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Yes Bank: Modest but profitable growth - Views on News from Equitymaster
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Yes Bank: Modest but profitable growth
Apr 30, 2012

Yes Bank declared its results for the fourth quarter and financial year 2011-12 (FY12). The bank has reported a 30% YoY and 34% YoY growth in net interest income and net profits respectively in FY12. Here is our analysis of the results.

Performance Summary
  • Net interest income grows 30% YoY in FY12 on the back of 11% YoY growth in advances.
  • Other income grows by 38% YoY in FY12 due to robust growth in fee income.
  • Net interest margin comes down marginally lower to 2.8% (2.9% in FY11) due to pressure on interest costs.
  • Bottomline grows 34% YoY in FY12 thanks to write back of provisioning and higher operating leverage.
  • Capital adequacy ratio (CAR) comfortable at 17.9%, gross NPA at 0.2% (specific NPA coverage 79%).
  • Board declared a dividend of Rs 4 per share (dividend yield 1.1%).

Rs (m) 4QFY11 4QFY12 Change FY11 FY12 Change
Interest income 12,226 17,851 46.0% 40,417 63,073 56.1%
Interest expenses 8,741 13,369 52.9% 27,948 46,917 67.9%
Net Interest Income 3,485 4,482 28.6% 12,469 16,156 29.6%
Net interest margin       2.9% 2.8%  
Other Income 1,867 2,664 42.7% 6,233 8,571 37.5%
Other Expense 1,865 2,842 52.4% 6,798 9,325 37.2%
Provisions and contingencies 432 285 -34.0% 982 902 -8.1%
Profit before tax 3,055 4,019 31.6% 10,922 14,500 32.8%
Tax 1,021 1,300 27.3% 3,650 4,730 29.6%
Profit after tax/ (loss) 2,034 2,719 33.7% 7,272 9,770 34.4%
Net profit margin (%) 16.6% 15.2%   18.0% 15.5%  
No. of shares (m)         353.0  
Book value per share (Rs)*         132.5  
P/BV (x)         2.6  
* Book value as on 31st March 2012

What has driven performance in FY12?
  • Despite sufficient capital headroom and solid growth rate in retail loans and deposits, Yes Bank chose to underperform the sector average growth rate in loans and deposits during FY12. This was primarily due to cut back in loans to the business banking (SME) segment and term deposits. 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 85% 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 term deposits get re-priced at lower rates and borrowing costs ease.

    Retail led growth on full steam...
    (Rs m) FY11 % of total FY12 % of total Change
    Advances 343,636   379,886   10.5%
    C&IB 219,927 64.0% 240,848 63.4% 9.5%
    Business Banking 94,500 27.5% 81,296 21.4% -14.0%
    Retail 29,209 8.5% 57,743 15.2% 97.7%
    Deposits 459,389   491,517   7.0%
    CASA 47,509 10.2% 73,921 12.6% 55.6%
    Term deposits 411,880 89.7% 417,596 85.0% 1.4%
    Credit deposit ratio 74.8%   77.3%    

  • The proportion of Yes Bank's non-funded income to total income increased to 35% in FY12 from 33% in FY11. 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 38% in FY12 because of improved productivity and operating leverage. The bank hired more than 1,713 employees in the past 12 months bringing the total headcount to 5,642 in March 2012. 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 356 in FY12 to 500 by the FY14.

  • Yes Bank's CAR stood comfortable at 17.9% (as per Basel II) at the end of FY12. 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 March 2012. Yes Bank also had specific loan-loss coverage ratio of 79%, 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).

  • The bank's return on equity and return on assets stood at 23% and 1.5% at the end of FY12, with the averages over the past 4 years being 20% and 1.5% respectively.

What to expect?
At the current price of Rs 350, the stock is trading at 1.9 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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