Yes Bank – Q4FY16 Result Update
CMP: INR 940 Target Price: INR 1,069 Recommendation: ACCUMULATE
"In fine feather"
Barring a tad setback on asset quality, the Q4FY16 earnings stood robust for YES Bank defying challenging operating environment. Both NII (in-line at INR 12.4 bn) and PAT (INR 7 bn) clocked sturdy 27%+ Y-o-Y growth largely on the back of healthy loans, strong NIMs, robust fees and enhancement of deposit franchise. Opex climbed as the bank engages in building up formidable distribution franchise, cost-income stood stable at 40%. Provisions too spiked (up 48% Y-o-Y); however, the bank maintaining buffer instills our confidence on credit quality. While the gross NPA inched tad higher, the bank demonstrated unblemished asset quality with respect to RBI's AQR, controlled credit costs and negligible 5/25 or SDR restructuring cases. However, the sizeable large corporate exposures both in the form of credit and bonds in tough times prompt us to maintain ACCUMULATE rating on the stock.
Business momentum only improves; NIMs stable:
Impressive loan traction and stable NIMs drove the NII for the quarter; NII came at INR 12414 mn, growing 27.1% Y-o-Y & 7.3% Q-o-Q.
Healthy loans that grew 30% Y-o-Y on the back of robust corporate loans (31% Y-o-Y growth) and consumer banking (28.5% Y-o-Y growth). While the loan mix currently tilt towards corporate lending (65.1% of overall loans) and retail being 34.9%, the bank aims to step-up the retail piece of the overall loans.
NIMs at 3.4% stood stable on sequential basis primarily driven by strong CASA traction (49% Y-o-Y growth) and thereby improved costs. The low cost CASA augmentation strengthening the bank's liability franchise led by consistent enhancement of distribution channels should put up a full-fledged retail franchise for the bank. Staggering 62% Y-o-Y SA traction aided CASA mobilization; retail deposits composition stands higher at 54.5%. Notably, despite SA pricing correction by 1% (SA rate brought down to 6% from 7%), the momentum has been sustained and the bank aims to put up strong CASA of 40% in a three to four year time frame.
Going forward, we expect NII traction to remain robust clocking 29% CAGR over FY16-18E backed by 25% CAGR in business growth over the same period.
Unblemished asset quality: Although the gross and net NPA ratio inched higher to 0.8% and 0.3% respectively for FY16, the RBI's AQR being factored in brings a lot of respite. While slippages stood tad higher at INR 3.7 bn (1.7% slippage ratio), the provisions buffer on the balance sheet instills confidence on the quality performance ahead. With credit costs being controlled at 50 bps and the restructuring pace declining with restructured loans down to 0.53% from 0.67% the previous quarter, the likelihood of any material slippages ahead stands negligible. While the management has guided credit costs in the range of 50-70 bps ahead, the number stands Moreover, the Q4FY16 quarter like few earlier ones did not witness any 5/25 refinancing or SDR accounts.
However, bank's elevated corporate exposure and exposure to vulnerable sectors; viz, electricity (8.7%), EPC (6.0%) and iron and steel (2.2%) prompt us to maintain cautious outlook. Against this backdrop, we incorporate higher NPAs ranging between 1.0-1.3% over FY17-18E.
Outlook & Recommendation: Q4FY16 performance for Yes bank stood creditable on all parameters. At 0.8% gross NPA inclusive of RBI AQR with lower slippage ratio and controlled credit costs unlike peers reinforce our belief in the bank's improved credit quality. While the sizeable corporate exposure prompts us to maintain cautious outlook, we derive confidence from robust retail business momentum and strengthening CASA franchise. While we maintain ACCUMULATE recommendation on the stock in the light of tough corporate environment we tweak our multiple to 2.3x P/ABV FY18E arriving at a new target price of INR 1069 (earlier INR 860) incorporating improved earnings and EPS CAGR.
Key Financial
INR in mn | FY14 | FY15 | FY16 | FY17E | FY18E |
Net Interest Income | 27,163 | 34,878 | 45,667 | 60,902 | 76,811 |
Pre-provision profits | 26,880 | 32,495 | 43,025 | 54,518 | 70,833 |
Net Profit | 16,178 | 20,053 | 25,395 | 31,861 | 41,472 |
EPS (₹) | 45.0 | 51.5 | 60.6 | 76.3 | 99.3 |
BVPS (₹) | 197.5 | 279.6 | 330.0 | 394.9 | 477.8 |
ABVPS (₹) | 197.0 | 278.2 | 325.5 | 389.6 | 464.9 |
P/E (x) | 20.9 | 18.2 | 15.5 | 12.3 | 9.5 |
P/ABV (x) | 4.8 | 3.4 | 2.9 | 2.4 | 2.0 |
Source: Company, KRChoksey Research
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