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Yes Bank Overweight
YESB.BO, YES IN
Delivering on ROEs
Yes Bank reported 1Q12 PAT of Rs2.16bn, up 39% y/y, which was ~4%
higher than our estimate. NII was lower than expected due to a surprise q/q
contraction in loan book but lower-than-expected opex and credit costs helped
offset lower fee income and NII. We maintain our OW as we expect Yes to
continue to deliver on growth with >20% ROEs and we think current
valuations at ~12.5x FY12E are undemanding.
Loan growth moderating: Loan growth has moderated to 26% y/y growth
as management opted to focus on margin preservation vs. growth in the
prevailing high interest rate environment. Large corporate book was down
6.5% q/q as the bank let some low-yielding assets run off in order to
preserve margins.
Resilient margins, in line: Margins have been relatively steady at 2.8%
over the last three quarters as a sharp increase in base rate/PLR and
repricing of loan book has helped offset increase in funding costs. Despite
the tough environment for wholesale funded banks, management’s tight
asset liability management has aided margins and with wholesale rate
coming off, we expect margins to remain relatively steady near term.
Asset quality better than expected: Asset quality remains robust with
Gross NPAs further coming off q/q. Credit costs adjusted for provision
write-backs improved to 20bps from 50bps in 4Q11. Credit costs are
currently tracking much lower than our ~65bps FY12 assumption.
Valuations reasonable, Maintain Overweight: We expect EPS growth of
+30% CAGR over FY11-14E and lower-than-expected credit costs could
lead to further upside. We think current valuations at 12.5x FY12E EPS are
undemanding and we expect the valuation discount of ~25% relative to
peers to narrow, given higher return ratios and growth. A fall in wholesale
rates and relatively steadier margins in the near term are key catalysts.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Yes Bank Overweight
YESB.BO, YES IN
Delivering on ROEs
Yes Bank reported 1Q12 PAT of Rs2.16bn, up 39% y/y, which was ~4%
higher than our estimate. NII was lower than expected due to a surprise q/q
contraction in loan book but lower-than-expected opex and credit costs helped
offset lower fee income and NII. We maintain our OW as we expect Yes to
continue to deliver on growth with >20% ROEs and we think current
valuations at ~12.5x FY12E are undemanding.
Loan growth moderating: Loan growth has moderated to 26% y/y growth
as management opted to focus on margin preservation vs. growth in the
prevailing high interest rate environment. Large corporate book was down
6.5% q/q as the bank let some low-yielding assets run off in order to
preserve margins.
Resilient margins, in line: Margins have been relatively steady at 2.8%
over the last three quarters as a sharp increase in base rate/PLR and
repricing of loan book has helped offset increase in funding costs. Despite
the tough environment for wholesale funded banks, management’s tight
asset liability management has aided margins and with wholesale rate
coming off, we expect margins to remain relatively steady near term.
Asset quality better than expected: Asset quality remains robust with
Gross NPAs further coming off q/q. Credit costs adjusted for provision
write-backs improved to 20bps from 50bps in 4Q11. Credit costs are
currently tracking much lower than our ~65bps FY12 assumption.
Valuations reasonable, Maintain Overweight: We expect EPS growth of
+30% CAGR over FY11-14E and lower-than-expected credit costs could
lead to further upside. We think current valuations at 12.5x FY12E EPS are
undemanding and we expect the valuation discount of ~25% relative to
peers to narrow, given higher return ratios and growth. A fall in wholesale
rates and relatively steadier margins in the near term are key catalysts.
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