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Yes Bank: Growing well ahead of sector
Apr 27, 2010

Yes Bank declared its FY10 results. The bank has reported a 18% YoY and 57% YoY growth in interest income and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net interest income grows 55% YoY in FY10 on the back of 79% YoY growth in advances.
  • Other income grows by 32% YoY in FY10 backed by traction in financial advisory business.
  • Net interest margin improves from 2.9% in FY09 to 3.1% at the end of 9mFY10.
  • Bottomline grows 57% YoY in FY10 due to better management of operating costs.
  • Capital adequacy ratio (CAR) comfortable at 20.6%, gross NPA at 0.3% (NPA coverage 78%).
  • Declared maiden dividend of Rs 1.5 per share (dividend yield 0.5%).


Rs (m) 4QFY09 4QFY10 Change FY09 FY10 Change
Interest income 5,609 6,646 18.5% 20,014 23,697 18.4%
Interest expenses 4,110 4,204 2.3% 14,921 15,818 6.0%
Net Interest Income 1,499 2,442 62.9% 5,093 7,879 54.7%
Net interest margin       3.0% 3.2%  
Other Income 951 1,601 68.3% 4,369 5,755 31.7%
Other Expense 910 1,467 61.2% 4,185 5,001 19.5%
Provisions and contingencies 322 426 32.3% 617 1,368 121.7%
Profit before tax 1,218 2,150 76.5% 4,660 7,265 55.9%
Tax 416 749 80.0% 1,621 2,488 53.5%
Profit after tax/ (loss) 802 1,401 74.7% 3,039 4,777 57.2%
Net profit margin (%) 14.3% 21.1%   15.2% 20.2%  
No. of shares (m)       296.9 339.6  
Book value per share (Rs)*         91.0  
P/BV (x)         3.0  
* Book value as on 31st March 2010

What has driven performance in FY10?
  • Working on its ambitions to get in the reckoning of biggest private sector banks in India, Yes Bank continued with its aggressive growth stance in FY10. With a growth that far exceeded the average banking sector's growth, notwithstanding Yes Bank's size, the bank expanded its loan book by 79% YoY. 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.

    As against the earlier trend, a lot of the incremental growth came in from retail deposits and assets. CASA (current and savings accounts) as a proportion of total deposits improved from 8.3% in FY09 to 10.5% in FY10 mainly due to a larger franchise. 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. 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 FY10 at 3.2% is well within our estimates.

    Growth on full steam...
    (Rs m) FY09 % of total FY10 % of total Change
    Advances      124,031        221,931   78.9%
    C&IB        76,899 62.0%      140,926 63.5% 83.3%
    Business Banking        46,760 37.7%        78,564 35.4% 68.0%
    Retail              372 0.3%          2,441 1.1% 556.1%
    Deposits      161,694        267,986   65.7%
    CASA        13,421 8.3%        28,139 10.5% 109.7%
    Term deposits      148,273 91.7%      239,847 89.5% 61.8%
    Credit deposit ratio 76.7%   82.8%    

  • The proportion of Yes Bank's non-funded income to total income dropped to 42% in FY10 from 46% in FY09. 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 44% in FY09 to 37% in FY10 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 20.6% (as per Basel II) at the end of FY10. Having raised Tier II debt to the tune of Rs 2.6 bn in FY10, 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 FY10. Yes Bank had loan-loss coverage ratio of 78%, well above the RBI's mandate 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 800 m at the end of March 2010, which is a miniscule proportion (0.4%) of its loan book.

What to expect?
At the current price of Rs 276, 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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