YES Bank: Stable performance overall :: Kotak Sec,report

Please Share::

Stable performance overall. Overall trends were unchanged versus the previous
quarter with earnings growth of 30% yoy on the back of strong revenue growth. Noninterest
income growth continues to be driven by the financial advisory business, which
is the only key risk today. A strong tailwind led by improving macro, softening interest
rates/improving liability franchise and capital is driving our positive view on the bank.
Maintain ADD with TP raised to `800 (from `680 earlier) to factor earnings revision.

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->
Revenue growth gains traction; asset quality trends stable
Yes Bank delivered a stable performance that was broadly similar to the previous quarter on
most metrics. Earnings grew 30% yoy on the back of 37% yoy revenue growth. Provisions were
higher (5X yoy) as 3QFY14 had reversal of MTM provisions. Loan growth was strong at 32%
yoy while overall customer loans, including credit substitutes, grew 23% yoy. NII grew 37% yoy
primarily on the back of the recent capital infusion. Non-interest income grew 38% yoy
primarily on the back of strong growth in financial advisory (43% yoy, ~30% of PBT).
Contribution from treasury income was negligible in the current quarter. Impairment ratios
were stable with gross NPLs at 0.4% and outstanding restructured loans at 0.3% of loans.
Maintain ADD as tailwinds to business improving
We maintain our ADD rating on the bank and value the stock at `800 (from `680 earlier).
The revision to price is primarily on account of changes to earnings and medium-term growth
assumptions. We value the bank at 2.3X book and 14X September 2016E EPS for RoEs in the
range of 18% and 15% CAGR in earnings for FY2015-17E. The tailwinds to business have
improved as (1) the bank has a strong capital base with tier-1 ratio at 12%, (2) cost of
wholesale funds has started to decline and we are seeing steady improvement in headline
CASA ratio, which gives adequate headroom for the bank to focus on growth/NIM, and
(3) improving macro should ease concerns of impairment though we remain conservative as it
can be lumpy in nature.
Strong outperformance needs transition to retail, in our view
We believe that the next leg of re-rating after witnessing a strong price outperformance by the
bank is contingent on the ability to shift the business model towards retail. However, this is a
challenging exercise as corporate business delivers far superior returns as compared to most
traditional retail asset products. It is not only about the distribution network/product mix on the
assets side that defines the profitability of this business but also the requirement of funding mix.
Despite increase in the share of CASA ratio, we are not sure if this transition is likely to happen
over the next year. This could limit valuation expansion, in our view.

LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily15012015bc.pdf