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CLSA Research
YES Bank (Buy)
CMP: ₹1,530.50
Target: ₹1,780
While YES Bank has been scaling-up its deposit franchise, it is now making good progress in retail loans as well. This reflects better management, by hiring from larger banks, and a wider suite of products including personal loans (car, housing, personal and credit cards) and commercial-retail loans (commercial vehicle and business banking).
Over the next three years YES Bank should see strong growth in retail loans as it leverages a broader product suite and the opportunity to cross-sell to internal customers. Moreover, as CASA scales to 40 per cent of deposits, it can lower rates on savings deposits by 100-150 bps (from 6 per cent now); a 50 bps cut can lift earnings by 4 per cent. This can improve the profitability of the retail segment, which is in the investment-phase and incurred loss of ₹220 crore in 9MFY17. In the near term, we would watch out for growth and the profitability of corporate lending given the sharp cuts in lending rates by large banks, though a fall in deposit rates helps. We see a 24 per cent earnings CAGR over FY16-19CL and raise our 12-month forward target price to ₹1,780 from ₹1,620.
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