Stock Views on YES BANK, CENTRAL BANK OF INDIA

CITIGROUP  on CENTRAL BANK OF INDIA

Citigroup values Central Bank at 135 per share. The key assumptions for the valuation are:

a) longer-term industry average spreads at 2.0%;

b) longer-term loan loss provisioning levels of 100 bps, in line with peers; and

c) lower equity-to-assets ratio of 4.5% as compared to industry average of 6.0%, as Central Bank is relatively more leveraged than peers.

 

The valuation is premised on an 8.0% risk-free rate, consistent with the assumptions for Indian banks. Alternatively, Citigroup benchmarks Central Bank's valuations on a P/BV of 1.0x 1 year forward. This values the bank at 150 per share. The fair value P/BV for Central Bank is at a significant discount to large well-run peers. This discount is warranted given Central Bank's: 1) Low capital levels and likely near-term capital infusion; 2) Lower-than-peers' profitability levels; 3) Lower-than-industry asset quality and relatively higher delinquency levels; and 4) Slower-than-peers' technology rollout, which inhibits faster growth in fee income in the near term.

RELIGARE on YES BANK

Religare upgrades Yes Bank from 'Hold' to `Buy' with a target price of 380, translating into an upside of 17% from current levels. The stock has underperformed the BSE Bankex by 18% over the last six monthswhile Religare remains mindful of Yes Bank's weak liability franchise, more so in a tight liquidity environment, they believe that the impact on net interest margin is likely to be limited given that 95% of the bank's asset book remains floating in nature and has a duration of less than one year. Apprehensions on asset quality stemming from exposure to micro finance and the telecom sector persist, but appear overdone. Religare keeps the numbers unchanged for now as they are already factoring in a 15 bps compression in net interest margins and higher credit costs through FY12. In Religare's view, current valuations are attractive given Yes Bank's high growth profile and healthy return on equity.