>YES BANK: Yes has now launched a slew of retail products (vehicle & home loans, loans against property and shares, etc) with more to come

■ 3QFY12 earnings came in 3% above our estimates and the stock ended the day up almost 4% partly led by encouraging results but also given RBI’s CRR cut earlier in the day.


■ Operational review: Loan growth slowed to 15% y/y; however, the Bank grew its overall balance sheet a robust 36% given 71% growth in investments including credit substitutes not in the form of advances (i.e. CPs, CDs, etc). Growth was led both by large corporates and retail & SME loans. YES has now launched a slew of retail products (vehicle & home loans, loans against property and shares, etc) with more to come. However, the stand-out feature was the traction in its CASA deposit mix which grew to 12.6% vs. 11% in Sep11.
Margins however remained flat as the proportion of equity (‘free funds’) reduced. Tier 1 remained healthy at 9.7%. Asset quality too remained stable with both NPLs and credit costs not increasing.


■ Earnings outlook: As the Bank builds out its lower-cost, ‘spoke’ branches and offers its attractive savings deposit product, we build in higher CASA at 14%+ and 16%+ for FY13E and FY14E respectively. However, we trim our balance sheet growth to 22% for each of the next 2 years and hence estimate 24% profit growth for these 2 years. The Bank remains amongst the most profitable private banks enjoying 1.5% ROA and 23% ROE.


■ Valuations and target price: The stock trades 9.3x PE and 2.0x PB on FY13E. We value the stock at 10x PE and 1.8x PB, thereby marginally increasing our 12-month target price to INR 372 (from INR369), implying potential returns (including dividends) of 17.6%. However, with RBI looking to potentially cut rates and YES’ margins likely to benefit, our target multiples have an upward bias. Retain Overweight. Key risks: 1) Longer-than expected build-up of retail liabilities 2) Asset quality risks


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