Why Angel Broking is cautious on Yes Bk despite good Q2 nos

Private sector lender Yes Bank managed to beat street estimates by posting a jump of 21.2 percent in its Q2 profit. Its net profit stood at Rs 371 crore, driven by strong growth in net interest income and other income. (Read More)

Vaibhav Agarwal, Angel Broking told CNBC-TV18 that the bank has performed well and ensured that its balance sheet remains qualitatively quite strong. According to him, though the stock looks fairly valued at the current level, but management’s guidance would be the key to decide if one should buy the stock from this level. “At the beginning of the year the management had indicated that this year credit cost would go up. So far it has not reflected as much in slippages, so we would wait to see what the pipeline is for the second half of the year,” he elaborated. Below is the edited transcript of Vaibhav Agarwal’s interview with CNBC-TV18 Q: What are your first thoughts on Yes Bank numbers, much better than you feared? A: They are more or less in line with our estimates, but clearly above the market. The management has been very clear during the quarter that margin would be a key focus for them. The advantage for them is that 90 percent of their book is floating, so they could really pass on a lot of the cost increase. Net Interest Income (NII) has come in better than what the market expected. The major items have been the other income. Again this is a savvy nimble management, so taking advantage of the volatility on assets we will have to wait for details, they clearly have done well and provided to ensure that the balance sheet also remains qualitatively quite strong. So at least on that front the numbers look quite good. We could await more details on the various line items and also more importantly what is the outlook going forward as well. Q: The fears of the market were that this is largely a book exposed to large corporates and therefore the Non-Performing Loans (NPL) could show up sooner or later. Does that fear still linger or are you convinced that they have picked and chosen their assets with care? A: Every quarter they have really been true to their guidance, but we still remain concerned, because at the end of the day it is really hard to get a picture of the underlying book and going forward they could feel the pressure. We would wait for guidance. At the beginning of the year as well the management had indicated that this year the credit cost would go up. So far it has not reflected as much in slippages, so we would wait to see what the pipeline is for the second half of the year. Q: The markets at least in the initial reaction have given it a positive uptick of close to about 2 percent. From an earnings point of view and a stock reaction do you think it is done or do you think it can climb a little more? A: In terms of the earnings reaction, it is more or less into the price. The stock has obviously bounced back a lot from its lows as well. Even the macro improvement that has happened on the short-term rates as well more or less looks to be in the price. So as of now we more or less seem to be fairly valued, but the guidance would be very important in really determining if we want to actually become a buyer in this stock from these levels.