Yes Bank – Delivering on re‐rating catalysts 􀂄 :: Prabhudas Lilladher,

Yes Bank – Delivering on re‐rating catalysts
􀂄 NIM outlook positive: Yes Bank's margins have inched up in Q2FY13 to 2.8%
(10bps QoQ) after stagnating at ~2.7% for the last 5-6 quarters. Being largely
wholesale funded, Yes Bank has started to gain from easing rates (CD rates
down 70-80bps and AAA yields down 50bps in last 3mnts) and we believe
margins to continue to gain over the next 2-3 quarters. Loan book will reprice
early as ~90% of Yes Bank's book is either floating in nature or with maturity of
<12 6-7="6-7" a="a" book="book" built="built" however="however" investment="investment" is="is" large="large" last="last" months.="months." months="months" over="over" p="p">largely fixed in nature and will prevent asset yields.
􀂄 Underlying liability and fee income momentum strong: (1) Yes Bank's
momentum on SA accretion has remained the strongest of banks which
increased SA rates - Higher SA rate offer has led to significant increase in ticket
size (2x since SA de-reg). Though interest rate sensitivity will remain high for
Yes's SA franchise, the management has guided to keeping SA rates relatively
high in the medium term. (2) Fee income momentum also continues to remain
strong despite moderating B/S growth and is driven by all round performance
rather than deal related corporate fees/treasury.
􀂄 Asset quality comfortable despite some exposure to stress accounts: Q2
highlights Yes Bank's superior credit underwriting as this bank was the only bank
to recover some loans from Deccan due to superior collateral structures. Credit
costs have remained at just ~30bps despite Yes providing Rs0.6bn for their
Deccan exposure. Yes has exposure to some stressed accounts like Suzlon
(Rs2bn) but we believe higher credit costs assumptions factor these stress.
􀂄 Valuations reasonable; ROEs high even on diluted basis: Yes generates ~22-
23% ROEs which is among the highest in the industry and valuations on a PE
basis is extremely reasonable for a bank with negligible thermal power
exposure. An impending dilution will be ~15% book accretive leading to
favorable valuations of 1.88 on FY14 book without denting ROEs <18-19 p="p">

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