YES Bank: Recommendation Review

We have been quite bullish on the prospects of the Indian banking sector, and within that, have identified many stocks for investors to park their money in. One among them was YES Bank, which we had recommended in DSIJ Vol. 27, Issue No. 23 (dated November 4, 2012). The scrip was then trading at Rs 381. Apart from the generally bullish stance that we have had on the banking sector as a whole, there were fundamental factors unique to the company that were backing our recommendation of YES Bank. The bank's asset quality is far better as compared to that of other banking players, it has enjoyed stable net interest margins along with a decent business growth and last, but not the least, its profit growth has been good. To add to all this was the fact that YES Bank was available at a very fair valuation.

After our recommendation, the scrip has moved up and it is now trading at Rs 465, providing returns of around 22 per cent. It has not only managed to outperform the Sensex but also the Banking index over the same period. The primary reason for this outperformance has been its good results for the quarter ended September 2012. The bank’s profit after tax for the quarter ended September 2012 grew by 30 per cent on a YoY basis to Rs 300 crore. The best part was its margin expansion of 10 basis points on a QoQ basis to 2.9 per cent. Its asset quality, which was already good, has improved further. The Gross NPAs stood at 0.24 per cent and the the Net NPAs at 0.05 per cent as compared to 0.28 per cent and 0.6 per cent in June 2012.

We are of the opinion that, the scrip has witnessed a good up-move riding high on the good financial performance that it put up in the September 2012 quarter. We recommend that investors book partial profits (50 per cent) at the current levels. With an improvement in the economic scenario, we expect that the December quarter of 2012 too would be good for the bank. As for the remaining part (50 per cent), we would rather ask you to wait for the December quarter results to come out.