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Yes Bank (Price Rs. 273 (as on Jan 20 ), TP Rs. 330, ER 20.8%, EDY
0.0%, 1M) : 3Q11 Results: Good Quarter, But Near-Term Headwinds Likely
3Q11 profits up 52%; growth remains strong — Yes Bank’s 3Q11 profits
increased 52% yoy – led by its strong 66% loan growth and supported by
stable asset quality. Fee income growth was healthy at 21% yoy while
treasury income surprised on the upside. Net interest margins,
however, came under some pressure again & we expect continued tight
liquidity & its own modest funding mix to weigh on NIMs further. While
we remain longer-term positive on the stock, we do expect near-term
headwinds due to incrementally tougher macro environment.
P&L: Margins under pressure; fees and treasury gains surprise — Yes
Bank’s net interest margins declined 20bps qoq (280bps now) - third
consecutive quarter of NIM pressure. While management sounded
confident of a recovery, we believe tight liquidity, higher funding
costs and its own modest deposit mix will continue to pressure NIMs
near term. Fee income growth was healthy at 21% yoy and while
financial advisory retained the largest share, transaction banking and
retail fees also showed healthy growth, which seems promising. Cost
income ratio declined further to 35.8% (best so far) and also
supported overall profitability.
Balance sheet: High growth, stable quality, but challenges in funding
— Yes Bank has remained a high growth bank and this does raise its
risk profile, but it has managed asset quality quite well so far and
NPLs have remained low (0.2% currently) with healthy coverage levels
(283% overall coverage). However, we believe the lack of improvement
in the funding mix (10.2% low cost deposits) could hurt in a
challenging macro, and would expose it to greater interest rate risks.
Raise earnings, maintain Buy with Rs330 target — We are raising
earnings 12-15% over FY11-12E to incorporate higher loan growth
trajectory than estimated. Our EVA-based target price remains
unchanged at Rs330 per share as the impact of higher earnings are
offset by higher risk-free rate (8%) and lower loan spreads. We also
benchmark its fair value to 2.5x FY12E P/BV (from 3x earlier).
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Yes Bank (Price Rs. 273 (as on Jan 20 ), TP Rs. 330, ER 20.8%, EDY
0.0%, 1M) : 3Q11 Results: Good Quarter, But Near-Term Headwinds Likely
3Q11 profits up 52%; growth remains strong — Yes Bank’s 3Q11 profits
increased 52% yoy – led by its strong 66% loan growth and supported by
stable asset quality. Fee income growth was healthy at 21% yoy while
treasury income surprised on the upside. Net interest margins,
however, came under some pressure again & we expect continued tight
liquidity & its own modest funding mix to weigh on NIMs further. While
we remain longer-term positive on the stock, we do expect near-term
headwinds due to incrementally tougher macro environment.
P&L: Margins under pressure; fees and treasury gains surprise — Yes
Bank’s net interest margins declined 20bps qoq (280bps now) - third
consecutive quarter of NIM pressure. While management sounded
confident of a recovery, we believe tight liquidity, higher funding
costs and its own modest deposit mix will continue to pressure NIMs
near term. Fee income growth was healthy at 21% yoy and while
financial advisory retained the largest share, transaction banking and
retail fees also showed healthy growth, which seems promising. Cost
income ratio declined further to 35.8% (best so far) and also
supported overall profitability.
Balance sheet: High growth, stable quality, but challenges in funding
— Yes Bank has remained a high growth bank and this does raise its
risk profile, but it has managed asset quality quite well so far and
NPLs have remained low (0.2% currently) with healthy coverage levels
(283% overall coverage). However, we believe the lack of improvement
in the funding mix (10.2% low cost deposits) could hurt in a
challenging macro, and would expose it to greater interest rate risks.
Raise earnings, maintain Buy with Rs330 target — We are raising
earnings 12-15% over FY11-12E to incorporate higher loan growth
trajectory than estimated. Our EVA-based target price remains
unchanged at Rs330 per share as the impact of higher earnings are
offset by higher risk-free rate (8%) and lower loan spreads. We also
benchmark its fair value to 2.5x FY12E P/BV (from 3x earlier).
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