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Yes Bank: Growth slow but stable - Views on News from Equitymaster

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Yes Bank: Growth slow but stable
Feb 1, 2012

Yes Bank declared its results for the third quarter and first nine months of financial year 2011-12 (9mFY12). The bank has reported a 30% YoY and 35% YoY growth in net interest income and net profits respectively in 9mFY12. Here is our analysis of the results.

Performance summary
  • Interest income grows by 30% in 9mFY12 on the back of 21% YoY in advances while net interest margin (NIM) remains stable at 2.6%.
  • Net interest income grows 30% YoY in 9mFY12 on the back of 15% YoY growth in advances.
  • Other income grows by 35% YoY in 9mFY12 due to robust growth in fee income.
  • Net interest margin comes down marginally lower to 2.8% (2.9% in 9mFY11) due to pressure on interest costs.
  • Bottomline grows 35% YoY in 9mFY12 thanks to write back of provisioning and higher operating leverage.
  • Capital adequacy ratio (CAR) comfortable at 16.1%, gross NPA at 0.2% (specific NPA coverage 80%).

Rs (m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
Interest income 11,262 16,841 49.5% 28,191 45,222 60.4%
Interest expenses 8,030 12,565 56.5% 19,207 33,549 74.7%
Net Interest Income 3,232 4,276 32.3% 8,984 11,673 29.9%
Net interest margin       2.9% 2.8%  
Other Income 1,617 2,114 30.7% 4,365 5,908 35.3%
Other Expense 1,734 2,402 38.5% 4,933 6,483 31.4%
Provisions and contingencies 249 223 -10.4% 549 617 12.4%
Profit before tax 2,866 3,765 31.4% 7,867 10,481 33.2%
Tax 952 1,224 28.6% 2,629 3,429 30.4%
Profit after tax/ (loss) 1,914 2,541 32.8% 5,238 7,052 34.6%
Net profit margin (%) 17.0% 15.1%   18.6% 15.6%  
No. of shares (m)         351.0  
Book value per share (Rs)*         129.5  
P/BV (x)         2.6  
* Book value as on 31st December 2011

What has driven performance in 9mFY12?
  • In a stark contrast to its historical track record, Yes Bank did not outperform the sector average growth rate in loans during the first nine months of FY12. This was primarily due to cut back in loans to the business banking (SME) segment. However 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. Although term deposits comprised nearly 87% of the bank's overall deposit book, the bank was able to improve its CASA proportion. The margins (NIMs) are expected to improve going forward as the bank has re-priced some SME assets and also booked new loans at higher rates.

    Retail led growth on full steam...
    (Rs m) 9mFY11 % of total 9mFY12 % of total Change
    Advances 311,122   358,678   15.3%
    C&IB 199,118 64.0% 227,402 63.4% 14.2%
    Business Banking 85,559 27.5% 76,757 21.4% -10.3%
    Retail 26,445 8.5% 54,519 15.2% 106.2%
    Deposits 394,528   469,291   18.9%
    CASA 40,242 10.2% 59,131 12.6% 46.9%
    Term deposits 354,286 89.8% 410,160 87.4% 15.8%
    Credit deposit ratio 78.9%   76.4%    

  • The proportion of Yes Bank's non-funded income to total income increased to 34% in 9mFY12 from 33% in 9mFY11. 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 FY13, we have estimated the same to come down to remain below 35% in the next 3 years.

  • Despite an addition to franchise as well as employee base, Yes Bank has managed to keep its cost to income ratio stable at 37% in 9mFY12 because of improved productivity and operating leverage. The bank hired more than 1,080 employees in the past 12 months bringing the total headcount to 5,013 in December 2011. 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 from 331 in 9mFY12 to 500 by the FY14.

  • Yes Bank's CAR stood comfortable at 16.1% (as per Basel II) at the end of 9mFY12. 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 0.2% of advances at the end of December 2011. Yes Bank also had total loan-loss coverage ratio of 80%, well above the RBI's mandate. However, the management did not rule out possibility of slippages from the restructured loan book (0.5% of gross advances).

What to expect?
At the current price of Rs 335, the stock is trading at 1.8 times our estimated FY14 adjusted book value. Yes Bank's performance so far has been in line with our estimates for full year FY12. Further, we are enthused by the bank's conservative provisioning policy. Having said that, the rate of growth may continue to be moderated. Also delinquency risks, though minimal, remain. The current valuations of the bank offer reasonable upsides in the long term. We reiterate our positive view on the stock.

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