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Yes Bank: NPA provisions nearly triple
Jul 24, 2013

Yes Bank declared its results for the first quarter of financial year 2013-14 (1QFY14).The bank has reported 40% YoY and 38% YoY growth in net interest income and net profits respectively in 1QFY14. Here is our analysis of the results.

Performance summary
  • Net interest income grows by 40% YoY in 1QFY14 on the back of 29% YoY growth in advances.
  • Other income grows by 54% YoY in 1QFY14 due to robust growth in fee income.
  • Net interest margin improves to 3% from 2.8% in 1QFY13, due to rise in proportion of CASA deposits.
  • Bottomline grows 38% YoY in 1QFY14 despite higher provisioning.
  • Capital adequacy ratio (CAR) comfortable at 15.4% (Tier 1- 9.5%), gross NPA at 0.22% of advances at the end of June 2013.

Consolidated financial snapshot
(Rs m) 1QFY13 1QFY14 Change
Interest income 18,863 23,979 27.1%
Interest Expense 14,141 17,388 23.0%
Net Interest Income 4,722 6,591 39.6%
Net interest margin (%) 2.8% 3.0%  
Other Income 2,881 4,421 53.5%
Other Expense 3,006 4,212 40.1%
Provisions and contingencies 300 969 223.0%
Profit before tax 4,297 5,831 35.7%
Tax 1,395 1,821 30.5%
Profit after tax/ (loss) 2,902 4,010 38.2%
Net profit margin (%) 15.4% 16.7%  
No. of shares (m)   359.7  
Book value per share (Rs)*   173.0  
P/BV (x)   2.2  
*Book value as on 30th June 2013

What has driven performance in 1QFY14?
  • Once again making its focus on corporate loans very clear, Yes Bank clocked 24% growth in advances for 1QFY14, backed by 27% YoY growth in corporate loan book. This was particularly interesting against the backdrop of lower loan growth expectation due to muted GDP growth rates. Having said that, at 15.4% 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. The loan growth was accompanied by even robust (29% YoY) growth in deposits. A lot of this came on account of the higher interest offered by the bank on savings accounts. This catapulted the CASA deposits to 20.2% of total loan book.

    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. The NIMs moved up to 3% from 2.8% at the end of June 2013.

    Steady growth in bank bal. sheet
    (Rs m) 1QFY13 % of total 1QFY14 % of total Change
    Advances 385,358   479,000   24.3%
    Retail 77,072 20.0% 86,220 18.0% 11.9%
    Corporate 308,286 80.0% 392,780 82.0% 27.4%
    Deposits 502,081   652,448   29.9%
    CASA 81,702 16.3% 131,632 20.2% 61.1%
    Term deposits 420,379 83.7% 520,816 79.8% 23.9%
    C/D ratio 76.8%   73.4%    

  • The proportion of Yes Bank's non-funded income to total income increased to 40% in 1QFY14 from 38% in 1QFY13. 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 FY15, we have estimated the same to come down to remain below 35% in the next 3 years.

  • Due to addition to franchise as well as employee base, Yes Bank's cost to income ratio remained high at 38% in 1QFY14. This was nevertheless lower than 40% in 1QFY13.The bank's total headcount stood at 7,458 in June 2013 (up 20% 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.

  • In relative terms, Yes Bank had negligible net NPA while the gross NPA stood at 0.2% of advances at the end of June 2013. However, the management did not rule out possibility of slippages from the restructured loan book (0.3% of gross advances). Also the dramatic rise is provision costs are a cause for concern. Yes Bank also had provision coverage ratio of 88.5%.

  • The bank's annualized return on equity and return on assets stood at 26.7% and 1.6% at the end of 1QFY14, with the averages over the past 4 years being 20% and 1.5% respectively.

What to expect?

At the current price of Rs 383, the stock of Yes Bank is trading at 1.8 times our estimated FY15 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, though not impacting fundamentals, can hurt long term prospects. Further, we would prefer to be cautious about its provisioning policy. The stock has corrected significantly post our Sell recommendation in January 2013. We would recommend investors to not buy the stock at current levels. We will update subscribers with FY16 estimates for the stock by August 2013. A gentle reminder that no stock should comprise more than 5% of your overall stock portfolio.

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