Accumulate Yes Bank - Angel

For 3QFY2012, Yes Bank reported a strong performance. Net profit grew by 32.9% yoy (8.1% qoq) to Rs.254cr, above our estimate of Rs.234cr. Profit growth was driven by healthy growth in operating income and lower-than-expected provisioning expenses. The robust traction in saving account deposits and maintenance of healthy asset quality profile were the key positive takeaways from the results. We maintain our Accumulate rating on the stock.

Business growth picks up a bit, CASA traction strong and stable asset quality: The bank's business growth picked up a bit during the quarter as compared to 2QFY2012. Advances grew by 15.3% yoy (4.9% qoq) and deposits grew by a rather healthy 19.5% yoy (6.5% qoq). CASA deposits accretion was robust at 22.2% qoq and 46.5% yoy. The bank had aggressively hiked the saving account interest rates immediately post the de-regulation which helped the bank in strengthening the weak link in its liability franchise. Saving account deposits growth was a robust 40% qoq and almost 100% on a yoy basis, consequently the CASA ratio improved by a substantial 162bp qoq to 12.6%. Reported NIM declined albeit by a marginal 10bp to 2.8%. The rise in cost of funds (30bp qoq) was only partly compensated by the 20bp qoq rise in yield on advances. The bank maintained its strong asset quality profile during the quarter as well, with gross NPA ratio declining by 10bp qoq to 0.2% and the net NPA ratio remaining stable sequentially at a marginal 0.04%. Provision coverage ratio (excluding technical write-offs) also remained stable sequentially at 80%.

Outlook and valuation: Yes Bank's growth premium has reduced over time due to execution challenges (now trading at 2.0x due to cyclical slowdown vs. five-year median of 2.5x). However, taking the challenges of building a retail deposit base head-on, the bank has more than doubled its branch network over the past 18 months to 331 branches and aggressively increased savings rate to 7% as a customer acquisition strategy. While it has fallen short of its retail expansion goals in the past and challenges remain significant, valuations at 2.0x FY2013E ABV in our view provide a reasonable upside from current levels. Hence, we maintain our Accumulate recommendation on the stock with a target price of Rs.367.

Source : Equity Bulls

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