Yes Bank Q3 preview: NII likely to be strong; brokerages mixed on profit expectation

Private sector lender Yes Bank is expected to report flat to negative growth in the third quarter profit while net interest income is likely to be strong though growth may be on a high base.

The stock price of the bank, which will declare its quarterly earnings on January 24, has fallen 44 percent in last one year.

There is a wide range for profit growth expectation and brokerages are largely mixed. They expect profit in Q3 to be in the range of negative 40 percent to positive 15 percent.

Edelweiss Securities expects maximum 40 percent fall in profit whereas Prabhudas Lilladher, Sharekhan and Motilal Oswal see 14-16 percent on-year growth in the bottomline.

Net interest income, the difference between interest earned and interest expended, is likely to be strong in Q3 but the loan growth may be moderated from higher levels.

Most brokerages including Sharekhan, Motilal Oswal, Antique Stock Broking expect 30-40 percent growth in NII but few also expect around 15 percent growth YoY.

“Credit traction is seen continuing to remain robust at 48.1 percent YoY, led by retail and corporate sectors. Margins are expected to remain steady at around 3.3 percent. Consequently, healthy NII growth is seen continuing at 33.8 percent YoY,” ICICI Securities said.

Kotak Securities expects loan growth to decelerate to around 30 percent from around 60 percent as the bank is in a stage of transition. Edelweiss Securities feels loan growth is likely to moderate from the higher levels seen in the first half of FY19, albeit still much higher than industry.

Provisions and contingencies are expected to be higher on year-on-year basis but may decline sequentially, analysts said.

On the asset quality front, there could be slight deterioration sequentially and slippages may remain elevated in the quarter ended December 2018.

“Asset quality ratios could see marginal deterioration,” said Kotak Securities. Edelweiss Securities said the indications on RBI divergence would be crucial and will be key monitorable.

Emkay said slippages may come down QoQ but still remain elevated. “IL&FS has not defaulted but including that slippages could look higher. Recovery of accounts slipped in Q2 has not fructified till now.”

According to ICICI Securities, given the deterioration in asset quality in the previous quarter and exposure to IL&FS, credit cost is seen continuing to stay elevated at around 36 bps.

Key issue to watch out for would be the selection of the new MD and CEO as after the RBI order, Rana Kapoor will step down as MD & CEO of the bank on the closing of January 31, 2019.

Capital raising plans, performance on asset quality (divergence if any)/CASA/margins, and funding profile and progress in deposits mobilization would be other key things to watch out for.

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