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Yes Bank: Well poised to accommodate slowdown - Views on News from Equitymaster
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Yes Bank: Well poised to accommodate slowdown
Apr 23, 2009

Performance summary
  • Interest income grows 54% YoY in FY09 on the back of 35% YoY growth in advances.
  • Other income grows by 21% in FY09 YoY despite a 17% YoY fall in the fourth quarter.
  • Net interest margin improves from 2.7% in FY08 to 2.9% at the end of FY09.
  • Bottomline grows 52% YoY due to better management of operating costs.
  • Capital adequacy ratio (CAR) comfortable at 16.6%, net NPA at 0.3%.


Rs (m) 4QFY08 4QFY09 Change FY08 FY09 Change
Interest income 3,867 5,663 46.4% 13,047 20,033 53.5%
Interest expenses 2,800 4,111 46.8% 9,741 14,922 53.2%
Net Interest Income 1,067 1,552 45.5% 3,306 5,111 54.6%
Net interest margin 2.7% 2.9%
Other Income 1,076 898 -16.5% 3,607 4,350 20.6%
Other Expense 934 910 -2.6% 3,412 4,186 22.7%
Provisions and contingencies 228 322 41.2% 436 617 41.5%
Profit before tax 981 1,218 24.2% 3,065 4,658 52.0%
Tax 336 416 23.8% 1,065 1,621 52.2%
Profit after tax/ (loss) 645 802 24.3% 2,000 3,037 51.9%
Net profit margin (%) 16.7% 14.2% 15.3% 15.2%
No. of shares (m) 295.8 297.0
Book value per share (Rs)* 54.7
P/BV (x) 1.3
* Book value as on 31st March 2009

What has driven performance in 4QFY09?
  • Although slower than the growth rate of 50% YoY clocked in advances in FY08, Yes Bank’s 35% YoY growth in advances during FY09 is well above our estimates of 22% growth. The bank continued to grow at twice the sector growth rate. The incremental growth was, however, limited to the large corporate borrowers. 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 8.5% in FY08 to 8.7% in FY09 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 FY09 at 2.9% is also above our estimate.

    Building low cost base…
    (Rs m) FY08 % of total FY09 % of total Change
    Advances 94,303 124,031 31.5%
    C&IB 58,468 62.0% 78,760 63.5% 34.7%
    Business Banking 35,522 37.7% 43,907 35.4% 23.5%
    Retail 283 0.3% 1,364 1.1% 382.3%
    Deposits 132,732 161,694 21.8%
    CASA 11,271 8.5% 14,100 8.7% 25.1%
    Term deposits 121,461 91.5% 147,594 91.3% 21.5%
    Credit deposit ratio 71.0% 76.7%

  • The proportion of Yes Bank’s non-funded income to total income dropped to 37% in 4QFY09 from 50% in 4QFY08. The fall can be largely attributed to significant drop in revenues from financial advisory and third party sales businesses. The bank’s other income for the full year is marginally lower than our estimates. Notwithstanding the fact that the bank has set a target of maintaining its non-interest income at 45% of total income until FY10, we had estimated the same to come down to a tad below 40% in the next 3 years. However, we may have to revise our estimates lower on this front for the medium term.

  • Due to reduction in employee base, Yes Bank has managed to lower its cost to income ratio from 49% in FY08 to 44% in FY09. The bank sees this ratio sustaining at the current levels in FY10. Yes Bank had a network of 117 branches at the end of FY09.

  • Yes Bank’s CAR stood comfortable at 16.6% (as per Basel II) in 4QFY09. Having raised Tier II debt to the tune of Rs 10.6 bn during the quarter, 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 net NPA stood at 0.3% while the gross NPA stood at 0.7% at the end of FY09. Yes Bank had loan-loss coverage ratio of 52%.Its exposure to stressed sectors like real estate, metals, sugar, textiles, and auto components was about 10% at the end of FY09. While the bank so far had no NPA or restructuring in the real-estate sector, the security cover for real estate exposure stands at more than 3.5 times the current outstanding.

What to expect?
At the current price of Rs 73, the stock is trading at 0.9 times our estimated FY11 adjusted book value. Yes Bank has managed to outperform our growth and margin estimates. However, the fall in other income and marginal slippage in asset quality have acted as a dampeners. No further dilution of equity may help stabilise the bank’s return ratios in the medium term. Having said that, adequate capital and niche presence makes the bank relatively safer as compared to other smaller players in the sector.

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