Yes Bank -Strong performance, likely to continue… :: ICICI Securities, report

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Strong performance, likely to continue…
• Profit grew 30% YoY to | 540 crore vs. our estimate of | 547 crore
led by stronger-than-expected NII growth of 36% YoY to | 908 crore
• Asset quality disappointed with GNPA increasing to 0.42%, up from |
222 crore to | 278 crore QoQ. NNPA rose to | 65 crore vs. | 54 crore
• Credit and deposits grew higher than estimates at 32% YoY (| 66606
crore) and 23% YoY (| 82370 crore), respectively. As a result, NII
surged 36% YoY to | 908 crore vs. | 882 crore expected. Building the
liquidity coverage ratio under Basel III led to margins remaining
stable at 3.2% in spite of cost of funds being 20 bps lower
• Other income grew 38% YoY to | 537 crore vs. | 566 crore estimated
as treasury gain was lower than expected at | 99.6 crore. Retail fees
improved QoQ to | 72.9 crore vs. | 58.3 crore, due to higher growth
and retail sales
Version 2.0 to fall short of target, credit to grow at healthy 19% CAGR
Version 2.0 aims to achieve 750 branches, 3000 ATMs, | 1.25 trillion
deposit, | 1 trillion credit, 30% retail/SME credit and 30% CASA ratio by
FY15E. Largely, it aims to strengthen the retail presence on both the
deposit (low cost CASA to reduce CoF) and credit (retail is high yielding)
front. The bank is likely to fall short of its target by 15-20% in majority of
the parameters. Historically, credit has grown at a brisk pace of 53.9%
CAGR in FY08-11 to | 34364 crore while over FY11-14 growth has been
modest at 16.8% CAGR to | 54755 crore. Credit is expected to grow at
22% CAGR to | 82876 crore to support 22% NII CAGR over FY14-16E.
Though wholesale funded business – NIM well managed at 2.8-3.0%
On the liability side of the balance sheet, around 58% (~| 44000 crore) of
Yes Bank’s deposits is wholesale funded that is highly sensitive to interest
rate unlike steady retail deposits. However, with gradual CASA build to
23%, the bank has consistently managed its NIM. On declining interest
rates, we factor 15 bps NIM surge in both FY15E and FY16E each to 3.3%.
Superior asset quality to be maintained
On the asset side, the bank has ~85% exposure towards corporates,
which poses concentration risk. Large corporate (sales above | 1000
crore) constitute 68% while mid-corporate, SME & retail combined is
31.3%. Despite having major exposure to corporate, asset quality is
stable with GNPA of | 278 crore (0.42% of credit), NNPA of | 65 crore
(0.09% of credit) and restructured assets of | 170 crore vs. | 116 crore in
Q2. We raise GNPA to | 418 crore and NNPA to | 85 crore by FY16E.
Profitability, return ratios to stay robust
The profit of Yes Bank has grown at a strong pace of 39.5% CAGR from
| 305.7 crore in FY09 to | 1617.8 crore in FY14. Going ahead, we expect
PAT to grow at 27% CAGR to | 2617 crore over FY14-16E as we raise
credit growth to 24% vs. 22% CAGR with NIM improvement to 3.3% by
FY16E. We introduce FY17E with PAT expected at | 3374 crore, loan book
of | 10500 crore and calculated NIM at ~3.5%.
Continued performance may result in re-rating; maintain BUY, raise TP
In the past five years, the bank has consistently delivered 1.5%+ RoA and
20%+ RoE, which is estimated to be maintained during FY14-16E. We
raise our PAT CAGR expectation over FY14-16E from 26% to 27% and
29% for FY17E, increasing our credit growth and margin estimates.
Rolling over to FY17E, valuing at 2.1x FY17E ABV, we raise our target
price to | 890 from | 797 earlier. We maintain BUY rating on the stock.

LINK
http://content.icicidirect.com/mailimages/IDirect_YesBank_Q3FY15.pdf