Accumulate Yes Bank; target Rs 855: KRChoksey

"Yes Bank reported a strong performance during the quarter with a PAT of Rs 540 crs (up 30.0% Y-o-Y & 12.0% Q-o-Q). 1) Net interest income grew strongly 36.6% Y-o-Y & 6.1% Q-o-Q on the back of a strong loan book growth of 32.4% Y-o-Y and stable NIMs sequentially 2) 

Following suite, non-interest has showed strong growth momentum up 38.4% Y-o-Y and 6.2% Q-o-Q on the back of third party distribution (+64.9% y/y), income from financial markets (+41.3% y/y) and financial advisory fees (42.8% y/y) 3) Operating expenses increased 32.9% Y-o-Y on the back of branch expansion 4) Provisions stood at Rs 70 crs in Q3FY15, a decline of 41.5% Q-o-Q 5) Asset quality has deteriorated during the quarter with 25.3% sequential increase in gross NPAs. 

Gross NPAs and Net NPAs stood at 0.4% & 0.1% respectively with PCR of 76.8% (up 108bps Q/Q) 6) Loan book grew 32.4% Y-o-Y & 7.4% Q-o-Q driven by a strong retail loan book (up 17.5% Q/Q) as wholesale lending softened 7) Deposits growth came at 21.0% Y-o-Y & 2.8% Q-o-Q, CASA ratio showed uptick 13bps Q-o-Q led by a healthy trajectory in saving deposits (up 42.8% Y-o-Y)." "The Bank has been delivering steady operating performance in the last few quarters. 

The bank’s valuation has re-rated on the back of falling wholesale rates, sturdy margins and built-up of a strong non-interest income profile. We believe further re-rating in the stock will be contingent on strong execution of retail strategy and NIM led expansion in ROA. We expect Yes Bank to deliver 24.6% CAGR in net profits over FY14-FY17. At Rs 787, the stock is trading at 2.4x FY16 adjusted book and 12.7x FY16 earnings, leaving limited upside from the current level. 

We maintain “ACCUMULATE” rating on the stock with target price of Rs 855, potential upside 8.6%", says KRChoksey research report.