ICICI Securities is very bullish on Yes Bank and has said this in their report:
We met with Yes Bank’s management and come back confident of their continued business strategy with focus on the retail segment. The management aims to build on the business traction built on post the savings rate deregulation and in enhancing its retail franchise. Share of savings deposits will continue to rise by ~15% QoQ (100-150bps as proportion) over FY13E, driven by: 1) continued traction in new savings account, especially led by expansion in the salary accounts, 2) improvement in average SA balances on account of a higher savings rate, and 3) further traction from branches opened in the past 12 months as well as strong branch network expansion in FY13E in the CASA-rich north and west India. The bank plans to further enhance its retail and SME asset portfolio by introducing LAP, LAS, gold loans, education loans, salary overdrafts, etc. Though the build-up will be gradual, the bank aims to increase its branch banking portfolio (SME + retail) from 18% of the total loans in FY12 to 30% in FY15. We estimate business growth for FY13E to remain at 23.1%, with preference towards credit substitutes in H1FY13. Margins (calculated) will remain steady at 2.6% while healthy fee income and stable asset quality would likely drive an earnings growth of 27% for FY13. Maintain Yes Bank as one of our top picks with a target price of
Rs416/share.– All eyes on CASA deposits: YES Bank has made significant inroads in the salary account space resulting in an improved run-rate for new accounts to 25,000-30,000 per month from 6,000-7,000 earlier. This has also helped improve average savings balances from ~Rs35,000 earlier to ~Rs85,000 currently. Salary accounts constitute 60-65% of the new accounts. Given it small base and immense scope of penetration in the salary account space, we expect a 15-18% QoQ growth in savings deposits over FY13E. Branch network is expected to grow by ~120 in FY13E.
– Business performance to remain healthy: Loan growth in FY13 will remain at 24% as risk aversion remains high. Credit substitutes will witness strong growth in H1FY13 and taper in H2FY13 as loans re-gain their attractiveness. Margins will continue to be stable at 2.6% as falling yields on credit substitutes is offset by the cost benefit of an improved CASA profile. Cost-to-income ratio would remain stable at 38% in FY13E despite opening ~120 new branches as the bank amortises most of its capex.
– Premium asset quality to sustain, maintain BUY: Lower exposure to stressed sectors will ensure lower delinquencies and we build-in loan-loss provisions at 21bps for FY13E. Given the slower loan growth target for FY13E (vs FY09-FY11), YES Bank remains adequately capitalised with tier-1 capital at 9.9%. Maintain BUY with a target price of Rs416/share.
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