(India) YES BANK - Long Term Buy (at Rs.185)Recommending YES BANK as a long term buy, at around 180-185 levels.
YES Bank is one of the TOP-5 private sector banks in India, along with others like ICICI Bank, HDFC Bank, KOTAK etc.
Its loan book, NPAs, OPM, PAT numbers etc. are in line with other top private banks (as it should be), but the recent sharp sell-off (due to CEO's resignation & slight IL&FS exposure), might have created a LT buying opportunity.
SCALE: Has a loan book of ~ Rs. 2.1 Lac Cr (deposits & advances each).
PROFITABILITY: Net Profit YE Mar 2018 = Rs. 42Bn (TTM upto Nov2018 ~ Rs. 45B)
MARKET CAP: Rs. 444Bn (@ CMP Rs. 192.5) ... as of Nov2018
P/E Ratio: 10x (444B / 45B) .... which is very low compared to 25-30x of other large Private Banks.
SELL-OFF: There was a sharp sell-off in YES BANK from Aug-Oct 2018, with shares dropping from 393 to 184 (-53%).
RBI asked YES BANK chairman to step down, due to some discrepancy in NPA reporting. Additionally, in the last earnings call they reported Rs.2600Cr exposure to IL&FS (which even if considered zero/written-off), is just 1% of the total deposits (Rs. 2.1LacCr). So, structurally I do not see these things impacting the long term profitability, AND/OR much of it is discounted in the 50% price drop (& valuation / PE contraction from 21x to 10x annual earnings).
So, recommending a buy around 180-185 level (vs. CMP 192). Doubling of the PPS from here (PE doubling 10x to 20x) would roughly put it in line with the remaining Private sector banks. Timeline - long term.
CAVEAT 1:
Technically, if it closes below 185 on a closing basis ... do average out. And, get back in if it recovers. OR,
Average-in more at the next support (around Rs. 132).
CAVEAT2:
Investing in INDIVIDUAL stocks is always tricky, because of the unknown future news, & can be highly VOLATILE.
So be prepared to average in more if a stock drops 50% from your initial purchase, and even more on further drop, etc, before giving up.
Otherwise, vs. individual stocks ... consider investing in the top ETFs (NIFTY 50, or NIFTY NEXT 50) for a well diversified approach to Long Term investing (for a steady growth with the GDP & economy).
