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Yes Bank: Other income kicker - Views on News from Equitymaster
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Yes Bank: Other income kicker
Jul 22, 2009

Performance summary
  • Interest income grows 31% YoY in FY09 on the back of 26% YoY growth in advances.
  • Other income grows by 103% YoY in 1QFY10 on the back of higher treasury gains.
  • Net interest margin (NIM) improves from 2.9% in 1QFY09 to 3.1% at the end of 1QFY10.
  • Bottomline grows by 84% YoY due to better management of operating costs.
  • Capital adequacy ratio (CAR) comfortable at 17.6%, net NPAs lower at 0.2%.


Standalone financial snapshot
Rs (m) 1QFY09 1QFY10 Change
Interest income 4,147 5,427 30.9%
Interest Expense 3,017 3,789 25.6%
Net Interest Income 1,130 1,638 45.0%
Net interest margin (%) 2.9% 3.1%  
Other Income 715 1,452 103.1%
Other Expense 931 1,111 19.3%
Provisions and contingencies 84 455 441.7%
Profit before tax 830 1,524 83.6%
Tax 286 522 82.5%
Profit after tax/ (loss) 544 1,002 84.2%
Net profit margin (%) 13.1% 18.5%  
No. of shares (m)   297.1  
Book value per share (Rs)*   58.1  
P/BV (x)   2.6  
* Book value as on 30th June 2009

What has driven performance in 1QFY10?
  • Riding on the back of strength in its retail advances and low cost deposits (CASA, or current and savings account), Yes Bank managed to grow its balance sheet by 25% YoY in 1QFY10. The bank’s 26% YoY growth in advances during the quarter was however largely concentrated towards corporate borrowers as retail still comprises only 1% of its loan book. The bank continued to grow at nearly twice the sector growth rate. It still has no exposure to mortgages, credit cards and auto loans.

  • CASA as a proportion of total deposits improved from 8.1% in 1QFY09 to 8.7% in 1QFY10 mainly due to a larger branch network. 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 NIMs improved to 3.1% from 2.9% in 1QFY09.

    Building retail strength
    (Rs m) 1QFY09 % of total 1QFY10 % of total Change
    Advances 100,520   126,710   26.1%
    C&IB 62,322 62.0% 81,981 64.7% 31.5%
    Buisiness Banking 37,896 37.7% 43,588 34.4% 15.0%
    Retail 302 0.3% 1,140 0.9% 278.2%
               
    Total deposits 125,520   153,240   22.1%
    CASA 10,177 8.1% 13,332 8.7% 31.0%
    Term deposits 115,343 91.9% 139,908 91.3% 21.3%
    Credit /Deposit 80.1%   82.7%    

  • The proportion of Yes Bank’s non-funded income to total income improved from 39% in 1QFY09 to 47% in 1QFY10. This was the main kicker for the bottomline growth. Income from financial markets (treasury) comprised 59% of the bank’s other income while financial advisory while financial advisory and transaction banking comprised 25% each.

  • Due to reduction in employee base, Yes Bank managed to lower its cost to income ratio from 51% in 1QFY09 to 36% in 1QFY10. The bank sees this ratio stabilising at 40% levels by FY10. The bank had 123 branches and 93 ATMs at the end of 1QFY10. It is targeting to increase its ATM count to 500 by 2010, 1,500 by 2012 and 3,000 by 2015. This will also entail further cost escalation.

  • Yes Bank’s CAR stood comfortable at 17.6% (as per Basel II) in 1QFY010. The bank is also planning to raise additional equity capital to the tune of US$ 250 m 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 0.2% of advances (0.3% in 1QFY09) while the gross NPA stood at 0.5% (0.7% in 1QFY09) at the end of 1QFY10. Also, Yes Bank had overall loan-loss coverage ratio of 178%. 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 NPAs 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 153, the stock is trading at 2 times our estimated FY11 adjusted book value. Yes Bank has so far managed to outperform our growth and margin estimates. However, sustaining growth in other income and arresting slippage in asset quality will be the key factors determining the bank’s future growth. Also, further equity dilution may erode the bank’s return ratios in the medium term. Having said that, adequate capital and niche presence makes Yes Bank relatively safer as compared to other smaller players in the sector.

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