More of the same YES Bank:: HDFC Sec

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More of the same
YES Bank’s results were inline with our estimates
with core/net earnings growth of 37/30%
respectively. Strong growth momentum and
continued traction in non-interest income were the
only positives. Flat QoQ NIM (despite fall in
wholesale rates), slowest improvement in CASA ratio,
and faster capital consumption were disappointing.
Further, asset quality continues to deteriorate with
G/NNPA up 25/20% QoQ along with rise in o/s
restructured pool to 26bps.
While the reported headline asset quality remains
impeccable for the bank, we continue to remain
cautious given the tilt towards large corporate & a
relatively high exposure towards sensitive sectors.
Further, the recent growth in credit substitutes
(lower yield), sharp rise in retail TD & slower CASA
traction instills a sense of doubt with regards to NIM
improvement. Relatively bulky fees and lower
provisioning cost look unsustainable which might
add to the volatility in earnings. Maintain NEUTRAL
with a revised TP of Rs 804 (2.1x FY17E ABV).
 Combination of (a) build up of excess SLR (b) QoQ rise
in low yield credit substitutes (c) modest improvement
in CASA, led to flat QoQ NIM of 3.2%. Flat NIM was
disappointing in the context of rise in CD ratio, fall in
the wholesale rates and QoQ decline in share of bulk
deposits. We factor NIM (calc.) of 3.1% over FY16-17E.
 Slippages were lower QoQ at Rs 670mn (ann. 0.4% of
loans). However, with lower reductions (nil sales to
ARCs), G/NNPA increased 25/20% QoQ to form
42/10bps of loans respectively. O/s restructured pool
increased to Rs 1.7bn, 26bps of loans (vs. 19bps QoQ).
We factor slippage/provision cost of 80/62bps
respectively over FY16-17E.
 Favorable base and improved sentiment led to pick up
in loan growth +32/7% YoY/QoQ driven by corporate
loans (~69% share). Improvement in CASA (%) further
moderated to a mere +12bps QoQ (slowest in the last
12 quarters) to ~22.6%. Despite increasing its presence
(added 170 branches over FY13) & adding more retail
products, the B/S and P&L continues to be bulky in
nature. We factor loan CAGR of 28% over FY14-17E

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3010713