On profit taking, YES Bank shares plummeted 8.14 percent to a low of Rs 22. The stock had surged 37% in the previous four days. Morgan Stanley stated in its most recent note that YES Bank is on the right track following the 2020 NPA problem.
YES Bank values, at 1.6 times the F24 book, are already favorable, according to Morgan Stanley. It stated that much better execution on funding and/or high-margin retail assets might cause us to reconsider our premise.
YES, Bank shares fell 8% in Wednesday trading on profit booking after the lender announced that private equity firms Carlyle Group and Advent had acquired a 9.99% stake in the bank. The two private equity (PE) firms would invest Rs 8,896 crore in YES Bank, with warrants fully converted into equity.
Profit-taking caused the stock to fall 8.14 percent to a low of Rs 22. The stock had surged 37% in the previous four days.
Morgan Stanley stated in its most recent note that YES Bank is on the right track following the 2020 NPA problem. It stated that YES Bank has prioritized addressing asset quality issues by expediting provisioning and cleaning up its balance sheet organically as well as through asset sales. It forecasts gross impaired loans to shrink to 9% by end-FY23, from a high of 22% in March 2020.
“Furthermore, in contrast to the previous cycle, the bank has focused on increasing the retail share on both sides of the balance sheet.” In fact, CASA+ retail deposits presently account for 48% of overall financing (against 33 percent in March 2020). Retail/SME loans have climbed to 66% of total assets.
Morgan Stanley anticipates YES Bank’s loan growth and profit profile to strengthen as the macroeconomic recovery accelerates. It forecasts loan growth to rise to a 20% CAGR during FY23-25, up from a 15% CAGR in FY23.
This, together with an increasing percentage of retail/SME loans, could help offset growing funding costs and deliver greater margins to 3.2% by FY25, according to the company. According to the bank, the margin would be 2.6 percent in FY23.
“Overall, we expect a core PPoP CAGR of over 50 percent in FY23-25, which, coupled with benign credit costs, will drive RoA improvement to 1 percent by F25, vs an estimated 0.4 per cebt in FY23. Indeed, our estimates are 20 percent/35 percent above consensus for FY24/FY25,” Morgan Stanley said.
That said, YES Bank valuations, at 1.6 times F24 book, are already pricing this in, Morgan Stanley said.
“More importantly, we see limited improvement beyond 1 percent RoA given high competitive intensity in retail deposits as well as assets,” it said while suggesting a target of Rs 20.50 apiece.
“Our price target implies 1.3 times December 2024 P/BV, which we think is fair in the context of 10 per cent F25 RoE. Current valuations at 1.6 times F24 book are already pricing in strong earnings over next few years. Much stronger execution on funding and/or high margin retail assets could lead us to revisit our thesis,” it said in the December 13 note.