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Research
YES Bank - Strong growth to continue; valuations attractive - Religare
Posted On : 2013-07-04 21:21:07( TIMEZONE : IST )
We recently interacted with the senior management of YESB - the bank is guiding for a healthy 24-25% advances growth, but customer assets growth will be marginally lower due to a subdued growth in credit substitutes. Any change in mix towards high-yield assets and CASA improvement of 350bps-400bps will improve NIMs. The management remains confident of maintaining asset quality and could use treasury profit to boost provisions. We remain positive and maintain BUY with a March'14 TP of Rs 600/share.
- Business growth higher than industry; CASA traction to continue: We believe that customer assets growth would remain at 20%+ YoY, driven by a 24% YoY growth in advances in FY13. Moreover, as per the management, growth could be driven by higher yielding retail assets and mid-corporate segment (where higher pricing power will lead to higher yields). CASA mobilizations remain healthy and we expect CASA proportion to improve from 18.9% in FY13 to 22.5%/25.5% in FY14/FY15.
- NIMs to improve: As per the management, NIMs could improve by ~15bps in FY14 (Q4FY13 reported NIMs at 3.0% as against FY13 NIMs of ~2.9%) due to higher yields on assets and improvement in CASA; however, we conservatively build in only 8bps improvement in FY14. Other income growth could remain strong driven by robust fee income growth and treasury profit. As per management, treasury portfolio is sitting on healthy mark-to-market gains due to correction in wholesale rates.
- Asset quality healthy; credit costs to be contained at 50bps: The bank remains confident on maintaining its asset quality, but AP portfolio (exposure of ~Rs 900mn in which the bank has already provided ~Rs 150mn) will be classified as NPLs. The bank is also likely to use treasury profits to boost its provision coverage.
- Preferred private-sector pick: We are bullish on YESB and believe that risk-reward is favourable post the recent correction (valuations at 2.0x FY14E BV/11x FY14E EPS) given an earnings CAGR of 24%, strong ROEs (20%+) and low impaired assets.
