YES Bank - Core performance points to stabilisation; incremental trigger of stress pool sale - ICICI Securities

The revamped leadership (leveraging on the backing of leading shareholder banks, changed governance and underwriting framework) is stabilising and turning around YES from its downcycle. This is evident from its better-than-expected operating performance since past three quarters. It not only achieved but overshot (on a few parameters) the guidance articulated for FY22: 1) Exit quarter slippage run-rate managed at <2% (FY22 @ 3.5%), credit cost contained below 1%, net labelled exposure bought down to 5.3%, 2) NIM profile gradually improved to 2.5% (from lows of 1.6%), 3) retail + SME advances grew 26% taking mix towards target level of 60%, and 4) deposit growth of 21% supported contraction in CD ratio to 92% (from peak of 163%) with CASA ratio at 31%. Incremental trigger will be formation of ARC and transfer of bulk of its stress pool (anticipated to conclude in H1FY23). Cost structure, however, is hovering high with cost to income at >70% and cost to assets at 2.4%.

After pencilling in RoAs of 0.4% for FY22, driving it up towards FY23 target of 0.75% and 1.0-1.5% by FY25 will require advance growth scale up to mid-teens and cost efficiencies, besides further improvement in NIM trajectory and sustained credit cost. We expect RoA profile of 0.6% / 0.7% for FY23E / FY24E. There is turnaround in relevant operating metrics and improved confidence in stability of franchise. Nonetheless, we remain cognisant of risks from delay in resolution of stress pool, net labelled exposure of 5.3%, modest RoE profile during transition and supply overhang post the expiry of lock-in shares. We maintain HOLD with an unchanged TP of Rs14.

YES Bank reported >37% QoQ growth in PAT to Rs3.67bn in Q4FY22, ahead of our expectations, primarily due to lower credit cost and further NIM expansion to 2.5%. Positively, earnings momentum primarily flowed from core business stabilisation more than offsetting treasury loss of Rs260mn. Operating profit was up 6% QoQ. NIM improved 5 bps QoQ to 2.5% that supported 3% QoQ growth in NII.

Shares of Yes Bank Limited was last trading in BSE at Rs. 13.79 as compared to the previous close of Rs. 13.63. The total number of shares traded during the day was 24185455 in over 18073 trades.

The stock hit an intraday high of Rs. 14.51 and intraday low of 13.65. The net turnover during the day was Rs. 337700775.00.

Source : Equity Bulls

Keywords

YesBank INE528G01035 Q4FY22 FY2022 ResultUpdate ICICISecurities