Sell Yes Bank : AnandRathi Institutional Research

Yes Bank - Risk-reward unfavourable; downgrading, to a Sell by Nikhil Rungta (Lead Analyst- Banking & Financials, AnandRathi Institutional Research)

We downgrade Yes Bank from a Buy to a Sell. We also cut our price target to Rs. 675 as we build in higher sustainable credit costs, which would lead to lower RoEs. The bank has a large corporate bond portfolio, which could be exposed to default risks in a volatile economic environment. High exposure to iron & steel, EPC players and CRE could lead to greater impairment. The stock appears highly valued at 2.1x FY17e ABV compared to other private corporate lenders.

Q2 FY16 - Figures healthy, but risks remain. Yes Bank reported healthy Q2 FY16 results. PAT of Rs. 6.1bn (27% yoy, 11% qoq) came higher than our estimate of Rs. 5.8bn driven by higher non-interest income. Balance sheet growth improved to 25% yoy, 4% qoq. Loans grew 29% yoy and were flat qoq on account of a few repayments at the quarter's end. Customer-asset growth was negative due to a decline in credit substitutes.

Asset quality, a worry. Gross NPL grew 33% qoq, though on a low base and came at 0.61% of advances. Fresh slippage were at Rs1.5bn (0.73% annualised). We believe the divergence between Yes Bank's new-NPL formation and those of other large corporate banks is unsustainable. Its slippage ratio of 0.7% is lower than those of other private banks, even as its loan profile is riskier than other large corporate banks'.

Valuation: Its credit cost is one of the lowest in the industry and would likely move up, given the weak macro environment, coupled with greater exposure in stressed sectors. We expect a sustainable RoA of 1.4%, lower than that of 1.64% in FY15. The RoE would continue under pressure, given the frequent dilution expected, coupled with lower earnings. We expect a 13% earnings CAGR over FY15-18, lower than the 29% CAGR over FY11-15. We value the bank at 1.85x FY17e P/ABV. Risks. Sharp recovery in the macro environment; less-than-expected slippages.

Shares of YES BANK LTD. was last trading in BSE at Rs.759.1 as compared to the previous close of Rs. 743.5. The total number of shares traded during the day was 382906 in over 8890 trades.

The stock hit an intraday high of Rs. 765 and intraday low of 747. The net turnover during the day was Rs. 290483702.

Source : Equity Bulls

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