Savings rate de-regulation was a boon - De-regulation of savings rate in October 2011 allowed Yes Bank to offer higher savings rate of 6-7%. Resultantly, CASA ratio improved from 11% to 18% over Q2 FY12-Q3 FY13. CASA momentum is likely to continue and the ratio is estimated to reach 24%/28% by FY14/15.
NIM in sweet spot - Being largely a wholesale bank, Yes Bank’s NIM has fared better during rate down cycle than rate up cycle. Softening of short-term rates has improved margin by 20bps over past two quarters and its downward bias bodes well. CASA ratio improvement would be a structural margin driver.
Robust fee franchise - Yes Bank has a well-distributed fee franchise. Despite a sharp macro slowdown, fee income is growing at robust pace aided by brisk traction in financial advisory, transaction banking and branch banking fees.
Resilient asset quality - Diversified, granular and short-term nature of the corporate and commercial banking book has stood in good stead for Yes Bank in the current credit cycle. Also, deliberate moderation in loan growth since start of FY12 is paying well. While GNPL and credit cost are expected to move up, it is unlikely to alter bank’s profitability.
Strong profitability to continue - Yes Bank has consistently delivered robust operating profit growth (average 35% yoy in past 11 quarters) despite substantial investment on network expansion. With asset quality behaving well, this has translated into persistent delivery of 1.5-1.6% RoA and 24-25% RoE. NIM expansion is estimated to drive 25% earnings CAGR over FY13-15 sustaining impressive RoA/RoE.
Recent stock price correction is a good entry point - The stock price has corrected by 16.7% over the past two months lowering valuation to a reasonable 1.8x FY15 P/adj.BV. Current valuation is also below six-year mean and at 35-40% discount to HDFC Bank. In our view, current levels provide good opportunity to participate in the profitable growth story of Yes Bank. Upgrade the stock to BUY with 9-month target of Rs531.
|Y/e 31 Mar (Rs m)||FY12||FY13E||FY14E||FY15E|
|Total operating income||24,728||33,296||41,351||51,734|
|Yoy growth (%)||32.2||34.7||24.2||25.1|
|Operating profit (pre-provisions)||15,402||20,287||24,765||30,835|
|yoy growth (%)||34.4||29.7||19.7||25.8|
|Adj. BVPS (Rs)||132.0||163.5||198.2||242.7|
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