Private sector lender Yes Bank, in the news recently over two of its directors, M R Srinivasan and Diwan Arun Nanda, assuming office Friday and cutting base rate from 10.75 per cent to 10.50 per cent, got a boost with Systemix putting a ‘buy’ recommendation on its stock.
Yes Bank stock is expected to move in a range, and above Rs 844 would lead to the upper levels of the range – Rs 897-909. On breakout above Rs 909, its next target would be Rs 930-971-1,022 levels.
CMP of Rs 830, ‘buy’ in the range of Rs 830-823, stop loss at Rs 798 on closing basis, and the target is Rs 897-930-1,022 in a time period of one to three months.
Yes Bank is expected to remain strong due to 2 reasons:
1) Strong nil growth led by healthy balance sheet growth (22% to 25% over FY16e-17e). Improvement in NIM would be supported by both liability and asset side. On the liability front, a gradual improvement in CASA would lead to lower cost of deposit along with further scope of reduction in SA rate (highest in the industry at 7%). On the asset side, an increase in share of retail lending would improve the yield on advances.
2) Yes Bank’s stringent approach to credit quality led to one of the best asset quality portfolio in the industry with GNPAs of 0.41% and NNPAs of 0.12% in FY15 along with a PCR of 72%. We believe it would be able to maintain the stress assets under check with a credit cost of 30/40bp over FY16e/17e.
Yes Bank registered strong sequential loan growth of 13% qoq (36% yoy) versus 8% qoq and 15% yoy in 3QFY15. Strong incremental growth in loan was mainly from corporate banking (primarily commercial and business banking) and the contribution has improved by 140bp yoy to 64.7%. Bank’s strong loan growth led to customer assets growth of 25% yoy despite 17% yoy decline in credit substitute portfolio.
Yes Bank’s strong CASA mobilization 13% qoq and 29% yoy led to 50bp improvement in CASA ratio backed by strong SA growth during the quarter 16% qoq and 35% yoy. CA deposits grew by 10% qoq and 21% yoy. Benefit of higher CASA led to 10bp fall in cost of fund which was compensated by 10bp decline in yield on loans; NIM for the quarter remained flat at 3.2%. Management targets with a further scope for reduction in cost of fund, NIM will expand in FY16.
On the back of lower slippages at Rs520mn (0.38% slippage ratio) during the quarter, GNPAs and NNPAs remained stable at 0.4% and 0.1% respectively. Higher restructuring during the quarter (Rs2.1bn) led to increased restructured book (51bp of gross advances versus 26bp in 3QFY15). Lower slippages yoy (70bp in FY15 versus 90bp in FY14) led to a reduction in overall credit cost of the bank at 20bp for FY15 versus 26bp in FY14. PCR remained strong at 72% in FY15.
At CMP of Rs 830, the stock trades at P/BV of 2.1x on FY17E Bloomberg consensus estimates.