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Yes Bank Ltd -Maintain Buy, but cut PO and earnings on macro headwinds
„Maintain Buy, but cut PO and earnings on macro headwinds
Yes Bk reported earnings of Rs1.9bn, a 52% yoy growth (6% ahead), driven by
lower provisioning. But we have cut our earnings by ~3% for FY11/12/13E to
factor in rising funding costs arising from macro headwinds (hence assuming
higher CoE) that will hurt bank’s margins. Hence, we cut our PO to Rs350.
However, we believe Yes Bank can still trade at 2.7x FY12E book as 1) we est.
profit growth of +45/30% through FY11/13, as it scales up distribution and 2)
RoE’s could expand to +22% by FY12 – and may sustain at +20% even if it were
to raise fresh capital, in our view. Further, the stock is down ~33% from recent
peaks and 15% in the last month on asset quality concerns but 3Q results reflect
that NPLs remain manageable.
3Q earnings beat estimates by 6% on lower prov.
Yes Bank reported earnings of Rs1.9bn (52% yoy growth) driven by lower than
est. provisioning. Top-line growth of 53% yoy was driven by 66% yoy loan growth.
Loan growth is down from +85-100% seen in last few quarters as mgmt. runs
prudency checks in the current environment. Margins, however, declined 30bps
yoy and 20bps qoq on rising funding costs, as CASA, despite growing 80% yoy, is
low at 10.2% (up 10bps yoy; flat qoq). Core fee growth at 21% yoy.
Sensitive sector risk low; Asset quality remains manageable
While Yes Bank has higher exposures to MFI loans (0.9% of loans), 2G loans
(7.6% of book) and CMRE (3% of book), mgmt. clarified that there are no defaults
to date. Although the bank’s gross NPAs rose 8% qoq, it remains manageable at
only 23bps (coverage at +75%). Moreover, the proposed recommendation for the
MFI sector should help the bank manage its MFI exposure better.
Price objective basis & risk
Yes Bank Ltd (YESBF)
We set our PO on Yes Bank to Rs350. We believe Yes Bank can still trade at
2.7x FY12E book as 1) we est. profit growth of +45/30% through FY11/13, as it
scales up distribution and 2) RoEs could expand to +22% by FY12 and may
sustain at +20% even if it were to raise fresh capital, in our view. Moreover, at our
target PE of 13x, we think the stock looks attractive, with earnings CAGR of +30%
through FY13E. Our PO is still at a +70% premium to Gordon multiples taking
RoEs at 22% and CoE at 14% factoring in potential high earnings growth and
high coverage (75% specific and +250% including general provisions). Downside
risks are a sharp rise in NPLs and an inability to manage growth.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Yes Bank Ltd -Maintain Buy, but cut PO and earnings on macro headwinds
„Maintain Buy, but cut PO and earnings on macro headwinds
Yes Bk reported earnings of Rs1.9bn, a 52% yoy growth (6% ahead), driven by
lower provisioning. But we have cut our earnings by ~3% for FY11/12/13E to
factor in rising funding costs arising from macro headwinds (hence assuming
higher CoE) that will hurt bank’s margins. Hence, we cut our PO to Rs350.
However, we believe Yes Bank can still trade at 2.7x FY12E book as 1) we est.
profit growth of +45/30% through FY11/13, as it scales up distribution and 2)
RoE’s could expand to +22% by FY12 – and may sustain at +20% even if it were
to raise fresh capital, in our view. Further, the stock is down ~33% from recent
peaks and 15% in the last month on asset quality concerns but 3Q results reflect
that NPLs remain manageable.
3Q earnings beat estimates by 6% on lower prov.
Yes Bank reported earnings of Rs1.9bn (52% yoy growth) driven by lower than
est. provisioning. Top-line growth of 53% yoy was driven by 66% yoy loan growth.
Loan growth is down from +85-100% seen in last few quarters as mgmt. runs
prudency checks in the current environment. Margins, however, declined 30bps
yoy and 20bps qoq on rising funding costs, as CASA, despite growing 80% yoy, is
low at 10.2% (up 10bps yoy; flat qoq). Core fee growth at 21% yoy.
Sensitive sector risk low; Asset quality remains manageable
While Yes Bank has higher exposures to MFI loans (0.9% of loans), 2G loans
(7.6% of book) and CMRE (3% of book), mgmt. clarified that there are no defaults
to date. Although the bank’s gross NPAs rose 8% qoq, it remains manageable at
only 23bps (coverage at +75%). Moreover, the proposed recommendation for the
MFI sector should help the bank manage its MFI exposure better.
Price objective basis & risk
Yes Bank Ltd (YESBF)
We set our PO on Yes Bank to Rs350. We believe Yes Bank can still trade at
2.7x FY12E book as 1) we est. profit growth of +45/30% through FY11/13, as it
scales up distribution and 2) RoEs could expand to +22% by FY12 and may
sustain at +20% even if it were to raise fresh capital, in our view. Moreover, at our
target PE of 13x, we think the stock looks attractive, with earnings CAGR of +30%
through FY13E. Our PO is still at a +70% premium to Gordon multiples taking
RoEs at 22% and CoE at 14% factoring in potential high earnings growth and
high coverage (75% specific and +250% including general provisions). Downside
risks are a sharp rise in NPLs and an inability to manage growth.
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