Yes Bank announced recently, on expected lines, its intentions to raise capital (apart from debt) via the Follow-on Public Offer (FPO) route.
The bank plans to raise about Rs2,000 crore to fund its balance sheet growth over the next several years, with around Rs1,250 crore of this amount being in the form of equity.
With the economic outlook improving and also on account of wholesale deposit rates coming down sharply - which is especially advantageous for wholesale funded banks such as Yes Bank – the bank has guided for a more optimistic growth outlook of about 45% CAGR for the next few years.
We believe the bank mainly suffers from a weak deposit franchise and has seen a contraction in its fee income base due to the weak capital markets and problems in forex derivatives.
The bank could face increasing asset quality pressures, going forward, as its loan book seasons. That said, it has a well-defined strategy to expand its deposit franchise in the affluent segment and has an A-list management to execute the same.
The bank has also demonstrated its ability to raise equity capital from marquee investors at large book-accretive premiums.
At the CMP, the stock is trading at 1.7x its FY2011E ABV. We maintain a BUY on the stock, with a target price of Rs156.