{LONGTERMINVESTORS} Stock Update-Yes Bank, INOX Leisure

April 27, 2016   Stock Update Yes Bank Reco: Buy PT: Rs1,050 CMP: Rs916 Robust operating performance, healthy growth outlook, PT revised to Rs1,050   Key points Strong NII growth, margins remain stable: Yes Bank has delivered a strong set of numbers for Q4FY2016 as its net profit was up by 27.4% YoY driven by a healthy net interest income growth of 27.1% and a stable net interest margin. The non-interest income grew by 36.0% YoY owing to a 74.3% surge in the corporate banking fees. The liability franchisee continued to show an improvement as the CASA ratio was up by 142BPS to 28.1% on a sequential basis. Asset quality shows a slight deterioration but outlook remains stable: For Q4FY2016 the bank has reported a slight deterioration in its asset quality as its GNPA are up by 10BPS QoQ to 0.76%. Accounts worth around Rs360 crore slipped during the quarter partly due to the RBI's asset quality review (AQR). However, this has been now completely factored in by the bank and hence moving ahead, the outlook remains stable. The bank sold to ARC one account from restructured category having a book value of about Rs40 core during the quarter as a result of which the restructured book declined to 0.53% of the total advances as compared to 0.67% in the previous quarter. The bank did not carry out any 5:25 refinancing or SDR during the quarter. It has guided for a credit cost of about 50 to 70BPS for FY2017 which is similar to the levels of FY2016 (credit cost for FY2016 was 50BPS). Valuation and outlook: Yes Bank continues to deliver a strong operational and business performance in a challenging environment. Despite a slight deterioration in the asset quality it remains the best among the system. The bank would continue to focus on growing its retail and SME segments and has shown a strong improvement in its liability base by garnering higher CASA and retail deposits. We believe the margin expansion and healthy loan book growth would continue to drive the earnings. We expect the earnings to grow at 25.1% CAGR over FY2016-18E which would result in an RoA of 1.9%. We have rolled over our valuations to FY2018E. This has resulted in a new price target of Rs1,050, by valueing the bank at 2.3x FY2018E BV.   INOX Leisure Reco: Buy PT: Rs285 CMP: Rs212 Missed on operating parameters, maintain Buy with revised PT of Rs285   Key points In-line revenue performance, missed margin expectations: For Q4FY2016 Inox Leisure Ltd (ILL) has reported a revenue growth of 31.8% at Rs286.9 crore, driven by a strong gross box-office (GBOC) revenue growth of 41.7% year on year (YoY) and a food & beverages growth of 52.3% YoY. The advertisement revenues were down by 2% YoY. Further, the footfalls increased by 36.9% YoY during the quarter. However, ILL reported a lower than expected performance on the margin front with margins at 5.2% in Q4FY2016, up 42 basis points (BPS) YoY. The decline in the margins on a sequential basis was primarily due to an increase in the entertainment tax rate as the entertainment tax exemption for six properties expired during the quarter, the entertainment tax rate spiked for four properties in the Delhi region and the other expenses increased (up 28.7% YoY). The net profit was Rs16.1 crore in Q4FY2016 compared with a loss of Rs4.1 crore in Q3FY2015; the net profit performance was largely aided by a tax benefit from Satyam Multiplex acquisition of Rs26.1 crore. Operating metrics lack improvement: (1) ILL added three new properties during the quarter (it has a presence in 57 cities) and seven new screens, taking the total number of properties to 107 with 420 screens and 108,931 seats. The lower than expected addition was on account of some regulatory issues. (2) The average ticket price (ATP) increased by 5.7% YoY to Rs167, the food & beverages spending per head (SPH) increased by 9.4% YoY to Rs58 while the occupancy rate grew by 300 basis points (BPS) YoY at 23% and fell by 500BPS sequentially. The management expects the occupancy rate to be in the range of 29-30% going ahead and the ATP to increase 5-6%. (3) The advertising revenue per screen declined by 13% YoY to 0.49 million on account of a weaker quarter and a price hike during the fag end of the third quarter of FY2016 (it takes a longer time for customers to absorb hikes). (4) The entertainment tax increased to 18.6% as compared with 16.9% in Q4FY2015, led by six properties falling out of tax exemption and also an overall increase in the entertainment tax rate in the Delhi region. (5) The share of Internet booking went up to 27% in Q4FY2016. (6) The NBOC for "Jungle Book" has been Rs140 crore and that for "Fan" has been Rs80 crore till now; the same will be booked in Q1FY2017. (7) ILL expects to add 20 new properties in FY2017 taking the total to 127. It expects to add 89 screens, taking the total to 509 screens by the end of FY2017. It is on track to take the total number of screens to 688 in the next two to three years on the back of the agreements signed. It has also added five IMAX Theaters. Maintain Buy with revised PT of Rs285: ILL has missed expectations of an improvement in the operating parameters like advertisement revenues and screen addition. It has also missed the expectations on the margin front. We have revised down our earnings estimates for FY2017 and FY2018 by 4.8% and 6.8% respectively. Nevertheless, we remain positive on ILL, given its aggressive growth plans and healthy balance sheet (lower financial leverage). We expect a gradual improvement in the operating parameters over FY2017 and FY2018. With its strong brand and extended reach ILL is also well poised to leverage the opportunity in India's under penetrated multiplex sector and growing spending of moviegoers. We maintain our Buy rating on ILL with a revised price target of Rs285.     Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article. Regards, Sharekhan Fundamental research team www.sharekhan.com

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