Yes Bank : Buy For Target Of Rs. 421

Yes Bank reported strong set of results with core-earning in line with our estimate. However, reported PAT was marginally above our expectation. Bank NII grew 33.3% YoY to Rs 4.7bn owing to stable NIM (despite improvement in CASA) and strong growth in banks customer assets (loan book + credit substitute). Non-interest income surged 74.3% YoY to Rs 2.88bn which neutralized the jump in opex (54.7% to Rs 3.0bn) and higher provisions. Thus, PAT stood at Rs 2.9bn a growth of 34.3% YoY (vs. our estimate of Rs
2.75bn).

Growth in CASA continued led by strong traction in savings deposits (~20% QoQ). CASA ratio improved to 16.3% vs. 15.0% in FY12. Sequentially asset quality slipped but remained stable with GNPA (0.28%) and
NNPA (0.06%) increased 30.6% and 35.9% respectively – coverage ratio was higher at 90.4%. Provision coverage ratio was strong at ~78%. The restructured book improved from 0.53% of advances in FY12 to 0.51%.

View and Valuations:

Yes Bank continues to deliver steadily on key business metrics: Stable NIM and asset quality, diversified fee income avenues and control over opex. For FY12-14E, we expect the bank’s core earnings to grow at 26% CAGR factoring in average NIM of 2.8%. We expect bank overall business to grow 17.5% CAGR with average CD ratio at ~77%. We also expect CASA ratio to improve to 20.4% by FY14E. Further, with continued branch expansion, we expect C/I ratio to be at 38%. Asset quality is expected to remain stable (although we have factored in higher slippages & credit cost). Thus, expect net profit to grow at 22% CAGR.

At CMP, the stock trades at 10.2x EPS and 2.2x ABV of FY13E. We maintain our BUY recommendation with target price of Rs 421. Outside trigger of the stock price would be the fund raising plan likely to in FY13.