‘Buy’ Yes Bank

• Buy rating on Yes Bank is maintained with an increased target price of Rs.354 over one year. TP increased on upward revision of earnings prospects. The bank reported 3QFY12 net profit of Rs. 250 crore, which increased 32.9% yoy. Net interest income at Rs.430 crore is up 32.3% yoy.
• Net interest margin (NIM) was flat at 2.8%v qoq.
• Company’s earnings projections were revised upward by 8.4% for FY12, by 9.5% for FY13 and by 11.3% for FY14.
• The bank could maintain margins as 38% of incremental deposits during the quarter were lower cost CASA deposits against 15% in 2QFY12.
• The bank is expected to benefit from policy rate cut as wholesale deposits would get re-priced at lower rates.
• Currently traded at 1.7 multiple of FY13 adjusted book value estimates. This valuation looks attractive for a bank with ROE estimate of 21% over FY12- 14.
• Risks to the target price may arise from higher slippages in the SME and infrastructure space.