Accumulate Yes Bank; target of Rs 1441: KR Choksey

KR Choksey's research report on Yes Bank

YES Bank’s Q2FY17 earnings stood robust on the back of strengthening balance sheet and improving margin profile during the quarter. Both NII (in-line at INR 14.5 bn) and PAT (INR 8.1 bn) clocked sturdy 30%+ Y-o-Y growth respectively predominantly due to improving loan trends (37.7% Y-o-Y loan growth) and elevated CASA base (CASA ratio at 30.3%; 53.2% Y-o-y growth) that also aided margins expansion (NIM 3.4%) for the quarter. Besides, other income for the quarter too witnessed upsurge (stupendous 44% Y-o-Y growth) aiding operating profit traction. Opex climbed as the bank engages in building up formidable distribution franchise, cost-income stood stable at 41%. Provisions too spiked (up 55.5% Y-o-Y); however, healthy asset quality trends continued to emerge. That can be well substantiated with steady-state net NPAs at 0.29%, smaller share of net stressed assets at 1% of total assets and bank reducing credit costs guidance to 60 bps during the quarter. However, the sizeable large corporate exposures both in the form of credit and bonds and corporate cycle pick-up still away prompt us to maintain ACCUMULATE rating on the stock.

YES Bank’s formidable asset franchise with consistent investments in people and processes stands geared to capture market share gains both in the retail and corporate segments. NPAs at 1% levels and stress loans at 1% coupled with lower credit costs guidance at 60 bps (down from earlier guidance of 50 to 70 bps) bespeak healthy asset quality trends. While the sizeable corporate exposure prompts us to maintain cautious outlook, we derive confidence from robust retail business momentum and strengthening CASA franchise. While we maintain ACCUMULATE recommendation on the stock in the light of tough corporate environment we tweak our multiple to 3.1x P/ABV FY18E arriving at a new target price of INR 1,441 (earlier INR 1,302) incorporating improved business and EPS CAGR for the bank. Currently, the stock trades at 2.8x P/ABV FY18E.