IIFL has recommended a reduce rating on Yes Bank with a price target of Rs 42 in its March 30, 2009 researcg report.
“Yes Bank’s low capital base, low share of CASA deposits and relatively risky loan profile leave little room, if any, to absorb future risks. The bank has been unable to raise equity capital in the recent past and is unwilling to do so at current valuations. About 38% of its loans are to emerging companies and SMEs, which are particularly vulnerable in the current environment. Fee income, which contributes half of the bank’s revenues, is set to decline, in our view. Investors rightly remain sceptical of the ability of small banks like Yes Bank to protect their asset quality and income streams.”
“We expect Yes Bank’s Tier-I CAR to improve to 8.5% by end-FY09 (from 7.8% as at end-3QFY09) owing to transition to Basel II and recent raising of hybrid Tier-I. The non-equity component of Tier-I capital is now about 10%. After cutting our FY10 earnings estimate by 40%, we now expect profits to fall by 29% YoY next year. The stock is trading at 0.9x FY10ii book, but we see no rerating triggers in the near term and hence downgrade it to REDUCE, price target of Rs 42,” says IIFL’s research report.
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