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Yes Bank: Customer acquisition led growth - Views on News from Equitymaster
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Yes Bank: Customer acquisition led growth
Jan 20, 2010

Performance summary
  • Interest income grows 18% YoY in 9mFY10 on the back of 71% YoY growth in advances.
  • Other income grows by 22% YoY in 9mFY10 backed by traction in financial advisory business.
  • Net interest margin improves from 2.8% in 9mFY09 to 3.1% at the end of 9mFY10.
  • Bottomline grows 51% YoY in 9mFY10 due to better management of operating costs.
  • Capital adequacy ratio (CAR) comfortable at 16.2%, gross NPA at 0.3%.


Rs (m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Interest income 5,367 6,264 16.7% 14,405 17,051 18.4%
Interest expenses 4,123 4,154 0.8% 10,811 11,613 7.4%
Net Interest Income 1,244 2,110 69.6% 3,594 5,438 51.3%
Net interest margin       2.8% 3.1%  
Other Income 1,894 1,278 -32.5% 3,417 4,154 21.6%
Other Expense 1,295 1,226 -5.3% 3,275 3,534 7.9%
Provisions and contingencies 204 254 24.5% 296 943 218.6%
Profit before tax 1,639 1,908 16.4% 3,440 5,115 48.7%
Tax 581 648 11.5% 1,204 1,738 44.4%
Profit after tax/ (loss) 1,058 1,260 19.1% 2,236 3,377 51.0%
Net profit margin (%) 19.7% 20.1%   15.5% 19.8%  
No. of shares (m)       296.9 300.2  
Book value per share (Rs)*         66.0  
P/BV (x)         4.2  
* Book value as on 31st December 2009

What has driven performance in 9mFY10?
  • With a growth in loan book that far exceeded the average banking sector’s growth, notwithstanding Yes Bank’s size, the bank put up a sterling performance in 9mFY10. While the bank’s management acknowledged that the growth of this scale in loan book is not sustainable, the same nevertheless will boost the bank’s interest income in the coming quarters. Yes Bank continued to grow at more than twice the average sector growth rate. The incremental growth was, however, limited to the large corporate borrowers, which the bank acquired after the economic meltdown. The bank still has no exposure to mortgages, credit cards and auto loans. CASA (current and savings accounts) as a proportion of total deposits improved from 9.2% in 9mFY09 to 10.1% in 9mFY10 mainly due to a larger franchise. As this proportion goes on increasing for the bank, the relative ease of low cost funding will help it shield its net interest margins (NIM) against cost pressures. The NIM for 1HFY10 at 3.1% is well within our estimates.

    Yes Bank’s CASA which comprised 10.1% of its deposit book in 9mFY10 comprised 80% of current accounts. The bank has set a target of achieving 25% CASA by FY12 and 40% by FY15. The same may however be impacted by competition from the PSU and private sector players.

    Growth on full steam...
    (Rs m) 9mFY09 % of total 9mFY10 % of total Change
    Advances 109,349   187,104   71.1%
    C&IB 67,796 62.0% 118,811 63.5% 75.2%
    Business Banking 41,225 37.7% 66,235 35.4% 60.7%
    Retail 328 0.3% 2,058 1.1% 527.4%
    Deposits 135,391   220,386   62.8%
    CASA 12,424 9.2% 22,289 10.1% 79.4%
    Term deposits 122,967 90.8% 198,097 89.9% 61.1%
    Credit deposit ratio 80.8%   84.9%    

  • The proportion of Yes Bank’s non-funded income to total income dropped to 43% in 9mFY10 from 49% in 9mFY09. The growth can be largely attributed to higher margins in the lending business. Notwithstanding the fact that the bank has set a target of maintaining its non-interest income at 45% of total income until FY12, we have estimated the same to come down to a tad below 40% in the next 3 years.

  • Despite an addition to franchise as well as employee base, Yes Bank has managed to lower its cost to income ratio from 47% in 9mFY09 to 37% in 9mFY10 because of improved productivity and operating leverage. The bank sees this ratio sustaining at the current levels in FY11.

  • Yes Bank’s CAR stood comfortable at 16.2% (as per Basel II) in 3QFY10. Having raised Tier II debt to the tune of Rs 2.6 bn in 2QFY10, the bank has reiterated that it will not require any equity dilution in the near term. The higher capital base also capacitates the bank to capitalise on growth opportunities being available in the sector going forward.

  • The bank had negligible net NPA while the gross NPA stood at 0.1% of advances at the end of 9mFY10. Yes Bank had loan-loss coverage ratio of 70%. Its exposure to stressed sectors like real estate, metals, sugar, textiles, and auto components was about 10% at the end of the quarter. The bank had restructured assets worth Rs 1.3 bn at the end of December 2009, which is a miniscule proportion of its loan book.

What to expect?
At the current price of Rs 274, the stock is trading at 2.6 times our estimated FY12 adjusted book value. Yes Bank has managed to perform in line with our growth and margin estimates. Further, we are enthused by the growth in other income and improvement in asset quality. No further dilution of equity will also help stabilise the bank’s return ratios. Having said that, the valuations of the bank adequately price in the upsides in the medium term

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