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Yes Bank: Aggressive strides - Views on News from Equitymaster
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Yes Bank: Aggressive strides
Jan 16, 2015

Yes Bank declared its results for the third quarter and first nine months of financial year 2014-15 (9mFY15). The bank has reported 25.7% YoY and 22.5% YoY growth in net interest income and net profits respectively in 9mFY15. Here is our analysis of the results.

Performance summary
  • Net interest income grows by 25.7% YoY in 9mFY15 on the back of 33% YoY growth in advances.
  • Other income grows by 14% YoY in 9mFY15 due to improvement in treasury income.
  • Net interest margin moves up to at 3.1%, due to rise in proportion of CASA deposits.
  • Bottomline grows 22.5% YoY in 9mFY15 due to write-back of provisions.
  • Capital adequacy ratio (CAR) comfortable at 16.7% (Tier 1- 11.5%), gross NPA at 0.4% of advances at the end of December 2014.


(Rs m) 3QFY14 3QFY15 Change 9mFY14 9mFY15 Change
Interest income 25,141 29,716 18.2% 74,133 84,836 14.4%
Interest Expense 18,486 20,626 11.6% 54,166 59,728 10.3%
Net Interest Income 6,655 9,090 36.6% 19,967 25,108 25.7%
Net interest margin (%)       2.9% 3.1%  
Other Income 3,878 5,368 38.4% 12,760 14,560 14.1%
Other Expense 4,386 5,831 32.9% 12,652 16,547 30.8%
Provisions and contingencies 132 698 428.8% 2,894 2,131 -26.4%
Profit before tax 6,015 7,929 31.8% 17,181 20,990 22.2%
Tax 1,857 2,525 36.0% 5,305 6,446 21.5%
Profit after tax/ (loss) 4,158 5,404 30.0% 11,876 14,544 22.5%
Net profit margin (%) 16.5% 18.2%   16.0% 17.1%  
No. of shares (m)         414.7  
Book value per share (Rs)*         277.2  
P/BV (x)         2.9  
*Book value as on 31st December 2014

What has driven performance in 9mFY15?
  • Yes Bank has been quite aggressive when it comes to loan book expansion over the past few quarters. Although the bank has been soliciting savings accounts at an interest rate of 7% per annum, which is higher than the industry average, the deposit growth has been modest. Nevertheless, the bank has managed to sustain above average NIMs so far by raising the proportion of CASA deposits. While NIMs are currently stable at 3.1% at the end of December 2014, there may be marginal upside in NIMs due to fall in interest rates. .

  • Yes Bank's non-funded income to total income dropped from 40% in 9mFY14 to 36% in 9mFY15. This can be largely attributed to lower treasury income.

    Good growth in advances
    (Rs m) 9mFY14 % of total 9mFY15 % of total Change
    Advances 503,097   666,100   32.4%
    Retail 100,619 20.0% 141,213 21.2% 40.3%
    Corporate 402,477 80.0% 524,887 78.8% 30.4%
    Deposits 680,744   823,700   21.0%
    CASA 151,876 22.3% 186,200 22.6% 22.6%
    Term deposits 528,868 77.7% 637,500 77.4% 20.5%
    C/D ratio 73.9%   80.9%    

  • Yes Bank increased its branch network by 83 over the past year and 23 over the past 6 months and the total count stood at 600 at the end of September 2014. The bank's total headcount stood over 9,600 in December 2014 (up 21% 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. The cost to income ratio, went up from 37.2% to 42% over the past year. Having said that, at 16.7% capital adequacy ratio (CAR), Yes Bank is one of the best capitalized in the sector. Also, it has one of the highest proportions of Tier II capital.

  • In relative terms, Yes Bank had a higher slippage in asset quality while the gross NPA stood at 0.4% of advances at the end of December 2014. Also, the possibility of slippages from the restructured loan book (0.26% of gross advances) looms large. After the write back of provisions during the second half of FY14 and in 9mFY15, Yes Bank had a lower provision coverage ratio of 76.8% as against 85% earlier.
What to expect?
At the current price of Rs 809, the stock of Yes Bank is trading at 2.4 times our estimated FY17 adjusted book value. Due to Yes Bank's aggressive growth stance, margin and asset quality pressures will remain in the medium term. Moreover, operating cost pressures can also dent margins. The proposed purchase of an asset management company will only add to the bank's other income over the longer term. At the current valuations, there is hardly enough upside from a medium term perspective. We recommend investors to not buy the stock at current levels. A gentle reminder that no stock should comprise more than 5% of your overall stock portfolio.

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