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Yes Bank: Uptick in loan growth - Views on News from Equitymaster

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Yes Bank: Uptick in loan growth
Apr 17, 2013

Yes Bank declared its results for the fourth quarter and financial year 2012-13 (FY13).The bank has reported a 37% YoY and 33% YoY growth in net interest income and net profits respectively in FY13. Here is our analysis of the results.

Performance summary
  • Net interest income grows 37% YoY in FY13 on the back of 24% YoY growth in advances.
  • Other income grows by 47% YoY in FY13 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 FY13 despite higher provisioning.
  • Capital adequacy ratio (CAR) comfortable at 18.3% (Tier 1- 9.5%), gross NPA at 0.2% of advances.
  • Declares dividend of Rs 6 per share for FY13 (dividend yield 1.3%).

Financial performance: A snapshot
Rs (m) 4QFY12 4QFY13 Change FY12 FY13 Change
Interest income 17,851 22,876 28.1% 63,074 82,940 31.5%
Interest expenses 13,368 16,495 23.4% 46,917 60,752 29.5%
Net Interest Income 4,483 6,381 42.3% 16,157 22,188 37.3%
Net interest margin       2.8% 2.9%  
Other Income 2,663 3,794 42.5% 8,571 12,574 46.7%
Other Expense 2,842 3,836 35.0% 9,325 13,345 43.1%
Provisions and contingencies 284 975 243.3% 902 2,159 139.4%
Profit before tax 4,020 5,364 33.4% 14,501 19,258 32.8%
Tax 1,300 1,742 34.0% 4,730 6,250 32.1%
Profit after tax/ (loss) 2,720 3,622 33.2% 9,771 13,008 33.1%
Net profit margin (%) 15.2% 15.8%   15.5% 15.7%  
No. of shares (m)         358.6  
Book value per share (Rs)*         161.9  
P/BV (x)         3.0  
* Book value as on 31st March 2013

What has driven performance in FY13?
  • Showing a marginal uptick in loan growth for the last quarter of FY13, Yes Bank clocked 24% growth in advances for the full year. This was particularly interesting against the backdrop of lower loan growth expectation due to muted GDP growth rates. Having said that, at 18.3% 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. The loan growth was accompanied by even robust (36% YoY) growth in deposits. A lot of this came on account of the higher interest offered by the bank on savings accounts. This catapulted the CASA deposits to 17.3% of total loan book.

    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 81% 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) FY12 % of total FY13 % of total Change
    Advances 379,886   469,996   23.7%
    C&IB 243,127 64.0% 304,087 64.7% 25.1%
    Business Banking 85,474 22.5% 80,369 17.1% -6.0%
    Retail 51,285 13.5% 85,539 18.2% 66.8%
    Deposits 491,517   669,556   36.2%
    CASA 73,921 15.0% 126,875 17.3% 71.6%
    Term deposits 417,596 85.0% 542,681 81.1% 30.0%
    Credit deposit ratio 77.3%   70.2%    

  • The proportion of Yes Bank's non-funded income to total income increased to 36% in FY13 from 34% in FY12. 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 (430 branches and 951 ATMs at the end of March 2013) as well as employee base, Yes Bank's cost to income ratio remained high at 37.7% in FY13. The bank's total headcount stood at 7,024 in March 2013 (up 24.5% 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 0.2% of advances at the end of March 2013. Yes Bank also had specific loan-loss coverage ratio of 92.6%. However, the management did not rule out possibility of slippages from the restructured loan book (0.3% of gross advances).

  • The bank's return on equity and return on assets stood at 24.8% and 1.5% at the end of FY13, with the averages over the past 4 years being 20% and 1.5% respectively.

What to expect?
At the current price of Rs 480, the stock of Yes Bank is trading at 2.3 times our estimated FY15 adjusted book value. Yes Bank's performance has been in line with our estimates for full year FY13. However we would prefer to be cautious about 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 reiterate our 'Sell recommendation' on the stock.

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