Analyst Corner: Pending AQR report remains overhang on Yes Bank stock

By: | Published: January 30, 2019 1:15 AM

With the appointment of Gill as the new MD & CEO, the key aspect to watch out would be his strategy to take the business forward.

With the appointment of Gill as the new MD & CEO, the key aspect to watch out would be his strategy to take the business forward.

YES reported in-line PAT of Rs 10 billion (down 7% y-o-y), driven by strong advances growth (up 42.2% y-o-y) and stable margin (3.3%). Headline asset quality deteriorated further with GNPA ratio up 50 bps
q-o-q at 2.1%.
However, excluding the one-off impact of a stressed infrastructure company, GNPA would have improved q-o-q to 1.3% (1.6% in Q2). SA deposits witnessed a sequential decline (down 9.6% q-o-q) as there was a run-off in government account leading to 51 bps q-o-q decline in CASA ratio.

Key highlight of the quarter is RBI’s approval of Ravneet Singh Gill as YES Bank’s new MD & CEO (to join on or before March 1, 2019). Ravneet Gill, current CEO of Deutsche Bank (India), brings with him a lot of experience in international banking and is a strong process-oriented person with deep relationships.

(a) Growth in advances was primarily driven by retail (up 83.2% y-o-y) and corporate book (42.4% y-o-y); growth in medium enterprises (12% y-o-y) and small and micro enterprises (23.4% y-o-y) was relatively lower; (b) deposits were flat sequentially as growth in corporate (8% q-o-q) and retail deposits
(5% q-o-q) was offset by runoff in CDs (`70 billion); (c) non-Interest Income declined 37.4% y-o-y predominantly on account of treasury loss; and
(d) on IL&FS, bank has a total exposure of `25.3 billion, of which `19.1 billion is classified as NPA with 25% PCR and remaining `6.2 billion is still standard with 15% PCR. YES believes aggregate provisions are adequate with expected realisations.

With the appointment of Gill as the new MD & CEO, the key aspect to watch out would be his strategy to take the business forward.

RBI’s AQR report is still pending and this would remain an overhang on the stock.
Also, with CET 1 at 9.1% (tier I at 12.0%) and loan growth >40%, the bank has limited options but to raise fresh equity. However, this will be challenging in the current environment. At CMP, the stock trades at 1.6x/1.4x FY20E/FY21E ABV of `136/`157.

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