Hold Yes Bank; target of Rs 379: SKP Securities

“Yes Bank’s (YBL) post tax income grew by +34% YoY on the back +33% growth in NII and a surprising +74% growth in non interest income. CASA deposits at Rs. 81.7 bn grew by 72% (albeit on a lower base), the highest recorded growth in the past six quarters. NIMs capped at sub 2.8% past seven quarters continued to disappoint. Notwithstanding restructured advances remained virtually stable at 0.51%, deteriorating NPLs cautioned towards bleak economic environment taking toll on the banks asset quality.”

“YBL reported 16.4% YoY growth in credit but its customer assets (advances + credit substitutes) grew 32.4% YoY. Flipping higher yielding advances (~12%-13%) with lower yielding credit substitutes (~10.5%-11%) coupled with higher share of bulk deposits (52.3%) resulted in curbed margins of 2.8% (reported) for YBL. NIMs could have been lower had it not been for some short term funds borrowed by the bank at rates lower than that of retail term deposits.  We expect 2.9% NIM for FY13E, on the back of strengthening CASA ratio. The bank’s CASA ratio improved by 123 bps to 16.3% as against 15.0% in Q4FY12, backed strong growth in granular SA deposits which grew by Rs. 5.0 bn sequentially.”

“We expect 18.0% CASA ratio for FY13E on the back of the bank’s robust branch expansion spree. Non Interest Income grew by 74.3% y-o-y from Rs. 1,653 mn in Q1FY12 to Rs. 2,881 mn in Q1FY13. The Financial Markets segment (up 282% YoY, including Rs 0.3-0.4bn of trading gains) was a key driver. Growth in the other segments too was above balance sheet growth.  Cost to income ratio was at 39.5% in Q1FY13 as against 37.4% in Q1FY12, given the branch expansion plans of the bank but it still continues to be at sub 40% comfort zone.  We expect 41.3% efficiency ratio for FY13E. We rate Hold on the stock with a target of Rs. 379 with a PBV target multiple of 2.1x on FY14E BV of Rs 183,” says SKP Securities research report.

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