Yes Bank - Liability franchise continues to deliver... - Anitque

Yes Bank reported one more quarter of strong performance with net profits at INR3.42bn, in line with our estimates of INR3.47bn and above consensus estimates of INR3.24bn, on the back of strong traction in non fund income and healthy NII growth. Expansion in margins, benign asset quality ratios, improvement in retail term deposit mix and more specifically continued traction in saving deposit accretion and CASA ratio were key positives of the result.

Results highlights

Business trajectory healthy

Yes Bank's customer assets (advances + credit substitutes) grew strongly at 27% YoY to INR557bn, within which advances accounted for 78%, suggesting a faster traction in the credit substitutes segment. Growth in advances was largely driven by commercial banking (20% QoQ) and corporate segment (2% QoQ). Within loan portfolio, share of Retail loans declined marginally to 13.5%. Management continued to maintain their cautious outlook on macro and is guiding some moderation in loan growth.

Traction in CASA franchise continues; margin to remain at +3% levels for FY13e

Liability franchise for the bank continues to show improvement with overall share of CASA ratio improving by 100bps on sequential basis to 18.3% aided by strong traction in saving deposits accretion (27% QoQ). The overall share of savings deposits ratio has increased 130bps QoQ to 8.70% of overall deposit. Management highlighted that the bank continues to witness strong momentum in saving deposits customer acquisition. Retail banking liabilities (CASA + Retail Banking FDs) improved to 37.8% (vs. 30.7% in 2QFY13) and the management intends to increase the same to 45% by FY14e. Reported margins for the bank expanded by 10bps on a sequential basis to 3%, on the back of decrease in cost of funds and improvement in liability franchise. Furthermore, to strengthen its retail deposit base, the bank has added 12 branches and increased the employee headcount to 6,532 during the current quarter. Going forward, management intends to add 900 branches by FY15e and improve its CASA ratio to 30% levels.

Valuation and outlook

We believe that Yes Bank is likely to witness stable margins over the next couple of quarters given benign wholesale rates and impressive traction in savings franchise. Further, asset quality for the bank continues to remain best in class despite the challenging environment. The bank seems well on course to achieve its Version 2 strategy of 3.5% NIMs, 30% consumer finance book and 30% CASA. Hence, we are increasing our estimates for FY13e and FY14e by 14% and 9% and have upgraded our target price to INR558 based on 2.8x FY14e P/BV. Reiterate BUY.

Source : Equity Bulls

Keywords