Yes Bank - 3QFY2014 Result Update - Angel Broking

Yes Bank reported healthy operating performance for 3QFY2014, which was ahead of ours as well as streets' expectations. Key highlights from the results were a) continued moderation in balance sheet growth, which led to a moderate NII growth of 13.9% yoy, b) stable margins performance at 2.9%, aided by full impact of base rate hike taken in last quarter, c) robust performance across all non-interest income segments and d) modest pressures on asset quality front in-line with macro environment.

Customer Assets growth remains moderates; NIMs stable qoq: During the quarter, the loan book and customer assets book (loans & credit substitutes) both continued to grow at a moderate pace (14.7% and 14.4%, yoy respectively). Deposits for the bank grew at a healthy pace of 20.7% yoy. Savings deposits continued to witness robust traction and grew by 55.4% yoy. Even the quarterly run rate of savings deposits accretion witnessed uptick compared to last few quarters. Overall, CASA deposits grew by 37.8% yoy, resulting in the CASA ratio increasing by 260bp yoy and 55bp qoq to 20.9%. NIMs for the bank remained stable qoq at 2.9%, as 20bp qoq increase in YoA (aided by full impact of last quarter's base rate increase) fully offset the 10bp qoq increase in CoF (which was on account of incremental cost of funds remaining elevated). During 3QFY2014, the bank's non-interest income grew strongly by 23.8% yoy to Rs. 388cr, aided by robust performance across all segments. The bank witnessed modest pressures on the asset quality front during the quarter. Of the slippages totaling Rs. 140cr during the quarter, the bank sold loans worth around Rs. 75cr to ARCs at a net realizable value of around Rs. 60cr. Gross and Net NPA ratios for the bank remain well under control and amongst the best in the industry at 0.39% and 0.08%, respectively. The bank witnessed no restructuring during the quarter.

Outlook and valuation: The bank's asset quality performance has been reasonable so far, with credit costs contained well below the management's guidance of 55-60bp for the year. The Management had identified 'adversely labeled assets' at around 1-2% of loan book (against which they already have provisions worth 0.4% of advances), which remain vulnerable of being bad and could result in higher credit costs if they turn so. However, with the yield curve now much moderate then earlier and increasing expectations of lower interest rates by early part of next fiscal, the stock is likely to re-rate going ahead, as valuations would factor in the growth potential. Currently the stock trades at 1.5x FY2015E ABV. We recommend a Buy rating on the stock, with a target price of Rs. 419.

Source : Equity Bulls

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