Angel Broking maintains buy on Yes Bank post Q3

Q: How would you react to Yes Bank's Q3 numbers?

A: Broadly the numbers are better than the street expectations. We were factoring in a higher PAT estimate.

On the asset quality while it would look like deterioration but the absolute numbers for Yes Bank remain well below all their peers. The management has been guiding that they do have about 1-1.5 percent of watchful accounts and some amount of slippage from that was expected and to a large extent they have been able to provide for it right through the quarters, so there is not necessarily so much of a concern for Yes Bank specifically.

Q: The net interest margins (NIM) for the bank has been stable on a sequential basis at 2.9 percent. We have loan growth which is come in at 14.7 percent and the non-interest income (NII) which has risen 24 percent on a year-on-year (YoY) basis.

A: At least on the margin front it is inline with our expectations. We did expect that maybe give or take a few basis points, they would be able to maintain because this quarter was much favourable than the last quarter for the bank.

However, their guidance on balance sheet growth would also be important considering that a lot of the volatility that was impacting them is now behind as far as the macro is concerned. So, that would be one important thing.

On the NII has seemingly come in higher than our estimates. But we have to wait for some management commentary for the breakup of this; whether it was related to some sort of treasury related or swap related items.

Q: The provisions have fallen quite a bit. They have come in at Rs 13 crore versus Rs 179 crore Quarter-on-Quarter and the stock is now up 1 percent. How would you react to this number?

A: Provision number is clearly well below what even we were factoring at about Rs 63 crore. Rs 179 crore obviously had that big Rs 110 crore of mark to market (MTM) provision last quarter which is not expected, but Rs 13 crore clearly looks well below our expectations and also below what the management was guiding on credit cost. So we will have to wait for details of are there are some write backs etc. So we wait for some details on that.

Q: There is a spike up which has come in on net non-performing assets (NPA) this time around on an absolute basis. What is your comment on that? The provision coverage ratio (PCR) has come down to 78.4 percent versus around 85.3 percent on a sequential basis.

A: We would not be unduly concerned about these absolute numbers, because Rs 20 crore increase in net NPA – it would not have been a challenge for them to provide in line with their provisioning polices. Maybe they did not feel the need to provide immediately, but broadly I do not think it is a very concerning number in absolute terms at all.

Q: What is your call on Yes Bank stock now? In last 3-6 months the stock has not really participated too much. It has been largely in this range. What would you recommend now?

A: There are couple of things about Yes Bank. One obviously the big volatility which clearly impacted them but now Q2 is behind, so there is an improvement in macro for them. But the other thing is that their overall earnings trajectory and balance sheet growth has come down by almost 10-15 percentage points to what it was earlier. So that has been factored into the stock price as well.

Incrementally things are improving for the banks in terms of the environment so at this point we believe it would make sense, because like you mentioned the stock has not yet gone up to that extent, so we now have upgraded it to a buy recently and with these numbers we would maintain a buy on the stock with a target of about Rs 419 as of now.