Maintain ‘add’ on Yes Bank with a target price of R850 a share, reflecting limited changes to our near-term earnings profile.
At our target, we value the bank at 2.3x book and 13x FY17e book for RoEs in the range of 18% and earnings growth of 15% CAGR. Our positive rating is driven by the improving economic outlook, favourable interest rate environment and focus on diversifying the loan book from the corporate segment.
Yes Bank reported a 27% y-o-y growth in earnings on the back of 27% y-o-y growth in revenues and flat provisions. NII grew 29% y-o-y, while non-interest income grew at a relatively slower level of 22% y-o-y, as the bank saw pressure on growing its fee income from transaction banking and subdued performance in corporate advisory.
NIM was maintained at 3.3%, but there is marginally higher support from interest income from RBI/inter-bank funds, which is probably not a one-off and appears to be a function of the underlying liquidity in the environment.
Loan growth has slowed to 29% y-o-y. Gross NPLs have increased marginally by 15 bps to 0.6% of loans, but the key concern remains the steady rise in gross NPL ratio and declining coverage which currently stands below 70%. Fresh impairments were low at 0.7% of loans and the bank has not undertaken any restructuring of loans this quarter.
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