Buy Yes Bank; target of Rs 469: Angel Broking

"Yes Bank reported a strong performance for 4QFY2012. The bank’s net profit grew by 33.6% yoy to Rs 272cr, in-line with our estimates. Strong momentum in savings account deposits and maintenance of healthy asset quality were the key positive takeaways from the results. We recommend Buy on the stock."

"On a yoy basis, advances and deposit growth for the bank was below system-average at 10.5% and 7.0%, respectively. Credit substitutes portfolio for the bank, however, continued to grow at a strong pace (growth of 104.5% yoy). Savings deposits more than doubled sequentially to Rs 2,501cr, with incremental saving deposits per branch for the bank increasing significantly from Rs 1.0cr in 3QFY2012 to Rs 3.6cr for 4QFY2012. The significant traction in SA deposits helped the bank maintain its cost of funds sequentially, despite tight liquidity conditions that prevailed during most of the quarter and additional borrowings during 4QFY2012. The bank’s investment book as a proportion of interest-earning assets increased during 4QFY2012 on the back of healthy growth in credit substitutes, which led to sequentially flat yields on assets for the bank. Consequently, the bank’s NIM remained flat sequentially at 2.8%. During 4QFY2012, the bank’s non-interest income grew strongly by 26.0% qoq to Rs 266cr on account of strong growth in financial markets (up 42.4% qoq) and financial advisory (up 26.6% qoq) based fee income."

"Yes Bank has taken challenges of building a retail deposit base head-on, nearly doubling its branch network over the past 15 months to 356 branches and aggressively increasing savings rate to 7% as a smart customer-acquisition strategy. In our view, the bank is in a sweet spot, wherein retail franchise growth is likely to remain strong as large banks cede some market share to it rather than offering higher savings rates to their entire customer base. Even with retail growth prospects being stronger now, valuations at 1.8x FY2014E ABV are still cheaper than peers such as IndusInd Bank (2.4x FY2014 ABV) as well as its own historical median (2.5x over FY2007-FY2012), providing a favorable risk-return trade-off in our view. Hence, we recommend Buy on the stock with a target price of Rs 469," says Angel Broking research report.