Buy Yes Bank; target of Rs 393: Unicon Investment

“YES Bank (YES) delivered another strong quarter, with net profits increasing by 33% to INR 3511 Mn on YoY basis. This was contributed by higher growth in net interest income (NII) of INR 3.8 bn (23% YoY) & non interest income grew by 63% to INR 2.14 Bn on YoY basis. Growth in the non interest income was led by transaction banking (INR 609 Mn), financial advisory (INR 978 Mn), financial markets (INR 410 Mn) and branch banking fees & others (INR 143 Mn). The deposits registered a growth of 10.2% along with advances growing by 27.4% on YoY basis. Current and Savings Account (CASA) ratio remained stable at 11% as of Q2FY12 with CASA deposits at INR 48.38 Bn. The Bank’s Balance Sheet grew by 21.2% to INR 627.5 bn in Q2FY12 Corporate & Institutional Banking accounted for 61.4% of the loan portfolio, Commercial Banking 23.8% and Branch Banking 14.9%.”

“For the quarter, margins increased by 10 bps sequentially at 2.9%; however on YoY basis there was a decrease of 10 bps due to higher cost of funds. In Q2FY12, the bank opened 50 branches, taking the network to 305 & further plans to take the network to ~350 by the end of FY12. This will help in improving its retail franchise. During the quarter, the bank’s asset quality improved further with gross and net NPA ratios at 0.20% and 0.04% (0.22% and 0.06% in Q2FY11), respectively. The bank’s provision coverage ratio improved further to 80.2% in Q2FY12 from 74.6% in Q2FY11. Bank was able to maintain healthy return ratios of RoA at 1.5% & RoE at 22.3% YoY. Capital adequacy ratio remained healthy at 16% and Tier I capital at 9.4%, which is likely to help the bank to continue the balance sheet growth.”

“YES Bank has been able to register strong business growth, profitability with stable margins & strong asset quality. Additionally the bank is expanding ~125 branches every year, which would help to improve its CASA ratio to 15% in FY12-13E. We remain positive on long term prospects of the bank. At the CMP stock trades at 2x of its FY12E book value. We maintain BUY rating on the stock for target price of INR 393,” says Unicon Investment research report.

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