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Recommendations India

Yes Bank 1QFY2015 performance highlights and results update

August 1, 2014, Friday, 10:57 GMT | 05:57 EST | 14:27 IST | 16:57 SGT
Contributed by Angel Broking

For 1QFY2015, Yes Bank reported a PAT of Rs.439cr, ie a growth of 9.6% yoy. The key highlights of the results are a) Loan book increasing by 23.2% yoy, thereby resulting in a 13.1% yoy growth in Net Interest Income. b) Asset quality remaining steady, both qoq and yoy c) Non-interest income declining by 3.7% yoy due to absence of MTM gains (as accrued in 1QFY2014).

Healthy growth in business; NIM stable qoq: During the quarter, the loan book and deposits grew by 23.2% and 16.7% yoy respectively. The Corporate book grew at a faster pace (at 33.5% yoy) accounting for 68.7% to total loans in the current quarter as against 63.4% in 1QFY2014. Savings deposits continued to witness robust traction and grew by 44% yoy. Overall, CASA deposits grew by 29% yoy, resulting in the CASA ratio increasing by 212bp yoy to 22.3%. The NIM for the bank remained stable sequentially as well as on a yoy basis at 3%, as increase in yield on advances (20bp yoy) was equally offset by increase in cost of funds. Cost to income increased to 45% as compared to 38.3% in 1QFY2014 due to a higher operating expense and de-growth in other income. Operating expense increased by 25% yoy, mainly due to non-employee expenses, which grew by 37% (including one-off expense relating to Indian Premier League [IPL] sponsorship). Non-interest income de-grew by 3.7% yoy due to mark-to-market losses on interest rate swaps, which the bank had taken on bonds. The bank witnessed modest pressures on the asset quality front during the quarter. The Gross and Net NPA ratios remained flat and best in the industry at 0.33% and 0.07% respectively. Slippages increased to Rs.115cr as compared to Rs.48.1cr in the sequential previous quarter whereas restructured to total assets fell to 0.2% as compared to 0.3% yoy to total advances in 1QFY2014. During the quarter, the bank has raised $500mn through a QIP which increased its capital adequacy from 14.4% to 18% and book value to Rs.253 per share.

Outlook and valuation: The bank’s asset quality performance has been reasonable so far, with credit costs contained at 10bp in the quarter under review. The Management has guided at a 15-18% growth in the balance sheet, 23% growth in loans in FY2015 and NIM improvement by 15-20bp in 2QFY2015. It has raised $500mn through a QIP in June 2014, taking its capital adequacy ratio to 18%. Going forward, with an improving liability franchise, strong capital adequacy and lowest NPA ratio in the industry, we expect Yes Bank to deliver a CAGR of 19.5% in earnings. Currently the stock trades at 1.7x FY2016E ABV. We recommend a Buy rating on the stock, with a target price of Rs.701.