Buy Yes Bank; target of Rs 270: LKP Research

LKP's research report on Yes Bank

Yes Bank showed dismal performance – PAT declined by 24% qoq (4% yoy) to Rs 9.6 bn largely led by higher credit cost. Gross slippages escalated sharply for the quarter at Rs 16.3 bn (Rs 5.6 bn qoq) led by one large corporate account defaulting amounting to Rs 6.3 bn (most likely it expects upgrade in this account in Q3). Bank has exposure to IL&FS amounting to Rs 26.2 bn which is currently recognized as standard account in the books of the banks (lent to SPV and no holdco exposure). Investment provisions were also high due to a) Rs 2.5 bn provided for corporate bonds b) Rs 0.9 bn amortised MTM investments provisions. Advances reported strong growth of 61% yoy, which in our view, would come off going forward due to lower CET 1 (9.5%). Other income growth slowed down to 18% led by declined in forex, debt capital mkts & securities income (-37% yoy). In our view, with lower CET 1, balance sheet growth will have to be pruned down considerably.

Outlook

We retain BUY rating (reduce TP to Rs 270 from Rs 350, discounting FY20E ABV by 1.9x). At current pricing, the stock is trading at 1.6x FY19E and 1.3 FY20E ABV.