Edelweiss Research: Yes Bank - Hitting the Growth Peddle; Result Update Q4FY15; Buy

Yes Bank continued its exemplary show, Q4FY15 PAT surging 28% YoY, which was commendable amidst the INR500mn provision for counter-cyclical buffer, adjusting for which growth would have been upwards of 35%. Key highlights were: 1) core operating performance continued to impress with NII rising 36% YoY on similar loan growth and stable NIMs; 2) though the bank’s stressed assets rose to ~62bps (35bps in Q3FY15), it was more a preponement of known stress (Q4FY15 is the last quarter of the RBI dispensation) and still holds forth vis-à-vis peers; 3) the bank took an enabling resolution to raise USD1bn (though not in the near term), which reflects its confidence of scaling growth; 4) efforts to build its retail architecture have started reaping benefits as apparent in strengthening liability (CASA + retail TD), which  stands at 48% (42% a year ago) and the target is to take it to 60% in  the next 3 years. Adequate capital to fuel growth and beef up its business model will reduce the perceived volatility and aid further re-rating of the stock. We maintain ‘BUY’.

This report also contains Q4FY15/Q3FY15 earnings call highlights

Core operating performance continues to impress

NII growth was healthy (up 36% YoY) led by higher loan growth and stable NIMs. Loan growth was driven by branch banking, which reflects the bank’s focus on building granularity. Given the bank’s diligent efforts, branch banking origination will start forming a meaningful slice of the overall asset pie. Further, continued traction in fee income (up 33% YoY) with retail banking making progress led to healthy operating profitability (up 38% YoY). We expect this to continue given the bank’s focus on building quality retail franchise (refer our note “Retail franchise: Building foundation mantra to scalability”). PAT growth was however restricted to 28%, as the bank made counter-cyclical provisions. The bank now has a buffer of 50bps versus 62bps of stress assets, which lends comfort.

Outlook and valuations: Charging ahead; maintain ‘BUY’

Sound structural levers will ensure bank maintains its historical record of achieving best-in-class RoE, following RoA improvement (likely to touch new high of 1.8% following NIMs expansion of 25bps by FY17E; refer our note “Fortified business model to fuel surge”). The stock is trading at 2.1x FY17E ABV. Maintain ‘BUY/SO’, with TP of INR980.

Link to the detailed report:  Yes Bank - Hitting the growth peddle; result update Q4FY15; Buy