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Yes Bank: Lumpy growth in corporate assets - Views on News from Equitymaster

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Yes Bank: Lumpy growth in corporate assets
Jul 22, 2010

Yes Bank declared its 1QFY11 results. The bank has reported a 67% YoY and 56% YoY growth in net interest income and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net interest income grows 67% YoY in 1QFY11 on the back of 107% YoY growth in advances.
  • Other income falls by 6% YoY in 1QFY11 due to lower treasury gains.
  • Net interest margin remains stable at 3.1% at the end of 1QFY11.
  • Bottomline grows 56% YoY in 1QFY11 due to lower provisioning and higher operating leverage.
  • Capital adequacy ratio (CAR) comfortable at 16.6%, gross NPA at 0.04% (NPA coverage 81%).


Rs (m) 1QFY10 1QFY11 Change
Interest income 5,357 7,392 38.0%
Interest expenses 3,789 4,771 25.9%
Net Interest Income 1,568 2,621 67.2%
Net interest margin 3.1% 3.1%  
Other Income 1,521 1,438 -5.5%
Other Expense 1,111 1,570 41.3%
Provisions and contingencies 455 126 -72.3%
Profit before tax 1,523 2,363 55.2%
Tax 522 800 53.3%
Profit after tax/ (loss) 1,001 1,563 56.1%
Net profit margin (%) 18.7% 21.1%  
No. of shares (m)   341.3  
Book value per share (Rs)*   95.5  
P/BV (x)   3.1  
* Book value as on 30th June 2010

What has driven performance in 1QFY11?
  • Yet again, Yes Bank managed to exceed our growth estimates with its aggressive stance in the first quarter of FY11. With a growth that far exceeded the average banking sector's growth, notwithstanding Yes Bank's size, the bank expanded its loan book by 107% YoY. However, most of the incremental lending this quarter was lumpy as lending was concentrated to telecom companies (for 3G licenses) and some retail assets. The telecom sector alone comprised 14% of the bank's total assets at the end of June 2010. The bank is targeting credit growth in the range of 40% to 50% for FY11.

    CASA (current and savings accounts) as a proportion of total deposits improved from 9.5% in 1QFY10 to 10.5% in 1QFY11 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 1QFY11 at 3.1% is well within our estimates.

    Growth on full steam...
    (Rs m) 1QFY10 % of total 1QFY11 % of total Change
    Advances 126,705   262,568   107.2%
    CIB 81,091 64.0% 191,675 73.0% 136.4%
    Business Banking 45,614 36.0% 57,765 22.0% 26.6%
    Retail 1,901 1.5% 13,128 5.0% 590.8%
    Deposits 153,423   302,387   97.1%
    CASA 14,511 9.5% 31,751 10.5% 118.8%
    Term deposits 138,912 90.5% 270,636 89.5% 94.8%
    Credit deposit ratio 82.6%   86.8%    

  • The proportion of Yes Bank's non-funded income to total income dropped to 42% in 1QFY10 from 46% in 1QFY11. The de-growth can be largely attributed to lower treasury gains. 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 38% 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 38% in 1QFY11 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 16.6% (as per Basel II) at the end of 1QFY11. 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 0.04% of advances at the end of 1QFY11. Yes Bank had loan-loss coverage ratio of 81%, well above the RBI's mandate of 70%.

What to expect?
At the current price of Rs 298, the stock is trading at 1.9 times our estimated FY13 adjusted book value. Yes Bank has managed to outperform our broader growth estimates for FY11. Further, we are enthused by the curtailment of costs and improvement in asset quality. Having said that, the valuations of the bank Research Pro subscribers can view latest updates here adequately price in the upsides in the medium term.

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