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Buy Yes Bank – Citi

September 24, 2007

Citigroup in a research report released just a while ago has initiated coverage on Yes Bank with a BUY recommendation and a price target of Rs 230.

Yes Bank is India’s youngest private bank, has grown rapidly and profitably, and delivered strong stock returns. This is a Structural play given growing Indian banking opportunity, strong management and execution capability, scarcity value of new private banks; and 2) Cyclical play on easy liquidity, stable asset quality, continued economic growth. If the environment holds, Yes Bank should be a large beneficiary; else, it could be vulnerable.

Based on growth, track record, and positioning, Yes is a wholesale bank. It has excelled in corporate and advisory businesses, expanded focused asset book, and kept risks low. Its retail business, though still in the making, should add another leg to growth and returns.

Citi believes franchise and value enhancement will be driven by more balance in a) deposits – low cost retail from wholesale, b) fees – transaction banking and retail from advisory, and c) assets – more diversified mix from current mid market.

Yes Bank is expected to grow earnings by 56% and loans by 70% over FY07-10E, driving ROEs to a strong 17% in FY09E. Diluted EPS for FY08 is expected to be Rs 5.65 and for FY09 it is expected to be Rs 8.18.

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