MOSL: YES BANK (Buy)-Asset quality plays a spoilsport-loan/revenue growth remains robust

​Yes Bank: Asset quality plays a spoilsport; loan/revenue growth remains robust

(YES IN, Mkt Cap USD8.3b, CMP INR332, TP INR382, 15% Upside, Buy)

• Yes Bank (YES) reported robust PPoP growth of 38% YoY/12% QoQ to INR19.1b (10% beat), led by strong 34% YoY growth in total revenues and controlled opex. However, asset quality deteriorated sharply, adversely impacted by high divergence of INR63.55b, and thus, resulted in 56% YoY increase in provisions. PAT, however, still grew at a healthy 25% YoY to INR10.02b (largely in-line).
  
• Business growth stood robust, with advances growing 35% YoY to INR1.48t and deposits increasing 23% YoY to INR1.58t. CASA deposits maintained strong traction and reported 51% YoY growth, resulting in a 40bp QoQ increase in the CASA mix to 37.2%. Margins held stable at 3.7%.
  
• Cost-income ratio declined 290bp QoQ to 39.2%, and we believe that opex growth for YES will continue to trail revenue growth, as the bank goes slow on branch expansion and focuses on improving productivity.
  
• Asset quality deteriorated sharply, affected by the divergence of INR63.55b (19 accounts - mostly infra-related), of which YES - (i) downgraded loans worth INR12.19b, (ii) sold three accounts INR4.61b (2 real estate, 1 paper) to ARC and (iii) upgraded 12 accounts worth INR29.83b, and recovered INR16.9b. GNPL/NNPL thus increased 99%/183% QoQ, while the coverage ratio fell ~1,700bp to ~43%. Credit cost increased to 29bp (48bp in 1HFY18); however, the bank has guided to maintain its FY18 credit cost at <70bp.