'Buy' Yes Bank shares, trim target price to Rs 550: Nomura

Updated: Oct 24 2013, 16:30pm hrs
Yes Bank reported a 22% PAT beat at Rs 370 crore against our estimate of Rs 300 crore and consensus at Rs 330 crore. This was largely on account of the strong trading profit of Rs 180 crore, especially MTM gains on interest rate swaps, which were about Rs 110 crore. Yes Bank Ltd also booked the entire MTM loss of Rs 110 crore on its corporate bond book of Rs 8,000 crore-Rs 9,000 crore during the quarter itself.

Yes Bank NIMs compressed 10 bps sequentially to 2.9% on the 20-bps q-o-q increase in the cost of funds, offset by the 10-bps increase in loan yields. The steady Casa ratio of 20.4% supported the margins despite the 280-bps q-o-q compression in the LDR ratio.

Yes Bank reported LLPs of just 29 bps after selling off Rs 140 crore of its Rs 150 crore of slippage to ARC in Q2. Provision coverage remained healthy at 85%, excluding countercyclical provisions (40 bps of loan book). Savings deposit addition of Rs 400 crore q-o-q (vs Rs 800 crore average over the past 5-6 quarters) was impacted by some shift into time deposits, although new customer accretion continued to improve.

Yes Bank y-o-y loan growth of 14% was an outcome of the uncertain rate environment, while deposit growth was robust at 29%. We see some support to NIMs over the next two years from softer short-term rates and rising penetration in Casa in rich metros. We trim our target price to Rs 550 on lower 1-eayr forward P/ABV multiple of 2.4x (2.6x earlier), factoring in moderation in the growth outlook.