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Yes Bank Q1FY15 results update

July 24, 2014, Thursday, 09:14 GMT | 05:14 EST | 13:44 IST | 16:14 SGT
Contributed by Nirmal Bang

Yes Bank reported performance below expectations on account of lower Net Interest Income, lower other income and higher opex. PAT increased 9.6% YoY and 2.2% QoQ to Rs 440 cr. Asset quality was broadly stable during the quarter.

- NIMs remained broadly stable at 3% as the entire benefit of capital raising could not materialize during the quarter. Most of the loan growth was more of back ended and priority loans done in Q4FY14 also impacted margins. Management stated that margins are likely to improve by 10-15 bps in Q2. We have factored in NIMs of 3.1% for FY15E on account of lower funding cost and higher share of retail/SME loans and increasing CASA share.

- Non-interest income witnessed decline of 3.7% YoY and 4.5% QoQ due to lower treasury gains. Q1FY14 included Rs 125 cr on account of treasury income which was not there in Q1FY15. Income from Financial Advisory and Transactional Banking segment continued to remain strong.

- Deposit growth stood at 16.6% YoY with more focus on granularity. The bank has been able to decline its wholesale deposit reliability and improve its retail deposit share gradually.

- Wholesale Deposits (above Rs 25 cr) now accounts for 26.1% of total deposits in Q1FY15 as compared to 34.7% in Q1FY14 and 26.2% in Q4FY14.

- The bank witnessed an increase of 43.8% YoY in SA deposits. The weighted average cost of SA stands at around 7.1-7.2%. CASA ratio increased 30 bps QoQ and 210 bps YoY to 22.3%.

- Advances grew 23.2% YoY primarily driven by corporate book while retail book witnessed moderation. Customer assets grew 16.4% YoY. With increase in capital, Yes Bank is well positioned for the next growth cycle in the economy. We have factored in loan growth of 21.7% for FY15E.

- As per the management, asset quality stress in the banking industry may still continue for one-two quarters, but a turnaround can be expected post that. Gross NPA increased 13.2% QoQ and Net NPA increased 64.2% QoQ. The bank reported slippages of Rs 115 cr (48 cr last quarter). However, higher recoveries led to limited addition in overall gross NPAs. There was no sale to ARC. The outstanding restructured book stands at 0.19% of gross advances.

Asset quality remains well under control; management continues to focus on recoveries with at least 50% recovery in FY15E. However, we have built in slightly higher credit cost for FY15E. We continue to remain positive on the bank owing to recent capital raising leading to healthy growth, control over asset quality, higher non interest income, sustainable cost to income ratio and comparatively higher return ratios. We believe that despite dilution in earnings; Yes Bank will be able to sustain RoE of 20%+ and RoA of 1.5% for FY15E. We expect PAT to witness CAGR growth of 21.1% over FY14-FY16E. At CMP, the stock is trading at a PE of 11.53x and 9.40x of FY15E and FY16E EPS and at an adjusted P/BV of 1.93x and 1.66x FY15E and FY16E Adj BV. We upgrade our rating from HOLD to BUY with a target price of Rs 646 (2.0x FY16E ABV); indicating an upside of 20.4% from current levels.