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Yes Bank: Margins stable despite higher prov. - Views on News from Equitymaster

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Yes Bank: Margins stable despite higher prov.

Jan 16, 2013

Yes Bank declared its results for the third quarter and first nine months of financial year 2012-13 (9mFY13).The bank has reported a 35% YoY and 33% YoY growth in net interest income and net profits respectively in 9mFY13. Here is our analysis of the results.

Performance summary
  • Net interest income grows 35% YoY in 1HFY13 on the back of 22% YoY growth in advances.
  • Other income grows by 49% YoY in 9mFY13 due to robust growth in fee income.
  • Net interest margin remains stable at 2.9% due to rise in proportion of CASA deposits.
  • Bottomline grows 33% YoY in 9mFY13 despite higher provisioning.
  • Capital adequacy ratio (CAR) comfortable at 18% (Tier 1- 9.0%), gross NPA at 0.17% (NPA coverage 79.6%).

Rs (m) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
Interest income 16,840 21,336 26.7% 45,222 60,063 32.8%
Interest expenses 12,564 15,493 23.3% 33,548 44,256 31.9%
Net Interest Income 4,276 5,843 36.6% 11,674 15,807 35.4%
Net interest margin       2.9% 2.9%  
Other Income 2,114 3,132 48.2% 5,907 8,780 48.6%
Other Expense 2,401 3,341 39.2% 6,483 9,509 46.7%
Provisions and contingencies 223 567 154.3% 617 1,184 91.9%
Profit before tax 3,766 5,067 34.5% 10,481 13,894 32.6%
Tax 1,224 1,644 34.3% 3,429 4,508 31.5%
Profit after tax/ (loss) 2,542 3,423 34.7% 7,052 9,386 33.1%
Net profit margin (%) 15.1% 16.0%   15.6% 15.6%  
No. of shares (m)         365.1  
Book value per share (Rs)*         158.8  
P/BV (x)         3.3  
* Book value as on 31st December 2012

What has driven performance in 9mFY13?
  • Although at 18%, Yes Bank is one of the best capitalized in the sector, it has one of the highest proportions of Tier II capital. Clocking 22% growth in loan book on the back of 20% growth in deposits the bank kept its balance sheet expansion moderate during the first nine months of FY13 (9mFY13).

    Since most of its loan book can be re-priced in 12-months time, the bank did not see high interest rates putting too much pressure on its margins. Further the rise in proportion of CASA (low cost deposits) offered the bank some cushion on interest rates. Hence the NIMs remained stable at 2.9% in 9mFY13.

    Although term deposits comprised nearly 86% of the bank's overall deposit book, the bank's margins (NIMs) are expected to improve going forward as term deposits get re-priced at lower rates and borrowing costs ease.

    Retail led growth on full steam...
    (Rs m) 9mFY12 % of total 9mFY13 % of total Change
    Advances 358,678   438,568   22.3%
    C&IB 229,554 64.0% 278,052 63.4% 21.1%
    Business Banking 98,636 27.5% 93,854 21.4% -4.8%
    Retail 30,488 8.5% 66,662 15.2% 118.7%
    Deposits 469,291   564,005   20.2%
    CASA 59,135 12.6% 103,408 17.3% 74.9%
    Term deposits 410,156 87.4% 460,597 81.7% 12.3%
    Credit deposit ratio 76.4%   77.8%    

  • The proportion of Yes Bank's non-funded income to total income increased to 36% in 9mFY13 from 34% in 9mFY12. This can be largely attributed to higher fee income. Notwithstanding the fact that the bank has set a target of maintaining its non-interest income at 40% of total income until FY15, we have estimated the same to come down to remain below 35% in the next 3 years.

  • Due to addition to franchise (412 branches and 723 ATMs at the end of December 2012) as well as employee base, Yes Bank's cost to income ratio remained high at 37.2% in 9mFY13. The bank's total headcount stood at 6,532 in December 2012 (up 30% YoY). The bank expects its operating costs to increase at an annual average rate of around 40% over the next 2 to 3 years given the branch expansion targets. Yes Bank is targeting to take the total number of branches to 500 by the FY14.

  • In relative terms, Yes Bank had negligible net NPA while the gross NPA stood at 0.17% of advances at the end of December 2012. Yes Bank also had specific loan-loss coverage ratio of 79.6%. However, the management did not rule out possibility of slippages from the restructured loan book (0.43% of gross advances).

  • The bank's annualized return on equity and return on assets stood at 24.9% and 1.5% at the end of 9mFY13, with the averages over the past 4 years being 20% and 1.5% respectively

What to expect?
At the current price of Rs 517, the stock is trading at 2.5 times our estimated FY15 adjusted book value. Yes Bank's performance so far has been in line with our estimates for full year FY13. However we believe that the bank should be more conservative in its provisioning policy. Also, the rate of growth may continue to be moderated. The delinquency risks, though minimal, remain. The current valuations of the bank warrant caution. We recommend subscribers not to buy any more of the stock at the current levels.

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