YES Bank reported 3QFY14 PAT of INR4.2bn (growth of 21.4% y-y) vs
our expectation of INR4bn. The 3% PAT beat was largely driven by a
big MTM writeback offsetting lower NII. NIM remained flat q-q despite a
marginal core spread improvement. On asset quality, slippages were
lower compared to 2Q, while provision coverage dropped to 78% (85%
in 2Q) excluding countercyclical provision made during the quarter.
Key highlights and earnings call takeaways:
Loan growth getting more balanced – Loan growth of 14.7% y-y was
driven by s strong increase in retail and SME loans, while credit substitute
growth too moderated to 13.4% y-y. Refinance opportunities continue to
drive growth for the bank, which is now guiding to growing in line with
system for FY14F. Fee income growth was healthy at 16%y-y helped by
strong traction in retail/third party and transactional banking income. We
have built in 17.5% customer asset growth for FY14F.
Savings deposit traction picks up again, NIMs should improve – Yes
added INR6.1bn in savings deposits q-q (compared to INR3.9bn added in
the last quarter). Despite sluggishness in current account deposits, CASA
ratio clocked 50bps sequential improvement. The bank added 17
branches during the quarter taking the 9m total to 87 branches. YES
guided to marginal NIM improvement in 4Q. We continue to expect
support to NIMs for YES driven by increasing penetration in CASA rich
metros over the next 12-18months and addition of 125-130 branches.
Yield curve steepening aids strong MTM write-back, offsets one-off
opex charge - Yes was able to write back INR520mn of its INR1.1bn
MTM provision made last quarter as the yields on shorter end of its
corporate bond softened by 40-50bps q-q. Opex included one-off of
INR130mn towards its recent borrowing from IFC.
Asset quality stable, countercyclical buffer offers cushion – YES
didn’t do any fresh restructuring during the quarter, reporting some cash
recovery on existing restructured book instead. Slippages at INR1.3bn
(INR1.5bn in 2Q) included INR620mn sale to ARCs. Outstanding ARC
book is INR1.8bn (about 70% mark-down from the value of loans sold).
Outstanding countercyclical buffer is INR2bn (40bps of loan book),
sufficient to take care of adverse regulatory requirements like the recent
guidelines on providing for unhedged forex exposure of borrowers. LLPs
of 44bps for 3Q are in line with our FY14F estimate.
Capital raising not a necessity in FY14F – For 3Q, YES reported core
Tier-1 of 9.3% including 9m of PAT. YES indicated that it would look to
opportunistically raise equity, given the comfort of high RoEs. We have
built in 13% dilution in FY15F.
Valuation: YES currently trades at 1.4x our FY15F ABV of INR259 and
7.7x our FY15F EPS of INR45.7. At our TP, Yes bank would trade at 2.1x
FY15F ABV and 12x FY15F EPS.
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our expectation of INR4bn. The 3% PAT beat was largely driven by a
big MTM writeback offsetting lower NII. NIM remained flat q-q despite a
marginal core spread improvement. On asset quality, slippages were
lower compared to 2Q, while provision coverage dropped to 78% (85%
in 2Q) excluding countercyclical provision made during the quarter.
Key highlights and earnings call takeaways:
Loan growth getting more balanced – Loan growth of 14.7% y-y was
driven by s strong increase in retail and SME loans, while credit substitute
growth too moderated to 13.4% y-y. Refinance opportunities continue to
drive growth for the bank, which is now guiding to growing in line with
system for FY14F. Fee income growth was healthy at 16%y-y helped by
strong traction in retail/third party and transactional banking income. We
have built in 17.5% customer asset growth for FY14F.
Savings deposit traction picks up again, NIMs should improve – Yes
added INR6.1bn in savings deposits q-q (compared to INR3.9bn added in
the last quarter). Despite sluggishness in current account deposits, CASA
ratio clocked 50bps sequential improvement. The bank added 17
branches during the quarter taking the 9m total to 87 branches. YES
guided to marginal NIM improvement in 4Q. We continue to expect
support to NIMs for YES driven by increasing penetration in CASA rich
metros over the next 12-18months and addition of 125-130 branches.
Yield curve steepening aids strong MTM write-back, offsets one-off
opex charge - Yes was able to write back INR520mn of its INR1.1bn
MTM provision made last quarter as the yields on shorter end of its
corporate bond softened by 40-50bps q-q. Opex included one-off of
INR130mn towards its recent borrowing from IFC.
Asset quality stable, countercyclical buffer offers cushion – YES
didn’t do any fresh restructuring during the quarter, reporting some cash
recovery on existing restructured book instead. Slippages at INR1.3bn
(INR1.5bn in 2Q) included INR620mn sale to ARCs. Outstanding ARC
book is INR1.8bn (about 70% mark-down from the value of loans sold).
Outstanding countercyclical buffer is INR2bn (40bps of loan book),
sufficient to take care of adverse regulatory requirements like the recent
guidelines on providing for unhedged forex exposure of borrowers. LLPs
of 44bps for 3Q are in line with our FY14F estimate.
Capital raising not a necessity in FY14F – For 3Q, YES reported core
Tier-1 of 9.3% including 9m of PAT. YES indicated that it would look to
opportunistically raise equity, given the comfort of high RoEs. We have
built in 13% dilution in FY15F.
Valuation: YES currently trades at 1.4x our FY15F ABV of INR259 and
7.7x our FY15F EPS of INR45.7. At our TP, Yes bank would trade at 2.1x
FY15F ABV and 12x FY15F EPS.
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