Apr 22, 2013, 10.28 AM IST | Source: Moneycontrol.com

Angel Broking neutral on Yes Bank

Angel Broking has maintained a neutral rating on Yes Bank in its April 17, 2013 research report.

Angel Broking has maintained a neutral rating on Yes Bank in its April 17, 2013 research report.

The research firm expects, the bank to continue registering robust growth on the retail deposit franchise front, however, with the likely entry of new strong players in the sector, the opportunity for market shares gains could get reduced from the levels envisaged earlier.

"For 4QFY2013, Yes Bank reported a strong performance on the earnings as well as the asset quality front. On the operating front, while higher-than-anticipated growth in other income (42.4 percent yoy) aided pre-provisioning profit to grow by 47.3 percent yoy, slightly above estimates, the bank used the opportunity to make higher provisions (PCR up by 13 percentage points), which resulted in earnings growth of 33.2 percent yoy, in-line with our estimates.

Business growth robust, NIMs stable qoq: During 4QFY2013, the bank registered a healthy growth in its business, as advances and deposits grew by 23.7 percent and 36.2 percent yoy, respectively. CASA deposits grew by 71.6 percent yoy, thereby taking its CASA ratio to 18.9 percent from 15.0 percent as of 4QFY2012. Savings deposits rose by 22.8 percent qoq to Rs 6,023cr. NIMs for the bank remained stable sequentially at 3.0 percent. The bank’s non-interest income grew strongly by 42.4 percent yoy to Rs 379cr, largely on account of substantial growth witnessed in the financial advisory and retail fee income streams. On the asset quality front, the bank witnessed an increase in the Gross NPA levels (higher by 23.7 percent sequentially, on an absolute basis). However, the bank stepped up its PCR from 79.6 percent to 92.6 percent, resulting in a 3bp sequential decline in the Net NPA ratio to 0.01 percent.

Outlook and valuation: Yes Bank’s growth as well as its Management’s track record has been impeccable so far. The bank has taken the challenge of building a retail deposit franchise head-on and has doubled its branch network over the past two years to 430 branches now. We expect the bank to continue registering robust growth on the retail deposit franchise front, however, with the likely entry of new strong players in the sector, the opportunity for market shares gains could get reduced from the levels envisaged earlier.

On the asset quality front, the bank has performed well so far, with credit costs contained at ~35bps for FY2013. However going ahead, the Management has guided credit costs for FY2014E, to be in the range of 50-60bps and has indicated ‘adversely labeled assets’ to the tune of 1-2 percent of loan book, which is likely to reflect in significant increase in provisioning costs for the bank from the current levels. As a result, even with 25 percent balance sheet growth, earnings may be at lower levels of 15 percent. At CMP, post the recent rise, the stock trades at a valuation of 2.4x FY2014E ABV and 2.0x FY2015E ABV, which in our view, factors in most of the positives for the bank and offers limited scope for upside from the current levels. Hence, we recommend a Neutral rating on the stock," says Angel Broking research report.

FIIs holding more than 30% in Indian cos

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