Sunday, November 2, 2014

>YES BANK (HDFC Securities)

Granularity missing

YES reported better than estimated results with core/net earnings beat of 9/6%. Pick-up in loans (+30% YoY), 20bps NIM improvement (aided by recent fund raise) and continued traction in other income were key positives. On the other hand, the sluggish CASA progress (mere +18bps QoQ), sharp rise in wholesale deposits, decline in PCR with rise in slippage (1% ann.) and increasing timeframe for any visible improvement in granularity were the disappointments.

After factoring better than estimated 2Q, we revise our net earnings estimates by 3% for FY15/16E. However, we largely retain our ABV estimate as we continue to factor high slippages given the large share of wholesale book & exposure towards stressed segments. Despite the bulky nature of B/S & expected decline in systemic interest rates, we believe scope for further NIM improvement in unlikely given the pricing pressure & relatively weak franchise. Further, current high contribution from bulky fees & lower provisioning looks unsustainable and might add volatility to earnings going ahead.

Further, the recent outperformance vs. peers and banking indices makes us maintain our NETURAL rating. Revise TP to Rs 650 (2x FY16 ABV).
 Favorable base and improved sentiment resulted in loan growth of 30/5% YoY/QoQ, driven by large corp segment (+25% YoY; 71% of loans). Improvement in CASA (%) further moderated to a mere +18bps QoQ (slowest in last 11 qtrs) to ~22%. Despite increasing its presence & adding retail products, granularity within B/S is yet to show any visible improvement.

 Combination of (a) rise in CD ratio (b) impact of capital raising (c) gradual decline in low yield credit substitute and (d) part effect of lower wholesale deposits share in previous qtr drove NIM (3.2%, +30/20bps YoY/QoQ). We have factored NIMs of 3.1% over FY14-16E.

 Slippages were higher QoQ at Rs 1.5bn (1% ann.), though NPA sale of Rs 400mn restricted rise in NPLs. G/NNPA increased 12/26% QoQ to 36/9bps of loans. We were negatively surprised with the 260bps decline in coverage ratio to 76%, despite strong earning cushion. Restructured book stood at Rs 1.2bn (19bps). We factor slippages/LLP of ~85/35bps over FY15/16E.