Buy Yes Bank - Motilal Oswal

• Mkt Cap USD2.2b
• CMP Rs298
• Buy

Yes Bank posted 1QFY11 PAT growth of 56% YoY to Rs1.6b (against our estimate of Rs1.4b), driven by strong loan growth (up 107% YoY) and other than expected provisions. Non-interest income declined by 10% QoQ and 5% YoY to Rs1.4b due to a fall in financial markets income, however income from financial advisory remains strong. Key highlights include:

- Loans grew 107% YoY and 18.3% QoQ driven by higher disbursements in the corporate and institutional banking (C&IB) segment. Part of this growth can be attributed to disbursement in the telecom sector (largely short-term) and the infrastructure space.

- NIM declined 10bp QoQ to 3.1% (stable YoY) led by fall in yields on loans. CASA deposits in absolute terms grew 118% YoY resulting in CASA ratio improving 100bp YoY to 10.5%.

- Other income declined by 5% QoQ due to a fall in income from financial markets (a sharp drop in treasury gains and lower volumes in debt capital markets). Core non-interest income was Rs1.4b against Rs1.1b in 1QFY10. While financial advisory showed strong traction QoQ and YoY, a sequential decline in transaction banking income disappointed.

- Asset quality improved with GNPA ratio at 0.23% and net NPA ratio at 0.04%. PCR was 81% (v/s 78% in 4QFY10).

Valuation: Yes Bank trades at 11.9x FY12E EPS of Rs25 and 2.3x FY12E BV of Rs130. RoA is likely to remain strong at ~1.5% and increased leverage will drive RoEs to ~20%+ in FY11 and FY12. Maintain Buy with a target price of Rs325.

Source : Equity Bulls

Keywords