Yes Bank - Lower provisions help sustain earnings... - ICICIdirect

Yes Bank's Q3FY14 net profit of Rs. 416 crore, up 21% YoY and 12% QoQ, was in line with our estimate but above consensus estimates. Earnings were supported by lower-than-expected provisions of Rs. 13 crore. There was MTM related provision write-back of Rs. 52 crore on bond portfolio. NII growth was lower-than-expected at 14% YoY to Rs. 665 crore despite stable NIM of 2.9% QoQ owing to lower-than-expected loan traction of 14.7% YoY to Rs. 50293 crore. Asset quality witnessed pressure with GNPA ratio rising 10 bps sequentially to 0.4%. Slippages for the quarter stayed constant QoQ at Rs. 140 crore. PCR fell ~700 bps QoQ to 78.4%. We largely maintain our estimates and our HOLD rating on the stock.

Deposit growth healthy led by CASA; other income declines sequentially

Business growth moderated to 18% YoY. Deposit growth though lower than estimated at 21% YoY to Rs. 68060 crore was better than the industry. It was mainly led by CASA deposits, which grew 38% YoY to Rs. 14246 crore. CASA ratio improved 50 bps sequentially to 20.9%. Saving deposits of Rs. 614 crore were mobilised in Q2 with total outstanding of Rs. 7624 crore. Other income fell 13% QoQ to Rs. 388 crore mainly owing to lower treasury income of Rs. 71 crore vs. 180 crore in Q2, which was due to one-off gain of Rs. 111.6 crore on IRS. The bank sold bad assets amounting to Rs. 62 crore to ARCs. Absolute GNPA increased by Rs. 64 crore QoQ to Rs. 196 crore. Fresh restructuring in Q3 continued to be nil with outstanding standard RA at Rs. 107 crore (0.21% of credit). During Q3, CIR increased to 41.6%, which was higher than usual trend of ~37% partly contributed by one-time fee paid for funds raised during the quarter.

Margins in Q4FY14 to be under pressure due to higher PSL lending

Concerns on margins owing to high reliance on short-term liabilities have come off owing to easing of short-term rates. However, the management indicated that meeting priority sector requirement would keep NIMs under pressure. For full year FY14E we estimate calculated NIM of 2.7%. Loan growth is expected to stay subdued compared to previous trend but slightly higher than industry as the focus is on maintaining quality.

Maintain our target price and HOLD rating

Return ratios for the bank continue to stay healthy considering the current scenario with RoE and RoA for Q3 at 24.4% & 1.6%, respectively. However, asset quality, though managed well & still acceptable compared to peers, has seen slippages staying elevated for past two quarters. Lower credit growth & NIMs could keep NII growth modest. We maintain HOLD.

Source : Equity Bulls

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