Sturdy operational performance continues to impress:
Yes Bank posted mixed set of numbers for Q4FY2017, with its operating performance largely in line with expectations, but the near doubling of GNPA sequentially (QoQ) marred the otherwise stellar performance. The bank has reported a Net Interest Income (NII) of Rs1,639.7 crore, up by a robust 32.1% YoY and 8.8% QoQ. The bank saw continued traction in its business growth, with Advances growing by 35% YoY to Rs1,32,263 crore, outperforming the tepid loan growth in the banking sector by a wide margin. For the quarter, Yes Bank’s NonInterest Income stood at Rs1,257 crore, representing an increase of 56.6% YoY. This was supported by Retail banking fees (25% of total OI; up 72% YoY) and Corporate banking fees (47% of total OI; up 61% YoY), indicating strong customer traction for the bank. Also, Yes Bank maintained the trend of healthy Net Interest Margin (NIM) at 3.6%, bettering its Q3FY2017 NIM by 10BPS.
Dip in asset quality is a cause for concern:
On the asset quality front, Yes Bank surprised negatively with a spike in its GNPA/NNPA by 67BPS/52BPS QoQ to 1.52%/0.81%, which somewhat stains its otherwise stellar performance record so far. The NPA includes one account with a gross exposure of 0.69% of Gross Advances (Rs911 crore) and a net exposure of 0.52% of Net Advances (Rs684 crore). The Yes Bank management expects to recover this NPA in the near term. Specific provision held in this account is Rs228 crore. The management indicated that the increase in NPA and the consequent provisioning is in conformity with the divergences observed by the Reserve Bank of India. Q4FY2017 also witnessed significant asset sales at Rs887 crore. The Yes Bank management believes that there is adequate and realisable collateral/security cover against these assets. Net Security Receipts (SRs) increased to 0.73% of Gross Advances (0.22% in Q3FY2017) to Rs977 crore (Rs259 crore in Q3FY2017). The total Standard Restructured Advances stood at Rs481 crore (0.36% of Advances), down from Rs500 crore (0.42% of advances) in Q3FY2017. The bank did not undertake any additional restructuring during the quarter.
Valuation and outlook – rise in NPA worrisome and spoils an otherwise strong track record:
While the strong operational outperformance and a stable asset quality have been the key differentiators for Yes Bank so far, the sudden spike in NPA in Q4FY2017 is a cause for concern. The bank’s management has indicated that the fresh slippage was on account of one large exposure, which they expect to reverse in the near term. But, we believe that the stock is expected to witness short-term pressure with the bank losing some of its sheen of an impeccable track record. We change our rating from ‘Buy’ to ‘Hold’ to reflect the concern about NPA spike with a revised price target of Rs1,780, valuing the bank at 2.9x FY2019E Book Value Per Share (BVPS).
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