Yes Bank - 2QFY2013 Result Update - Angel Broking

Yes Bank reported a strong performance for 2QFY2013. The bank's net profit grew by 30.2% yoy to Rs.306cr, higher than our estimates due to lower provisioning expenses than estimated by us. Strong momentum in savings account deposits, maintenance of healthy asset quality and strong loan growth during the quarter were the key positive takeaways from the results. We recommend Buy on the stock.

NIMs improve on lower cost of funds: For 2QFY2013, total Advances for Yes Bank grew by 22.9% yoy, while deposits increased by 18.6% yoy. Customer Assets (Loans & Credit Substitutes) growth was strong at by 32.5% yoy. Current and Savings Account (CASA) deposits grew by 86.7% yoy to taking the CASA ratio to 17.3% as of 2QFY2013 up from 11.0% as of 2QFY2012. Savings account deposits rose by 29.2% qoq, while increased by more than 4.5 times on a yoy basis. The significant traction in savings account deposits and easing in wholesale rates during the quarter helped the bank lower its cost of funds by 30bp sequentially to 8.7%. Hence, the NIMs of the bank improved by 10bp qoq to 2.9%. During 2QFY2013, the bank's non-interest income grew strongly by 29.4% yoy to Rs.277cr on account of healthy growth in all fee income streams. The retail fee segment witnessed a boost in 2QFY2013, growing by 114% yoy (although on a low base). On a positive note, the bank has already provided ~Rs.50cr on the Deccan chronicle account and has recovered around ~Rs.60cr through monetization of collateral assets. The net exposure remaining is ~Rs.60-70cr, on which, as per the management, the bank has sufficient collateral in the form of immovable tangible assets.

Outlook and valuation: Yes Bank has taken challenges of building a retail deposit base head-on, nearly doubling its branch network over the past 18 months to 400 branches and aggressively increasing savings rate to 7% as a smart customer-acquisition strategy. In our view, the bank is in a sweet spot, wherein retail franchise growth is likely to remain strong as large banks cede some market share to it rather than offering higher savings rates to their entire customer base. Even with retail growth prospects being stronger now, valuations at 2.0x FY2014E ABV are still cheaper than peers such as IndusInd Bank (Bloomberg consensus of 2.5x FY2014 ABV) as well as its own historical median (2.2x over FY2007-FY2012), providing a favorable risk-return trade-off in our view. Hence, we recommend Buy on the stock with a target price of Rs.473 and reiterate it as one of our top picks.

Source : Equity Bulls

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