. Moderate growth and focus on improving balance sheet profile helped to improve CASA (partially helped by de-regulation) ratio (11.2% v/s 2.6% in 1HFY11) and share of branch banking. Asset quality continues to be superior (30bp stress loans; lowest among peers) and return ratios (1.5% RoA; 24%+ RoE) remain strong. Yes Bank would be a key beneficiary of economic growth revival as it would be able to leverage on strong branch expansion over the last two years and large corporate relationships acquired during the moderate growth period.

  4. Rapid branch expansion to drive growth • Yes Bank has a well-laid strategy for growing small business loans (most of which qualify as priority sector loans) and cross-selling to acquired customers. On the retail business front, its initial focus will be on growing the liability side. As customer relationships age, Yes Bank plans to focus on cross-selling its retail assets. The bank has been expanding its branch network at an increasing pace. On an average, it has added 90-100 branches per year over FY11-14, up from an average of 40 branches per year over FY06-11.

  5. Commendable performance on margins across cycles • Strong ALM has helped Yes Bank to maintain NIMs in a narrow band of 2.8-3.2%, despite rising share of relatively lower yielding credit substitute book (21% v/s 9% in 9MFY11) and rising interest rates. NIMs are likely to gradually move towards the upper end of the range, with rising share of retail liabilities and branch banking assets, coupled with comfortable liquidity in the system

  6. Superior return ratios; macro improvement to lead to re-rating • Yes Bank has a market share of less than 1%. Rapid branch expansion, customer acquisition, deepening of existing relationships and innovative technology would help Yes Bank to grow rapidly when economic growth revives and risk aversion reduces. Ability to maintain margins and control over opex and asset quality are its key strengths. With revival in economic growth, concerns over loan and fee income growth would abate. Over the last 12 months, Yes Bank underperformed the Benchmark Index by 24% and the Bankex by 17%. As the economy revives, this should change.

  7. We recommend investors to gradually accumulate this stock with a Tgt price of Rs 515  Thank You

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