Yes Bank - Strong quarter; credit cost to move higher - Cholamandalam Securities

- PAT was at INR 3.62bn, up by 33% YoY led by robust income growth of 42% YoY
- NII grew by 42% YoY, up 9.2% QoQ. NIMs stable QoQ at 3.0%
- Loan growth at 24% YoY; asset growth (incl credit substitutes) grew higher at 31% YoY
- Non-interest income up 42% YoY continues to boost overall income (36% of total income)
- Savings deposits grew 18.7% QoQ; CASA deposits grew 22.7% QoQ, CASA up at 18.9%

Healthy NII, Other Income growth

YES Bank reported a healthy 42% YoY growth in total income as both NII growth and Other Income growth came in at 42% YoY. NII growth was driven by 21% QoQ growth in Investments as NIMs remained flat QoQ at 3%. Non-interest income growth was led by strong growth in financial advisory (up 62% YoY) and branch banking (up 91% YoY). Deposit growth was robust at 36% YoY as both CASA and Corporate FDs increased by 22% QoQ, while retail FD growth was flat. Customer assets grew at 31% YoY as credit substitutes increased by 64% YoY, while advances grew at a modest 24% YoY dragging down the C/D ration to 70% from 78% in 3QFY13.

Fee income growth strong across segments; higher guidance on credit costs

Fee Income growth at 42.4% YoY was strong across segments with Financial Advisory (up 62.4% YoY), TPD / Retail / Others (up 91.4%) and transaction banking (up 33% YoY) contributing to the high growth. YES Bank is likely to book some profits on its bond portfolio in FY14, due to fall in interest rates, which would be utilised for higher provisions. As a result, credit costs could be higher at 50 - 60 bps range as compared to 40 bps in FY13.

Asset quality continues to be strong; provisions healthy

Asset quality continues to remain very strong with GNPAs at 0.2% of loans and NNPAs at 0.01% of loans. YES Bank made an additional provision to shore up its Provision Coverage Ratio to 93% (80% in 3QFY13). Due to this accelerated provisioning, credit costs rose to 90 bps. Standard restructured advances constituted 0.3% of total advances.

Valuation: Given the High Margins, Growth, Return metrics, Asset quality, CASA growth, we assign a target 2.7X P/BV on FY14E and increase our target price to INR 590. We upgrade the stock to BUY due to the recent fall in stock price and increase in target price.

Risks: High dependence on fee income, credit substitutes. Capital raising in volatile markets might be a risk as markets are volatile

Source : Equity Bulls

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