Prabhudas Lilladher - Yes Bank

Broking House - Prabhudas Liladher
Recommendation - Buy


Healthy profits with an attractive valuation...
In its report dated 4th April 2007, Prabhudas Lilladher (Prabhu) Recommends Buy on Yes Bank at its Cmp of Rs 140 With Target of Rs 185.

Prabhudas Lilladher (Prabhu) mentions that Yes Bank was started on a green field platform in August 2004. This was the time when interest rates had fallen considerably and banking sector started witnessing high growth in credit off take. Prabhu highlights that this not only helped Yes Bank in establishing itself in a highly competitive environment but gave it an edge over other banks in terms of starting with a clean balance sheet. Yes bank started with focusing on corporate loan book to leverage on its corporate relationships and stayed away from venturing into retail assets.

Prabhu throws light that in a rising rate environment, when most of the banks face higher level of uncertainty on bottom line due to depreciation losses on investment book as well as higher provisioning cost due to probable increase in delinquencies; Yes bank offers a safer bet as it is newly set up on green field platform. This gets complemented by professional and well skilled manpower supported with state of the art technology platform, says Prabhu.

Prabhu highlights that Yes Bank doesn''t carry any legacy of bad loans; so far Yes Bank has focused on corporate and SME loans where it has reported aggressive loan growth. This is the segment which in comparison to retail segment has better absorbed the various interest rate hikes without any meaningful slowdown in credit demand or increase in delinquencies. Green filed platform coupled with robust risk management system in place has resulted in zero level of net as well as gross NPAs.

Prabhu states that Yes Bank is growing its branch network quite aggressively. Out of 60 branch licenses, it has set up 29 branches as on Q3 FY 07 and expected to roll out the remaining branches in next couple of months and it is expected to reach 100 mark by end FY 08.

Parabhu believes that Yes Bank given its green field platform, superior infrastructure and high growth potential offers attractive investment opportunity. Give its strong balance sheet and healthy profitability it could be one of the prime acquisition target as well. Prabhudas recommends BUY on the stock with a price target of Rs 185, which translates to 3.5x FY09 ABV.