>YES BANK: Yes, a long induction catalysis

■ Action: Initiate with a Neutral rating and a TP of INR380
We initiate our coverage of Yes Bank with a Neutral rating and TP of INR380, as we believe current valuations fairly price in the balance between a robust asset franchise and a flat near-term outlook on assetreturn ratios on increasing LLPs and operating costs. We would wait for a meaningful uptick in Yes Bank’s low-cost (CASA) deposits and its retail loan book to turn more positive, while a sharp deterioration in NPLs from here would turn us more cautious.


■ CASA – a long gestation catalyst
Despite an impressive track record over the past few years, we believe Yes Bank will face an uphill course in the next one to two years. While Yes has started to focus on CASA, savings deposit accretion is a long gestation process. Current RBI regulations that require mandatory branch additions outside the CASA rich metro & urban areas heavily tilt the scales against a rapid growth in CASA per branch, which was possible for some of the earlier private sector banks (HDFC Bank and Axis Bank). Despite the increase in its savings deposit interest rate, Yes Bank is unlikely to realise significant market share gains. While a higher savings deposit rate is ensuring increased customer acquisition for Yes, we believe strengthening of these new relationships will take some time. A slow CASA growth could curtail the super-normal loan growth rates enjoyed by Yes Bank going forward, in addition to increasing the cost ratios.


■ Valuation
YES currently trades at 2.2x our FY13F ABV and 10.3x our FY13F EPS. At our TP of INR380, YES would trade at 2.4x our FY13F ABV and 11.6x our FY13F EPS for an ROA of 1.4% and ROE of 23.6%. 31 Mar FY11 FY12F FY


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