Buy Yes Bank; target of Rs 377: KR Choksey

KR Choksey's research report on Yes Bank

The bank posted a robust advances growth of 34.9%, led by 79% growth in consumer banking and 34% growth in corporate banking. On the income front, NII grew by 33.5% yoy and 4.2% qoq, partially led by NIM expansion on account of increase in CASA deposits (CASA at 37.2% vs. 30.3% for Q2FY17). NIM for the quarter stood at 3.7%, up 30 yoy and flat qoq. Non-interest income saw a growth of 35.4% yoy and 10.3% qoq. Total income, therefore, grew 34.3% yoy and 6.5% qoq. On the operational front, the improved performance came on account of increased productivity and efficiency as cost/income improved to 39.2%, down 147 bps yoy and 290 bps qoq.

Outlook

However, considering the wide asset quality divergence reported for FY17 plus the cumulative divergences reported up to FY17, we increase our cautiousness on the bank’s asset quality and also with regards to asset quality surprises going ahead. And therefore, we factor in slightly higher credit costs. On account of asset quality divergence and higher credit costs, we lower our multiple marginally and value the stock at 2.5x FY20E ABVPS arriving at a value per share of Rs. 377, offering an upside of 22%. We thus recommend to BUY the stock.