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Yes Bank Q4FY14 results update

April 25, 2014, Friday, 14:33 GMT | 10:33 EST | 19:03 IST | 21:33 SGT
Contributed by Nirmal Bang

Yes Bank results broadly in line with expectation with improvement in margins, strong non interest income, higher CASA ratio and improvement in asset quality with nil restructuring. The bank reported 18.8% YoY increase in PAT at Rs 430 cr.

- NIMs witnessed improvement of 10 bps QoQ on account of higher deposit growth on QoQ basis coupled with lower share of low yielding credit substitute book and pick up in retail/ SME loans. We expect margins to gradually improve to 3.1% for FY15E with higher share of retail/SME loans and increasing CASA share.

- Non-interest income grew 17.4% YoY and 14.9% QoQ led by income from Financial Advisory and Transactional Banking segment.

- Provision coverage ratio improved to 85.1% from 78.4% in Q3FY14.

- Asset quality witnessed improvement with Gross NPA declining 10.7% QoQ and Net NPA declining 38.4% QoQ. The bank reported slippages of Rs 48 cr while sale to ARC stood at Rs 20 cr. There was no new restructuring done during the quarter; outstanding restructured book now stands at 0.18% of gross advances.

- Deposit growth slowed down at 10.8% 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 26.2% of total deposits in Q4FY14 as compared to 31.9% in Q3FY14 while retail deposit share (including CASA) increased to 42%.

- The bank witnessed highest addition in SA deposits on QoQ basis (Rs 1700 cr) increasing 55% YoY and 22% QoQ. SA proportion now stands at 12.6% of total deposits. CASA ratio increased 90 bps QoQ and 310 bps YoY to 22%.

- Advances grew 18.4% YoY while the growth in customer assets witnessed moderation at 15.4% YoY. Management is targeting credit growth in line with industry trend. We expect advances to grow 19.1% for FY15E.

- Capital Adequacy Ratio stood at 14.4% (Tier I at 9.8%)

- The bank has declared dividend of Rs 8 per share.

Management sounded optimistic in maintaining margins at current levels. The bank’s strategy of protecting margins rather than chasing loan growth looks good in the current circumstances. Asset quality remains well under control; management has guided of at least 50% recovery in FY15E. However, we have built in slightly higher credit cost for FY15E. The key concern for the bank remains its lower Tier-I capital ratio of 9.8%, which requires it to raise capital to comply with the Basel-III norms.

We believe that Yes Bank will be able to sustain RoE of 20%+ and RoA of 1.5% for FY15E and FY16E. We expect PAT to witness CAGR growth of 17.7% over FY14- FY16E. At CMP, the stock is trading at a PE of 8.37x and 7.12x of FY15E and FY16E EPS and at an adjusted P/BV of 1.86x and 1.54x FY15E and FY16E Adj BV. We continue to maintain our BUY rating on the stock with a target price of Rs 530; indicating an upside of 20.0% from current levels.