Re: {LONGTERMINVESTORS} Yes Bank - Thread for discussion

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Rajesh Desai

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Jul 25, 2013, 12:07:36 AM7/25/13

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STOCK UPDATE - Sharekhan

Yes Bank
Recommendation: Buy
Price target: Rs510
Current market price: Rs383

Price target revised to Rs510

Result highlights

Yes Bank's Q1FY2014 performance was above our estimate as the net profit grew by 38.2% year on year (YoY) to Rs400.8 crore. A strong growth in the net interest income (NII) and a treasury gain to the tune of Rs97 crore drove the overall growth in earnings.
The NII of the bank grew by 39.6% YoY (3.3% quarter on quarter [QoQ]) led by a strong growth in the customer assets. The net interest margin (NIM) was stable at 3.0% on a sequential basis.
The growth in advances including credit substitutes was at 24.2% YoY (excluding credit substitutes, the growth was at 24.3% YoY). The corporate advances grew by 23.1% YoY while the retail advances grew at a faster rate of 41.6% YoY. The deposits grew by 29.9% YoY on account of a robust growth in the current and savings account (CASA) deposits. The CASA ratio of the bank rose to 20.2% from 18.9% in Q4FY2013.
A strong non-interest income growth compensated for the sharp rise in provisions (up 223.2% YoY). In Q1FY2014, the bank booked a treasury gain of Rs97 crore. Other streams like financial advisory and retail banking also posted a strong growth. The cost-to-income ratio inched up marginally to 38.3% from 37.7% in Q4FY2013.
The asset quality deteriorated marginally in Q1FY2014 as the absolute gross non-performing asset (NPA) rose by 11.2% sequentially due to a couple of accounts to the tune of Rs25 crore that slipped into NPA. Consequently, the gross NPA rose by 2 basis points sequentially to 0.22%. However, the outstanding restructured book declined to Rs139.5 crore (0.29%) from Rs144.2 crore in Q4FY2013 (0.31%) on account of the upgrades.

Valuation
Yes Bank's net earnings came in ahead of our estimate due to a higher NII growth and treasury gain. We believe the recent measures taken by the Reserve Bank of India (RBI) will not only raise the cost of funds for the banks but may also impact the advances growth. Though the bank's NIM has largely been stable, we expect the pressure on NIM to rise due to higher dependence on wholesale funds. Therefore, we have fine-tuned our estimate and revised our valuation multiple to 1.9x leading to a price target of Rs510. After the recent correction in the share price, the valuation seems reasonable; hence, we maintain Buy rating on the stock.