| STOCK UPDATE Yes Bank
Recommendation: Buy
Price target: Rs930
Current market price: Rs787 Strong operating performance, Buy maintained Key points - For Q3FY2015, Yes Bank reported a strong growth in earnings (up 30% YoY) mainly driven by an uptick in the net interest income (up 37% YoY) and non-interest income (up 38% YoY). The LCR compliance absorbed the 20BPS dip in cost of funds, hence the margins remained stable at 3.2% on a Q-o-Q basis.
- Customer assets growth was relatively strong as it grew by 23% YoY, despite the moderation in the credit substitute book. Though the asset quality showed marginal deterioration, yet it remains among the best in the industry. The restructured loans increased marginally (0.26% of loans) due to restructuring of one account.
- Yes Bank delivered a strong earnings performance with healthy operating metrics and increase in CASA ratio. We expect the bank's earnings growth to remain strong (at 23% CAGR over FY2014-17) contributed by an uptick in core income and gains from the credit substitute book (due to softening of interest rates). This should result in superior return ratios (RoE of 20.3% and RoA of 1.7%). We maintain our Buy rating on the stock.
Bajaj Finance
Recommendation: Buy
Price target: Rs4,305
Current market price: Rs3,766 Stellar performance, price target revised to Rs4,305, upgraded to Buy Key points - For Q3FY2015 Bajaj Finance has reported a robust growth in profit (up 33.1% YoY) because of a strong 33.4% Y-o-Y growth in the net interest income. Given that the third quarter of a fiscal is seasonally strong and sees a healthy loan growth due to festive demand, the assets under management increased to Rs30,882 crore (up 37% YoY) during Q3FY2015.
- The customer additions remained strong (up 59% in YoY) which helped to report a strong growth in a weak environment. Since the company follows stringent credit practices and has already exited troubled sectors like infrastructure and commercial vehicles, construction equipment, etc, the asset quality is likely to sustain at healthy levels (GNPA and NNPA were at 1.5 % and 0.5% in Q3FY2015 respectively).
- In view of the strong and sustained growth in the company's profit, a bright outlook for its growth (thanks to its presence in multiple products and strong cross-selling opportunities) and its healthy asset quality, we have revised our earnings estimates upwards (28% CAGR over FY2014-17). We also believe Bajaj Finance deserves to trade at a premium to the other NBFCs due to its diversified business, presence in strong growth segments and superior operating metrics (RoA of 3.3% and RoE of +22%). We, therefore, value Bajaj Finance at 3x FY2017E BV which results in a new price target of Rs4,305. We upgrade the rating on the stock to a Buy.
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