EARNINGS REVIEW
Yes Bank (YESB.BO)
Buy Equity Research
In line with expectations on core, growth at attractive valuations; Buy
What surprised us
YESB reported 1QFY14 PAT of Rs4bn (+38% yoy), which is 9% above GSe and
6% above Bloomberg consensus. Core was inline. Key highlights: 1) NII grew
40% yoy to Rs6.6bn (2% below GSe) driven by 24% yoy growth in advances and
20bps yoy improvement in NIMs to 3% (flat qoq). We believe the spike in shortterm borrowing costs will be offset by higher CASA and lending rates. 2) CASA
ratio increased 130bps qoq to 20.2% driven by 10% qoq growth in savings
deposits while total deposits declined 3% qoq. We expect CASA to improve to
30% by FY16 vs. management guidance of 30% by FY15. 3)Non-interest
income saw robust growth of 53% yoy (28% above GSe) led by financial market
income that grew 84% yoy due to MTM gains on investments. However, given
recent rise in bond prices, YESB will likely not have any gains to book. Income
excluding treasury grew 37% yoy. 4)Operatingexpenses rose sharply (+40%
yoy, 9% above GSe) as the bank added 45 branches and over 430 employees in
1QFY14. 5) Asset quality remained stable with gross/net NPLs at 0.2%/0.03% of
loans. YESB made provisions of Rs971mn (GSe Rs687mn) or 0.8% of loans,
most of it towards floating provisions. While PCR dropped to 88.5% from 92.6%
in 4QFY13, the bank’s general and floating provisions stood at 1% of loans. Tier
1 ratio (Basel III) stands at 9.5%, comfortable to grow book modestly.
What to do with the stock
We tweak FY14E-16E EPS on 1QFY14 trends and retain our 12m RIM-based TP
of Rs600. Recent RBI moves to reduce liquidity in the system have led the stock
to fall 13% in the last 1M. While cyclical pressures exist, we think the market has
overreacted and is ignoring YESB’s growth potential as it expands its branch
presence, CASA ratio and market share. YESB is trading at 2X FY14E BV vs. EPS
CAGR of 23% (FY13-FY16E) and avg. ROA of 1.6% (FY14E-16E). We find
valuations compelling; still Buy. Risks: higher interest rates, slower growth
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Yes Bank (YESB.BO)
Buy Equity Research
In line with expectations on core, growth at attractive valuations; Buy
What surprised us
YESB reported 1QFY14 PAT of Rs4bn (+38% yoy), which is 9% above GSe and
6% above Bloomberg consensus. Core was inline. Key highlights: 1) NII grew
40% yoy to Rs6.6bn (2% below GSe) driven by 24% yoy growth in advances and
20bps yoy improvement in NIMs to 3% (flat qoq). We believe the spike in shortterm borrowing costs will be offset by higher CASA and lending rates. 2) CASA
ratio increased 130bps qoq to 20.2% driven by 10% qoq growth in savings
deposits while total deposits declined 3% qoq. We expect CASA to improve to
30% by FY16 vs. management guidance of 30% by FY15. 3)Non-interest
income saw robust growth of 53% yoy (28% above GSe) led by financial market
income that grew 84% yoy due to MTM gains on investments. However, given
recent rise in bond prices, YESB will likely not have any gains to book. Income
excluding treasury grew 37% yoy. 4)Operatingexpenses rose sharply (+40%
yoy, 9% above GSe) as the bank added 45 branches and over 430 employees in
1QFY14. 5) Asset quality remained stable with gross/net NPLs at 0.2%/0.03% of
loans. YESB made provisions of Rs971mn (GSe Rs687mn) or 0.8% of loans,
most of it towards floating provisions. While PCR dropped to 88.5% from 92.6%
in 4QFY13, the bank’s general and floating provisions stood at 1% of loans. Tier
1 ratio (Basel III) stands at 9.5%, comfortable to grow book modestly.
What to do with the stock
We tweak FY14E-16E EPS on 1QFY14 trends and retain our 12m RIM-based TP
of Rs600. Recent RBI moves to reduce liquidity in the system have led the stock
to fall 13% in the last 1M. While cyclical pressures exist, we think the market has
overreacted and is ignoring YESB’s growth potential as it expands its branch
presence, CASA ratio and market share. YESB is trading at 2X FY14E BV vs. EPS
CAGR of 23% (FY13-FY16E) and avg. ROA of 1.6% (FY14E-16E). We find
valuations compelling; still Buy. Risks: higher interest rates, slower growth
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