Stock Pick From Banking Industry

Here Is Why?

• Consistent financial performance supported by sound margins.
• Focus on efficiency-enabled bank to maintain good asset quality.
• Available at reasonable valuation multiple compared to other private sector banks. 

Yes Bank

Over the last couple of quarters, banking stocks have been struggling to show traction in the market due to low credit growth and bad asset quality. However, with the government starting public sector spending to boost the economy, we are of the opinion that the banking sector is expected to revive and show good credit growth. Hence we are recommending a fundamentally sound bank for retail investors.

Yes Bank is a new generation private bank and started its operations in May 2004 as a wholesale bank with mainly corporate loans and liabilities. The bank rapidly expanded its corporate loan book and has now been focusing on growing its retail and small and medium enterprise (SME)-sized customer base. Yes Bank recently managed to gain the fifth position in India’s private banking sector. The bank has a network of over 630 branches across more than 149 cities with over 1,190 ATMs as on March 31, 2015.

On the financial front it reported growth of 16.38 per cent in income from operations to Rs 13,618 crore in FY15 compared to Rs 11,704 crore in FY14. Interestingly, its EBITDA rose by 20.89 per cent to Rs 3,250 crore as compared to Rs 2,689 crore on a yearly basis during the same period. Further, the bank’s net profit showed growth of almost 24 per cent during FY15. Over the last five years the bank has been consistent in posting net profit growth well above 20 per cent every year.

On the asset quality front, the net non-performing assets (NPAs) stood at 0.12 per cent and the gross NPAs stood at 0.41 per cent in FY15. Both gross NPAs and net NPAs are the lowest as compared to other competitor private banks. Its CASA stood at 23.1 per cent during FY15 and showed a consistent increasing trend from 10.30 per cent since FY11. The bank’s net interest margin (NIM) stood at 3.2 per cent in FY15 and was competitive as compared to its peers.

At the Asian Banker Awards 2015, Yes Bank was awarded the ‘Best Trade Finance Bank in India’, ‘Best Corporate Finance Trade Deal in India’, ‘Best Cash Management Project in India’ and ‘Enterprise Risk Technology Implementation of the Year’ in Hong Kong, April 2015. Recently, Yes Bank’s MD and CEO, Rana Kapoor, was honoured with the ‘BSE SKOCH Award for Institution Building’ for his outstanding contribution to the banking industry.

Last year, the bank raised Rs 1,000 crore under India’s first green infrastructure bond issue and raised USD 200 million from unsecured loan facility from Asian Development Bank (ADB) to finance its working capital. Considering the bank’s consistent financial performance, good asset quality and reasonable valuation with price to earnings ratio of 17x its FY15 earnings per share, we recommend buying this stock.