Express Idea - Yes Bank

India Infoline News Service | Mumbai |

Yes Bank’s loan growth has picked-up over the past few quarters suggesting improving willingness to lend vis-a-vis investing in credit substitutes.

CMP  Rs448, Target Rs510, Upside 13.8%

Loan growth to improve   

Yes Bank’s loan growth has picked-up over the past few quarters suggesting improving willingness to lend vis-a-vis investing in credit substitutes. We see this trend continuing in the current year as credit cycle stabilizes and interest rates decline. We estimate loan growth improving to 27%/32% in FY14/15.


Increasing granularity of deposits  

Driven by substantial network expansion and higher savings rate offered, CASA continues to grow ahead of overall deposits. CASA ratio improved by 400bps in FY13 and is estimated to improve by similar extent in FY14 and FY15 supported by continued aggressive network addition and improving maturity of the new branches. Share of retail franchise (SA + Retail TDs) within deposits has increased to ~26%, moving in-line with bank’s strategy of adding granularity.


NIM to improve by 15-20bps through FY14

Near term and longer term margin outlook is positive for Yes Bank. While substantial CASA expansion and improving asset mix would be structural levers, benign wholesale rates and planned capital raising (up to US$500mn) would be cyclical factors driving NIM improvement. We see strong scope of NIM improving by 15-20bps through FY14 and 10-15bps through FY15. NII growth is estimated to be 32% pa on balance sheet growth of 24% pa over FY13-15.


Operational metric being managed well

Robust revenue growth has enabled Yes Bank to absorb the impact of substantial branch investments without diluting its operational metric. With strong traction in non-interest income likely to continue and material margin expansion underway, the cost/income ratio is estimated to be contained within 40% in FY14/15 notwithstanding continued network expansion.


Superior RoAs and earnings growth delivery to continue

Asset quality has behaved well with diversified, granular and short‐term nature of the corporate and commercial banking book. Bank’s guidance of 50‐60bps credit cost for FY14 (including scope for counter‐cyclical buffer) and a high PCR of 93% allay anxiety in a stressed macro. Despite higher provisioning, we do not envisage any dilution in bank’s RoA and earnings growth delivery. Further, the book value is likely to get a boost from the impending capital raise.


Financial summary
Y/e 31 Mar (Rs m)
FY12
FY13E
FY14E
FY15E
Total operating income
24,728
34,762
45,571
58,617
Yoy growth (%)
32.2
40.6
31.1
28.6
Operating profit (pre-provisions)
15,402
21,417
27,821
35,543
Net profit
9,770
13,007
16,619
21,655
yoy growth (%)
34.4
33.1
27.8
30.3





EPS (Rs)
27.7
36.3
40.7
53.0
Adj. BVPS (Rs)
132.0
161.8
235.1
278.4
P/E (x)
16.3
12.4
11.1
8.5
P/Adj.BV (x)
3.4
2.8
1.9
1.6
ROE (%)
23.1
24.8
21.5
20.5
ROA (%)
1.5
1.5
1.5
1.6
Source: Company, India Infoline Research
BSE 316.05 12.10 (3.98%)
NSE 315.90 12 (3.95%)

***Note: This is a NSE Chart

 

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