The Yes Bank Ltd reported a 3QFY14 PAT of Rs 420 crore (growth of 21.4% y-o-y) vs our expectation of Rs 400 crore. The 3% PAT beat was largely driven by a big MTM writeback offsetting lower NII.
Loan growth of 14.7% y-o-y was driven by a strong increase in retail and SME loans, while credit substitute growth too moderated to 13.4% y-o-y. Refinance opportunities continue to drive growth, which is now guiding to growing in line with system for FY14F. Fee income growth was healthy at 16%y-y helped by strong traction in retail/third party and transactional banking income. We have built in 17.5% customer asset growth for FY14F.
We continue to expect support to NIMs for Yes, driven by increasing penetration in Casa-rich metros over the next 12-18months and addition of 125-130 branches. Yes didn?t do any fresh restructuring during the quarter, reporting some cash recovery on existing restructured book instead. Slippages at Rs 1.3bn (Rs 1.5bn in 2Q) included Rs 62-crore sale to ARCs. Outstanding ARC book is Rs 180 crore (about 70% mark-down from the value of loans sold). Outstanding countercyclical buffer is Rs 200 crore (40bps of loan book), sufficient to take care of adverse regulatory requirements like the recent guidelines on providing for unhedged forex exposure of borrowers. LLPs of 44bps for 3Q are in line with our FY14F estimate.
Yes Bank currently trades at 1.4x our FY15F ABV of Rs 259 and 7.7x our FY15F EPS of Rs 45.7. At our TP, Yes Bank would trade at 2.1x FY15F ABV and 12x FY15F EPS. We assign buy.
