Current market price: Rs 253.60
Target Price: Rs 310
Brokerage: Merrill Lynch
Upside: 22%
Yes Bank’s Q3 FY08 earnings (up 116 per cent y-o-y) were 8-10 per cent ahead of the brokerage’s expectations driven by 88 per cent rise in top line, 114 per cent jump in non-interest income and margins holding steady q-o-q. The growth was driven by 79 per cent y-o-y loan growth.
Net non-performing loans (NPLs) were nil. Merrill Lynch raised its earnings forecast for Yes Bank by 4-9 per cent for FY08-10, as it believes that the bank is better positioned to expand its current and savings accounts (CASA) levels to almost 15 per cent from 8 per cent currently, as it begins to expand its branch distribution.
This should positively impact margins and the proposed capital raising (Yes Bank is planning to raise Rs 500 crore in the next 6 months) should help sustain loan growth at over 50 per cent through FY10, albeit from a very low base.
The brokerage believes that the bank, which trades at 4.3-4.5 times estimated FY09 adjusted book value, could trade at these multiples one year forward owing to its high earnings growth trajectory, rising return on equity (ROE) to over 25 per cent (pre-dilution) by FY10. Its excellent asset quality (no non-performing loans), and its attractive positioning make it a potential takeover target.
