Yes Bank - Tight liquidity to keep stock under pressure - ICICIdirect

We interacted with the management of Yes Bank to gauge the adverse impact of the sharp liquidity tightening post the RBI measures. If these measures persist, the bank expects NIM to dip 20-25 bps in FY14E post assuming a further base rate hike by the bank. The business growth may be modest on account of the current uncertain environment. No major stress in asset quality is seen and it is expected to remain stable. Global liquidity (QE tapering) is expected to be tightened soon, which may compel RBI to persist with high interest rates. This may keep the stock of Yes Bank volatile in the short-term. We maintain our HOLD rating.

Impact to be significant if tight liquidity persists

Yes Bank is a wholesale funded bank wherein short-term deposit constitutes a high proportion. About 81% of deposits mature within a year. However, CASA proportion (20%) is also classified within a year bucket that does not get re-priced at higher rates. About 25% of total deposits mature in Q2FY14E of which some will be re-priced ~1.2% higher. In order to mitigate rising cost of deposit, base rate has been hiked 25 bps to 10.75%. About 74% of its loan book is floating (linked to base rate) while ~15% of loan matures within a year and is likely to get re-priced. Management has guided YoA may improve ~20 bps in Q2FY14E due to base rate hike & CoF by ~20 bps due to tight liquidity scenario. Overall, NIM should not dip beyond 10 bps in Q2FY14E. However, if tight liquidity scenario persists, it may further hike base rate and sacrifice growth. On a net basis, it may lose out 20-25 bps NIM by Q4FY14E even if it further raises base rate. On other income front, corporate bond book is in a 'no gain/no loss' zone and if yields were to rise sharply from hereon (10 year G-sec at 8.4%), some MTM loss is seen.

Valuations not yet cheap enough to factor all negatives

The stock may remain volatile in the short-term as it is highly impacted by tight liquidity. RBI has indicated rates may remain high till rupee stabilises. Recent measures taken by the RBI relate to FCNR deposit and overseas borrowing will help reduce cost of fund marginally, thereby increasing our target price from Rs. 260 to Rs. 290. One may accumulate the stock gradually from a long term perspective below Rs. 225 levels as and when opportunity arises. The reversal of tight liquidity measures by the RBI remains upside risk to our call. We maintain HOLD rating.

Source : Equity Bulls

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