YES Bank Q2FY18: Buy for the period of 18 months with a target price of Rs… | Financial results | Outlook | Fundamental analysis | Spa Securities |

Yes bank reported strong momentum on most of the metrics in P&L with 35% y-o-y loan book growth driving 30% y-o-y NII growth, 35% y-o-y other income growth and 34% y-o-y PPOP growth. Credit cost spiked 1.8 x y-o-y resulting in to 25% y-o-y growth into PAT to INR 10bn. However, on the balance sheet front, it was a disappointment as there was high divergence on loan classification pertaining to FY17.

·         Strong loan growth led by retail and business banking book and stable NIMs q-o-q at 3.7%

·         Asset quality weakens as high divergence in FY17 GNPA

Outlook & Valuation

Yes Bank has been delivering a strong performance over a decade now. However, the divergence with RBI on loan impairment has been an issue for the bank for the last 3 years. The bank has been able to upgrade / recover a substantial amount of loans with only a small proportion declared as NPA. However, its ability to do the same at such a short notice is something useful to understand. We increase our cautiousness on the bank’s asset quality and lower our valuation multiple from 3.4x to 3.0x FY19E P/Adj. BV and recommend a BUY on the stock with a TP of INR 359 in 18 months.

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