Yes Bank (Q4 FY14)

India Infoline News Service | Mumbai |

Yes Bank's customer assets (loans + credit substitutes) growth was along expected lines at 15% yoy. While there was a modest increase in the credit substitutes portfolio during the quarter, loan growth picked-up to 18% yoy from 14.7% yoy in the previous quarter.

CMP Rs468, Target Rs522, Upside 11.5% 
  • Loan growth picks-up; deposits franchise continue to strengthen 

  • NIM expansion on expected lines; to improve further in the medium term

  • Core fee growth remained strong ex-financial advisory; opex growth moderated sharply 

  • Asset quality improvement was a key positive; would pacify street's credit cost assumptions for FY15 

  • Retain BUY and raise 9-12 month target price to Rs522

Result table
(Rs mn) Q4 FY14 Q3 FY14 % qoq Q4 FY13 % yoy
Total Interest Income 25,681 25,141 2.1 22,877 12.3
Interest expended (18,485) (18,487) (0.0) (16,495) 12.1
Net Interest Income 7,196 6,654 8.1 6,381 12.8
Other income 4,455 3,879 14.9 3,794 17.4
Total Income 11,651 10,533 10.6 10,175 14.5
Operating expenses (4,847) (4,387) 10.5 (3,836) 26.3
Provisions (723) (133) 443.9 (975) (25.9)
PBT 6,082 6,014 1.1 5,364 13.4
Tax (1,779) (1,858) (4.2) (1,742) 2.1
Reported PAT 4,302 4,156 3.5 3,622 18.8
EPS 11.9 11.5 3.5 10.1 18.1

(Rs bn) Q4 FY14 Q3 FY14 % qoq Q4 FY13 % yoy
 Loans 556 503 10.6 470 18.4
 Credit Substitutes 140 135 3.8 134 4.8
 Customer Assets  696 638 9.2 604 15.4
 Deposits 742 681 9.0 670 10.8
 Investment 410 399 2.7 430 (4.7)
 Total assets 1,090 1,014 7.5 991 10.0

Key  Ratios Q4 FY14 Q3 FY14 chg qoq Q4 FY13 chg yoy
NIM (%) 3.0 2.9 0.1 3.0 -
Yield on advances (%) 12.4 12.6 (0.2) 12.4 -
Cost of funds (%) 8.4 8.6 (0.2) 8.4 -
CASA (%) 22.0 20.9 1.1 18.9 3.1
C/D (%) 75.0 73.9 1.1 70.2 4.8
Non-interest income (%) 14.8 13.4 1.4 14.2 0.6
Cost to Income (%) 43.6 44.6 (1.0) 37.7 5.9
Provisions/Income (%) 6.2 1.3 4.9 9.6 (3.4)
BV (Rs) 197.5 194.9 2.6 161.9 35.6
RoE (%) 24.3 24.4 (0.1) 25.2 (0.9)
CAR (%) 14.4 16.1 (1.7) 18.3 (3.9)
Gross NPA (%) 0.3 0.4 (0.1) 0.2 0.1
Net NPA (%) 0.1 0.1 (0.0) 0.0 0.0
Source: Company, India Infoline Research

Loan growth picks-up; deposits franchise continue to strengthen 

Yes Bank's customer assets (loans + credit substitutes) growth was along expected lines at 15% yoy. While there was a modest increase in the credit substitutes portfolio during the quarter, loan growth picked-up to 18% yoy from 14.7% yoy in the previous quarter. Bank continued to add granularity in its deposits with the share of wholesale deposits (above Rs250mn) falling significantly from 32% in the previous quarter to 26% in Q4 FY14. Savings balances grew by impressive 55% yoy driven by substantial network expansion and higher savings rate offered (weighted average cost at ~7%). The CASA ratio improved by 110bps qoq and 310bps yoy to 22%. With traction in current deposits continuing to be sluggish, savings deposits share within CASA has increased to 57%. Retail/Branch Banking FDs also continue to grow strongly at 33% yoy. Combined share of CASA and Retail TDs within overall deposits of the bank has risen by substantial 650bps during FY14. 

NIM expansion on expected lines; to improve further in the medium term

NIM expanded by 10bps qoq to 3%. Gross lending yield declined by 20bps qoq on account of shift in asset mix towards the corporate segment and lower re-pricing of loans. Funding cost also fell by 20bps qoq attributable to softening of wholesale rates and shift in deposits mix away from high-cost deposits. Largely, margin improvement during the quarter could be associated to better loan/deposits ratio which improved qoq from 73.9% to 75%. NIM outlook is strong as softening of bulk deposits rates and sustained improvement in CASA ratio should lower overall cost of funds over the longer term. Further, the planned capital raising (up to US$500mn; assumed by us at Rs520/share in H2 FY15) will push margin higher on the back of reduction in leverage. We estimate CASA ratio at 25.5% and 29% by the end of FY15 and FY16. 

Core fee growth remained strong ex-financial advisory; opex growth moderated sharply   

Core fee growth (ex-treasury) improved to 27% yoy aided by sustained robust traction in Transaction Banking (44% yoy) and Branch Banking (66% yoy) fees. Growth remained modest in Financial Advisory fees at 6% yoy; third straight quarter of low single-digit growth. Bank reined-in opex growth at 26% yoy as compared to 31% yoy in Q3 FY14, through its sustainability is doubtful as network expansion continued at robust pace. Bank added 130 new branches during FY14 as compared to 74 in FY13. We expect opex growth to remain firm in FY15 and thus driving a slight uptick in cost/income ratio.

Asset quality improvement was a key positive; would pacify street's credit cost assumptions 

As against our expectation of some deterioration, Yes Bank's asset quality improved qoq as manifested in the decline of Gross NPLs both in absolute value (11% qoq) and as a ratio of advances (8bps qoq). This was driven by low slippages (~Rs450m, annualized 0.4%) and ~Rs200mn NPL sale to ARCs. A strong operational performance enabled the bank to raise provisioning coverage materially from 78% to 85% thus driving a substantial fall in Net NPLs (reduced to 0.05% of advances and 0.4% of Networth). Added positive was the absence of any new restructuring during the quarter and so the outstanding stock remained at marginal 0.18% of advances. On the back impressive resilience displayed by Yes Bank's asset portfolio and expected gradual improvement in macro, we have moderated our delinquencies and credit cost assumptions for FY15/16. 

Retain BUY and raise 9-12 month target price to Rs522

On the back of NIM expansion and moderation in credit cost, we estimate Yes Bank to deliver 23% earnings CAGR over FY14-16 notwithstanding slowdown in core fee growth and sustained investments in network expansion. Yes Bank is expected to deliver impressive RoAs at 1.6-1.7% and RoEs at 20-21% over the coming three years which should underpin sustained valuation re-rating of the stock. Retain BUY rating and raise 9-12 month target to Rs522.


Financial Summary
Y/e 31 Mar (Rs m) FY13 FY14 FY15E FY16E
Total operating income 34,762 44,378 55,077 69,063
yoy growth (%) 40.6 27.7 24.1 25.4
Operating profit (pre-prov) 21,417 26,880 32,504 40,508
Net profit 13,007 16,178 19,540 24,315
yoy growth (%) 33.1 24.4 20.8 24.4
 
EPS (Rs) 36.3 44.9 47.8 59.5
Adj.BVPS (Rs) 161.7 196.8 269.5 316.2
P/E (x) 12.2 9.8 9.2 7.4
P/BV (x) 2.7 2.2 1.6 1.4
ROE (%) 24.8 25.0 21.5 20.2
ROA (%) 1.5 1.6 1.6 1.7
Dividend yield (%) 1.6 1.8 1.9 2.4
CAR (%) 18.3 14.4 16.8 16.4
Source: Company, India Infoline Research

 

***Note: This is a NSE Chart

 

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