BofAML comes out with a buy report on Yes Bank

Yes bank has been under the scanner of investors, especially since the failed QIP dampened confidence in the stock amongst the investors.

BofAML has come out with a buy on the Yes bank and following are the excerpts of the report:-

Capital should ‘not’ hamper near-term growth & retail story

Failed QIP attempt has raised two obvious questions among investors on: a) the overall growth trajectory and b) the momentum of the retail story.

The near-term growth trajectory is not materially altered, nor is the retail story momentum. In the last two years, people, products and processes being put in place for retail and incremental investment are minimal. All of this along with fast expanding distribution, the bank is on the cusp of very rapid growth.

Capital ‘optimization’ is Yes Bank’s forte

Historically, Yes Bank has ‘navigated well’ with a limited capital position. Between FY11 and FY14, Yes Bank straddled in a 9-10% Tier 1 capital range and still managed average 25% loan growth and 25-35% EPS growth. As capital returns, the Tier 1 should improve by 450 bps, boosting growth and improving RoA quality.

EPS CAGR at 25%; Capital should only boost growth higher.

With an estimated EPS CAGR of 25% in FY17-19E (pre-dilution). We believe that, in the last 2-3 years, the bank has clearly been focused on liability customer acquisitions and building a branch-centric model, thus moving toward a ‘retail’ model. As the capital raise falls in place, the growth (net profit) trajectory could be 30%+ CAGR in FY17-19 vs. estimated 25% now. Stock remains at a buy rating with a target price of Rs 1,590 per share.

Yes bank is trading at Rs 1,285 at 10.00 am on Thursday, up by 1.14 per cent or Rs 16 per share.