Maintain 'HOLD' on Yes Bank – TP increased to Rs.418 - Geojit BNP Paribas

- Yes bank's performance (margins and asset quality) was above expectations.

- The bank's CASA ratio improved to 17.3% from 16.3% on higher savings which was up 435% YoY and up 29%, QoQ. Savings/total assets rose from 10.4% to 10.9%.

- Cost of funds declined by 30 bps to 8.7% QoQ, reflecting a moderation in wholesale rates. Yields remained steady at 12.4% resulting in a 10bps, QoQ, margin improvement to 2.9%.

- There were no restructured loans (currently 0.46% of loans) during the quarter.

- In the troubled Deccan Chronicle exposure, a third has been recovered, a third provided for while a third still remains on its books.

- The bank has maintained NIMs but sacrificed growth as expected, since its growth multiples may be impacted under the Basel III norms.

- However, moderation in bulk deposit costs is expected and higher loan growth remains the key near-term profit driver for the bank. Its current Tier-2 to Tier-1 ratio is 85% (max 100%) and thus raising capital could be an additional near-term catalyst.

- Although the asset quality has improved, which is commendable, the sustainability of these levels is a concern. In spite of the bank's business strategy, which we are positive on, it is due to the dual concerns of lower growth and asset quality sustainability that we currently have a Hold rating on the stock.

- NIMs are expected to improve by 11bps in FY13 and 20bps in FY14 and earnings forecasts have been raised by 9-10% over FY13 and FY14. As a result, although HOLD recommendation is maintained, the TP has been increased to Rs.418 (from Rs.331), over a period of one year.

- Upside/downside risks: Higher / lower earnings growth and sustained improvement / deterioration in asset quality.

Source : Equity Bulls

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