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Yes Bank: High yielding loans help beat profit estimates - Views on News from Equitymaster

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  • May 9, 2014 - Yes Bank: High yielding loans help beat profit estimates

Yes Bank: High yielding loans help beat profit estimates
May 9, 2014

Yes Bank declared its results for the fourth quarter and financial year 2013-14 (FY14). The bank has reported 22% YoY and 24% YoY growth in net interest income and net profits respectively in FY14. Here is our analysis of the results.

Performance summary
  • Net interest income grows by 22% YoY in FY14 on the back of 18% YoY growth in advances.
  • Other income grows by 37% YoY in FY14 due to robust growth in fee income.
  • Net interest margin remains stable at 3%, due to rise in proportion of CASA deposits.
  • Bottomline grows 24% YoY in FY14 despite higher provisioning. The profits for 4QFY14 were up 21% YoY largely due to the write back of provisions.
  • Capital adequacy ratio (CAR) comfortable at 14.4% (Tier 1- 9.8%), gross NPA at 0.3% of advances at the end of March 2014.
  • Board has declared dividend of Rs 8 per share (dividend yield 1.6%).


(Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
Interest income 22,876 25,680 12.3% 82,940 99,814 20.3%
Interest Expense 16,495 18,485 12.1% 60,752 72,651 19.6%
Net Interest Income 6,381 7,195 12.8% 22,188 27,163 22.4%
Net interest margin (%)       3.0% 3.0%  
Other Income 3,794 4,455 17.4% 12,574 17,215 36.9%
Other Expense 3,836 4,847 26.4% 13,345 17,498 31.1%
Provisions and contingencies  975  723 -25.8% 2,159 3,617 67.5%
Profit before tax 5,364 6,080 13.3% 19,258 23,263 20.8%
Tax 1,742 1,779 2.1% 6,250 7,085 13.4%
Profit after tax/ (loss) 3,622 4,301 18.7% 13,008 16,178 24.4%
Net profit margin (%) 15.8% 16.7%   15.7% 16.2%  
No. of shares (m)         360.5  
Book value per share (Rs)*         197.5  
P/BV (x)         2.5  
*Book value as on 31st March 2014

What has driven performance in FY14?
  • Despite a subdued performance in terms of loan book and more importantly deposit growth, Yes Bank managed to exceed our estimated profits for FY14 by almost 18%.This was helped by higher loan yields as well as strong growth in other income.

    Yes Bank clocked 18.4% growth in advances for FY14, backed by 26% YoY growth in high yielding retail loans. This was against the backdrop of lower loan growth expectation due to muted GDP growth rates. The deposit growth came in much lower at 10.8% YoY. The proportion of wholesale deposits came down from 31.9% of total deposits in December 2013 to 26.2% in March 2014. The 29% YoY growth in CASA came on account of the higher interest offered by the bank on savings accounts. This catapulted the CASA deposits to 22% of total loan book. While NIMs are currently stable at 3% at the end of March 2014, they may come under pressure with upward movement in interest rates.

    Moderate growth in advances
    (Rs m) FY13 % of total FY14 % of total Change
    Advances 469,996   556,330   18.4%
    Retail 93,999 20.0% 117,942 21.2% 25.5%
    Corporate 375,997 80.0% 438,388 78.8% 16.6%
    Deposits 669,556   741,920   10.8%
    CASA 126,875 18.9% 163,447 22.0% 28.8%
    Term deposits 542,681 81.1% 578,473 78.0% 6.6%
    C/D ratio 70.2%   75.0%    

  • Yes Bank's non-funded income to total income remained stable at around 40% in FY14 from 38% in FY13. This can be largely attributed to higher fee income. The bank had incurred one-time depreciation of Rs 1.1 bn on its bond portfolio in 2QFY14.

  • Yes Bank increased its branch network by 130 over the past 12 months and the total count stood at 560 at the end of March 2014. The bank's total headcount stood at 8,798 in March 2014 (up 30% 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. The cost to income ratio, went up from 38.3% to 39.4% over the past year. Having said that, at 14.4% 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.

  • In relative terms, Yes Bank had a higher slippage in asset quality while the gross NPA stood at 0.3% of advances at the end of March 2014. Also, the possibility of slippages from the restructured loan book (0.2% of gross advances) looms large. However the proportion has come down from 0.3% of loan book in FY13. Further, the rise is provision costs are a cause for concern. After the write back of provisions during the third and fourth quarters of FY14, Yes Bank had a lower provision coverage ratio of 78% as against 85% earlier.

  • The bank's annualized return on equity and return on assets stood at 24.3% and 1.6% at the end of FY14, with the averages over the past 4 years being 20% and 1.5% respectively.
What to expect?
At the current price of Rs 486, the stock of Yes Bank is trading at 1.9 times our estimated FY16 adjusted book value. Although Yes Bank's performance has been in line with our estimates, we do see some margin and asset quality pressures in the medium term. The conflict on the bank's board, which has continued for over a year now, though not impacting fundamentals, can hurt long term prospects. Further, we would prefer to be cautious about its provisioning policy. We recommended investors to Sell the stock through a special update in April 2014. A gentle reminder that no stock should comprise more than 5% of your overall stock portfolio.

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