Banking

October 30, 2015

India Research

Yes Bank

QUARTERLY REVIEW

Bloomberg: YES IN Reuters: YES.BO

BUY Recommendation

Yes Bank’s Q2FY16 results were above estimates as the earnings grew by 26.4% YoY (10.7% QoQ) to Rs 6.1 bn mainly led by strong growth in NII (29.4% YoY and 4.6% QoQ) to Rs 11.1 bn. Advances growth was in-line with expectation (29% YoY and flat QoQ) along with NIMs which remained stable at 3.3%. Asset quality slipped as GNPA and NNPA increased to 0.61% and 0.2% vs 0.46% and 0.13% in Q1FY16. PCR also declined to 67.7% from 71%. We expect the core operating performance to continue to remain stable though we have marginally raised our GNPA and NNPA estimates. We maintain our positive view on the stock with a Buy rating and a revised lower price target of Rs 970 (2.5x FY17E ABV). NII growth remains strong: NII reported a strong growth of 29.4% YoY and 4.6% QoQ led by stable advances and NIMs which remained stable at 3.3% led by a 26 bps QoQ decline CoF which was offset by 25 bps decline in YoA. Advances growth higher than expected: Advances remained flat QoQ (29% YoY growth). Both corporate and commercial banking advances remained flat QoQ. Advances growth is expected to be higher than industry average going ahead as well. We expect advances to grow at a CAGR rate of 29% over FY1517E. Asset quality deteriorates: GNPA and NNPA slipped to 0.61% and 0.2% vs 0.46% and 0.13% in Q1FY16. In absolute terms, GNPA and NNPA increased by 33.4% and 48.7% respectively. PCR also dipped by 330 bps QoQ to 67.7%. Slippages during the quarter stood at Rs.1.46 bn. Annualized slippage rate was higher at 0.95% vs 0.5% in Q1FY16. No refinancing under 5-25 scheme or sale to ARC has been done during the quarter. Valuation & Outlook: Aggressive advances growth, stable margins places Yes Bank as one of the key beneficiaries of economic revival. We have factored in marginally higher GNPA for FY16 and FY17. We expect the earnings to grow at a CAGR of 28% over FY15-17E led by 29% CAGR growth in advances and expect the return ratios to remain strong. We maintain our positive view and Buy recommendation on the stock with a revised lower price target of Rs970 (2.5x FY17E ABV). Key Financials Particulars

FY13

FY14

FY15

FY16E

FY17E

Net interest income (Rs bn)

22.2

27.2

34.9

46.2

60.7

Net profit (Rs bn)

13.0

16.2

20.1

25.2

32.7

EPS (Rs)

36.9

44.9

48.0

60.3

78.4

PE (x)

20.2

16.6

15.5

12.3

9.5

P/ABV (x)

4.5

3.8

2.7

2.3

1.9

RoE (%)

24.8

25.0

21.3

19.8

21.7

RoA (%)

1.5

1.6

1.6

1.6

1.7

Source: Karvy Stock Broking, Yes Bank

CMP:

Rs 744

Target Price:

Rs 970

Previous Target Price:

Rs 980

Upside (%)

30%

Stock Information Market Cap. (Rs bn / US$ mn)

312/4,776

52-week High/Low (Rs)

910/590

3m ADV (Rs mn /US$ mn)

3,086/47.3

Beta

1.6

Sensex/ Nifty

26,838/8,112

Share outstanding (mn)

419

Stock Performance (%) Absolute Rel. to Sensex

1M 0.7

3M (8.9)

12M 16.5

YTD (3.7)

(3.3)

(6.4)

17.6

(1.3)

Performance 31,500 27,500 23,500 19,500 15,500

1,050 850 650 450 250 50 Oct-14 Dec-14 Jan-15 Feb-15 Apr-15 May-15 Jun-15 Aug-15 Sep-15 Oct-15

Core operating performance remains strong

Sensex (LHS) Source: Bloomberg

Analysts Contact Ankit Ladhani +91 22 6184 4329 [email protected]

Yes Bank (RHS)

October 30, 2015

Yes Bank Exhibit 1: Quarterly results Particulars (Rs bn) Interest Earned

Q2FY16 33.8

Q2FY15 28.3

% YoY 19.2%

Q1FY16 32.5

% QoQ 3.9%

Interest Expense

22.7

19.8

14.8%

21.9

3.5%

Net Interest income

11.1

8.6

29.4%

10.6

4.6%

Other Income

6.2

5.1

22.2%

5.5

13.4%

Total Income

17.3

13.6

26.8%

16.0

7.6%

Operating Expenses

7.1

5.4

29.8%

7.0

1.5%

- Employee cost

3.1

2.4

30.9%

2.9

8.4%

- Other Costs

3.9

3.1

29.0%

4.1

-3.3%

Operating Profit

10.2

8.2

24.7%

9.1

12.2%

Provisions

1.0

1.2

-13.0%

1.0

6.1%

PBT

9.2

7.0

31.2%

8.1

12.9%

Tax

3.0

2.2

41.7%

2.6

17.6%

PAT

6.1

4.8

26.4%

5.5

10.7%

Source: Karvy Stock Broking, Yes Bank

Exhibit 2: Key highlights Particulars

Q2FY16

Q1FY15

% YoY

Q4FY15

% QoQ

Gross NPA (%)

0.61%

0.36%

+25 bps

0.46%

+15 bps

Net NPA (%)

0.20%

0.09%

+11 bps

0.13%

+7 bps

Advances

800.2

620.3

29.0%

796.7

0.4%

Deposits

993.4

801.3

24.0%

953.2

4.2%

Source: Karvy Stock Broking, Yes Bank

Exhibit 3: Actual vs Expected performance Particulars (Rs bn)

Q2FY16

Q1FY15

% YoY

Q2FY16E % Variance

Net Interest Income

11.1

8.6

29.4%

10.6

4.6%

PPP

10.2

8.2

24.7%

9.1

12.2%

PAT

6.1

4.8

26.4%

5.5

10.7%

Source: Karvy Stock Broking, Yes Bank

Exhibit 4: Actual vs Expected performance Particulars

FY2016E

FY2017E

Old

New

% Change

Old

New

% Change

NII (Rs bn)

46

46

0.4

61

61

0.1

PAT (Rs bn)

25

25

0.7

33

33

(1.4)

Advances Growth (%)

30.0

30.0

-

28.0

28.0

-

Deposits Growth (%)

27.0

27.0

-

29.0

27.0

(6.9)

NIM (%)

3.1

3.1

-

3.2

3.2

-

EPS (Rs)

60.3

60.3

(0.0)

78.5

78.4

(0.2)

Source: Karvy Stock Broking, Yes Bank

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October 30, 2015

Yes Bank Advances growth remains strong Yes Bank reported flat sequential advances during the quarter. Both and Corporate advances grew by 1% QoQ (23.2% YoY) whereas retail advances incl. MSME declined by 0.8% QoQ (43.4% YoY growth). We expect advances to grow by 29% over FY15-17E. CASA ratio crosses 25% benchmark; NIMs remain stable Deposits grew by 4.2% QoQ (24% YoY) leading to deterioration in CD ratio to 80.5% from 83.5% in the previous quarter. NIMs remained stable QoQ at 3.3% led by a 26 bps QoQ decline CoF which was offset by 25 bps decline in YoA. With bank reducing the savings account rate, we expect NIMs to expand further going ahead. CASA ratio continues its steady improvement as it increased to 25.4% and crossed the 25% benchmark for the first time. Stable non-interest income Non- interest income of the bank reported a strong growth of 22.2% YoY (13.4% QoQ) led by 75.3% YoY (56.8% QoQ) growth in treasury income and 58.6% YoY (8.2% QoQ) growth in retail fees. Corporate trade and cash management fees declined by 12.9% YoY. Cost to income ratio improves Operating expenses of the bank grew by 29.8% YoY (1.5% QoQ). Salaries and other operating expenses grew by 30.9% and 29% YoY respectively. Cost to income ratio declined to 41% vs 43.4% in Q1FY16 and 40% in Q2FY15. Bank has opened 38 branches during the quarter, taking the total branch network to 700. Asset quality slips sharply GNPA (0.61%) and NNPA (0.2%) increased showing signs of pressure on asset quality. In absolute terms, GNPA increased by 33% QoQ whereas NNPA increased by 48.7% QoQ combined with a decline in PCR to 67.7%. Slippages during the quarter were at Rs 1.46 bn vs Rs 740 mn in Q1FY16. Annualized slippage rate was higher at 0.95% vs 0.5% in Q1FY16. The total restructured book remained stable at Rs 5.7 bn (0.7% of total advances). Bank has not sold any a/c to ARC or has done any refinancing under 5-25 scheme. Higher provision expenses due to countercyclical provisions Provision expenses declined by 13% YoY (6.1% QoQ growth) to Rs 1 bn led by Rs 730 mn provisions for NPA whereas provision for counter cyclical buffer which is currently being maintained at 0.5% contributed marginally. PCR declined marginally to 67.7% from 71% in the previous quarter. Outlook Aggressive advances growth, stable margins places Yes Bank as one of the key beneficiaries of economic revival. We have factored in marginally higher GNPA for FY16 and FY17. We expect the earnings to grow at a CAGR of 28% over FY1517E led by 29% CAGR growth in advances and expect the return ratios to remain strong. We maintain our positive view and Buy recommendation on the stock with a revised lower price target of Rs970 (2.5x FY17E ABV).

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October 30, 2015

Yes Bank Exhibit 5: Advances Growth (Rs bn)

Exhibit 6: Deposits Breakup

Advances

1,200

20.0%

1,000

15.0%

800

10.0%

600 5.0%

400 200

0.0%

-

-5.0%

Q2FY16

Q1FY16

Q4FY15

Q3FY15

Q2FY15

Q1FY15

Q4FY14

Q3FY14

Q2FY14

Q1FY14

Q4FY13

Q3FY13

16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% Q2FY13

900 800 700 600 500 400 300 200 100 -

Advances Growth (%)

Deposits

Deposits Growth (%)

Source: Karvy Stock Broking, Yes Bank

Source: Karvy Stock Broking, Yes Bank

Exhibit 7: Trend in NIM

Exhibit 8: Trend in Cost to Income ratio

3.40% 3.30% 3.20% 3.10% 3.00% 2.90% 2.80% 2.70% 2.60% 2.50%

Source: Karvy Stock Broking, Yes Bank

Source: Karvy Stock Broking, Yes Bank

Exhibit 9: Trend in CASA

Exhibit 10: Trend in asset quality

25.5% 23.4% 23.1% 22.6% 22.5% 22.3% 22.0% 20.9% 20.4% 20.2% 18.9% 18.3% 20.0% 17.3% 25.0%

15.0% 10.0% 5.0%

Q2FY16

Q1FY16

Q4FY15

Q3FY15

Q2FY15

Q1FY15

Q4FY14

0.70% 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0.00%

95.0% 90.0% 85.0% 80.0% 75.0% 70.0% 65.0% 60.0% 2QFY12 3QFY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16

0.0%

Q3FY14

Cost to income ratio

NIM

30.0%

Q2FY14

Q1FY14

Q4FY13

Q3FY13

Q2FY13

Q1FY13

Q4FY12

3QFY12

2QFY12

Q2FY16

Q1FY16

Q4FY15

Q3FY15

Q2FY15

Q1FY15

Q4FY14

Q3FY14

Q2FY14

Q1FY14

Q4FY13

Q3FY13

Q2FY13

Q1FY13

Q4FY12

3QFY12

2QFY12

48.0% 46.0% 44.0% 42.0% 40.0% 38.0% 36.0% 34.0% 32.0% 30.0%

CASA Source: Karvy Stock Broking, Yes Bank

GNPA (LHS)

NNPA (LHS)

PCR (RHS)

Source: Karvy Stock Broking, Yes Bank

4

October 30, 2015

Yes Bank Exhibit 11: Profit And Loss Statement P &L statement (Rs bn)

FY13

FY14

FY15

FY16E

FY17E

Interest income

82.9

99.8

115.7

147.4

188.6

Interest Expenses

60.8

72.7

80.8

101.2

127.9

Net interest income

22.2

27.2

34.9

46.2

60.6

Non-interest income

12.6

17.2

20.5

26.0

31.1

10.8

12.6

19.8

23.3

27.5

Net total income

Fee Income

34.8

44.4

55.3

72.2

91.7

Operating expenses

13.3

17.5

22.8

28.7

35.6

Employee Expenses

6.6

7.8

9.8

12.4

15.2

Pre-provisioning profit

21.4

26.9

32.5

43.5

56.1

2.2

3.6

3.4

5.8

7.1

19.3

23.3

29.1

37.7

49.0

Provision & Contingency PBT Tax

6.3

7.1

9.0

12.5

16.3

PAT

13.0

16.2

20.1

25.2

32.7

FY16E

FY17E

Source: Karvy Stock Broking, Yes Bank

Exhibit 12: Balance Sheet Statement Y/E Mar (Rs bn)

FY13

FY14

FY15

Liabilities Networth

58.0

71.2

116.8

137.5

164.5

Deposits

669.6

741.9

911.8

1,157.9

1,470.6

Current Deposits

66.6

70.2

85.0

108.8

139.3

Savings Deposits

60.2

93.3

125.8

161.0

206.1

Borrowings

209.2

213.1

262.2

314.1

383.1

Other liabilities & provisions

54.2

63.9

70.9

105.8

130.6

Total liabilities

991.0

1,090.2

1,361.7

1,715.4

2,148.8

Cash & balances with RBI

33.4

45.4

52.4

57.3

72.8

Balances with banks & money at call

7.3

13.5

23.2

17.4

22.1

Investments

429.8

409.5

466.1

619.5

786.8

Advances

Assets

470.0

556.3

755.5

982.1

1,257.1

Fixed assets

2.3

2.9

3.2

3.1

3.2

Other assets

48.3

62.5

61.4

36.0

6.8

Total assets

991.0

1,090.2

1,361.7

1,715.4

2,148.8

Source: Karvy Stock Broking, Yes Bank

5

October 30, 2015

Yes Bank Exhibit 13: Key Ratios Key Ratios

FY13

FY14

FY15

FY16E

FY17E

36.9

44.9

48.0

60.3

78.4

Per share Data (Rs) EPS (Fully diluted) DPS

6.1

8.0

9.0

9.0

11.8

BV

164.1

197.2

279.1

328.7

393.3

ABV

163.9

196.5

277.0

324.8

388.5

Spreads (%) Yield on Advances

12.7

12.7

12.2

12.2

12.2

Cost of Deposits

7.9

8.0

7.9

7.9

7.9

Net interest margins

2.7

2.8

3.0

3.1

3.2

Credit to Deposit

70.2

75.0

82.9

84.8

85.5

Cost to income

38.4

39.4

41.3

39.7

38.8

CASA

18.9

22.0

23.1

23.3

23.5

Non interest income / Total income

36.2

38.8

37.0

36.0

33.9

RoE

24.8

25.0

21.3

19.8

21.7

RoA

1.5

1.6

1.6

1.6

1.7

16.5

16.1

13.0

12.1

12.8

Gross NPA

0.2

0.3

0.4

0.5

0.5

Net NPA

0.0

0.0

0.1

0.2

0.2

92.6

85.1

72.0

65.0

67.4

Operating ratios (%)

Return ratios (%)

Assets/Equity Asset Quality ratios (%)

Provision coverage Slippage Ratio

0.6

0.8

0.7

0.5

0.4

10.1

13.5

10.4

13.3

12.7

0.6

0.8

0.6

0.8

0.7

Net interest income

37.3

22.4

28.4

32.4

31.4

PPP

39.1

25.5

20.9

33.8

29.1

PAT

33.1

24.4

24.0

25.6

30.0

Advances

23.7

18.4

35.8

30.0

28.0

Deposits

36.2

10.8

22.9

27.0

27.0

9.5

9.8

11.5

10.4

10.2

Provision Expenses/ PPP Credit Cost Growth Ratios (%)

Capital Adequacy Ratio (%) Tier I Tier II

8.8

4.6

4.1

5.5

4.8

Total

18.3

14.4

15.6

15.9

15.0

Valuation ratios (x) P/E

20.2

16.6

15.5

12.3

9.5

P/BV

4.5

3.8

2.7

2.3

1.9

P/ABV

4.5

3.8

2.7

2.3

1.9

Source: Karvy Stock Broking, Yes Bank

6

October 30, 2015

Yes Bank

Stock Ratings Buy Hold Sell

: : :

Absolute Returns > 15% 5-15% < 5%

For further enquiries please contact:

[email protected] Tel: +91-22-6184 4300 Disclosures Appendix Analyst certification The following analyst(s), who is (are) primarily responsible for this report and whose name(s) is/ are mentioned therein, certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report. Disclaimer Karvy Stock Broking Limited [KSBL] is a SEBI registered Stock Broker, Depository Participant, Portfolio Manager and also distributes financial products. The subsidiaries and group companies including associates of KSBL provide services as Registrars and Share Transfer Agents, Commodity Broker, Currency and forex broker, merchant banker and underwriter, Investment Advisory services, insurance repository services, financial consultancy and advisory services, realty services, data management, data analytics, market research, solar power, film distribution and production profiling and related services. Therefore associates of KSBL are likely to have business relations with most of the companies whose securities are traded on the exchange platform. The information and views presented in this report are prepared by Karvy Stock Broking Limited and are subject to change without any notice. This report is based on information obtained from public sources , the respective corporate under coverage and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of KSBL. While we would endeavor to update the information herein on a reasonable basis, KSBL is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent KSBL from doing so. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. KSBL will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither KSBL nor any associate companies of KSBL accepts any liability arising from the use of information and views mentioned in this report. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Past performance is not necessarily a guide to future performance. Forward-looking statements are not predictions and may be subject to change without notice. Actual results may differ materially from those set forth in projections

7

October 30, 2015



Associates of KSBL might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve Yes Bank months.



Associates of KSBL might have received compensation from the subject company mentioned in the report during the period preceding twelve months from the date of this report for investment banking or merchant banking or brokerage services from the subject company in the past twelve months or for services rendered as Registrar and Share Transfer Agent, Commodity Broker, Currency and forex broker, merchant banker and underwriter, Investment Advisory services, insurance repository services, consultancy and advisory services, realty services, data processing, profiling and related services or in any other capacity.



KSBL encourages independence in research report preparation and strives to minimize conflict in preparation of research report.



Compensation of KSBL’s Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.



KSBL generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.



KSBL or its associates collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report.



KSBL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report and have no financial interest in the subject company mentioned in this report.



Accordingly, neither KSBL nor Research Analysts have any material conflict of interest at the time of publication of this report.



It is confirmed that KSBL and Research Analysts primarily responsible for this report and whose name(s) is/ are mentioned therein of this report have not received any compensation from the subject company mentioned in the report in the preceding twelve months.



It is confirmed that Ankit Ladhani, Research Analyst did not serve as an officer, director or employee of the companies mentioned in the report.



KSBL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.



Neither the Research Analysts nor KSBL have been engaged in market making activity for the companies mentioned in the report.



We submit that no material disciplinary action has been taken on KSBL by any Regulatory Authority impacting Equity Research Analyst activities.

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