Yes Bank - 1QFY2014 Result Update - Angel Broking

Yes Bank reported a strong operating performance during the quarter, which was on expected lines. NII expectedly grew by 39.6% yoy. Also, boosted by treasury gains of ~Rs.95cr, non-interest income registered a higher-than-estimated growth of 53.4% yoy, thereby aiding pre-provisioning profit growth of 47.9% yoy. Gross and Net NPA ratios remained largely stable at 0.22% and 0.03%, respectively. The bank used the opportunity created by higher trading gains to make floating provisions of Rs.75cr and as a result provisioning expenses more than tripled on a yoy basis, bringing bottom-line growth to a still strong 38.2% yoy.

Business growth robust; NIMs stable qoq: During the quarter, the bank registered a robust business growth, as its advances and deposits grew by 24.3% and 29.9% yoy, respectively. Customer Assets (loans & credit substitutes) grew at a robust pace of 24.2% yoy. CASA deposits grew by 61.1% yoy, thereby taking the CASA ratio to 20.2% up from 16.3% a year ago. Savings deposits rose by 120.6% yoy and 9.9% qoq to Rs.6,622cr. NIMs remained stable sequentially at 3.0%. The bank's non-interest income grew strongly by 53.4% yoy to Rs.442cr, as income from 'Financial markets' segment more than tripled on a yoy basis. During the quarter, the slippages remained low at Rs.25cr (annualized slippage rate of 0.2%). Restructured advances remained under check at 0.29% of gross advances.

Outlook and valuation: Overall, the bank has performed well so far on the asset quality front, with credit costs contained at ~35bp for FY2013. However going ahead, as per the management's guidance of 50-60bp credit costs for current fiscal and 'adversely labeled assets' at ~1-2% of loan book, a significant increase in provisioning costs for the bank can be expected from the current levels.

Recent liquidity tightening measures expose Yes Bank to margin pressures given the wholesale dominated funding nature of the bank. The Management has reiterated its intent to hike lending rates to mitigate the impact, in case the measures are not temporary in nature. Moreover, on its investment book, as per the Management, currently almost the entire Gsec book is at HTM, therefore no immediate MTM impact, while the net MTM impact on aggregate basis on the corporate bond portfolio is largely nil.

At CMP, after the sharp correction recently, the stock trades at a relatively more moderate valuation of 1.6x FY2015E ABV. However, we would prefer to wait and watch macro developments in the near term, before we revisit our outlook and rating on the stock. Currently, we maintain our Neutral rating on the stock.

Source : Equity Bulls

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