Hold Yes Bank; target of Rs 300: JM Financial
JM Financial’s research report on Yes Bank
RBI’s stance to cut short tenure of Mr. Rana Kapoor as MD&CEO to Jan 31st, 2019 as against the board’s request to grant a 3-year term has made us reevaluate our investment thesis on Yes Bank. We believe Mr. Kapoor’s presence at the helm of Yes Bank is an all-encompassing phenomenon at the bank and has a strong influence on the culture of the institution. As the board meets on 25th September 2018 to evaluate options, we see greater likelihood of external candidate taking charge over the next few months. Importantly, this phase of leadership transition will result into a slowdown in the bank’s industry-leading growth in our view, especially given that capital levels are low (CET1 at 9.5% as of Jun-2018). Yes Bank’s premium valuations historically were a clear derivative of its superior growth trajectory, ability to recover stressed assets (despite intermediate hiccups) and predictability of its earnings profile. In the current scenario, clarity on the aforementioned parameters is relatively lower than it was in the past.
As a result, we reduce our target multiple (based on fully adjusted BVPS) from 2.9x to 2x resulting to a target price of INR300 (against INR450 earlier).We downgrade the stock to HOLD. Ability of the bank to quickly ensure leadership transition and raise equity capital are key upside risks.
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