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Yes Bank: Moderate but healthy growth - Views on News from Equitymaster
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Yes Bank: Moderate but healthy growth
Aug 3, 2011

Yes Bank declared its results for the first quarter of FY12 (1QFY12). The bank has reported a 35% YoY and 38% YoY growth in net interest income and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net interest income grows 35% YoY in 1QFY12 on the back of 26% YoY growth in advances.
  • Other income grows by 15% YoY in 1QFY12 due to lower treasury gains.
  • Net interest margin comes in marginally lower at 2.8% (3.1% in 1QFY11) due to pressure on interest costs.
  • Bottomline grows 38% YoY in 1QFY12 thanks to write back of provisioning and higher operating leverage.
  • Capital adequacy ratio (CAR) comfortable at 16.2%, gross NPA at 0.1% (specific NPA coverage 95%).


Rs (m) 1QFY11 1QFY12 Change
Interest income 7,392 13,995 89.3%
Interest expenses 4,771 10,454 119.1%
Net Interest Income 2,621 3,541 35.1%
Net interest margin 3.1% 2.8%  
Other Income 1,438 1,653 15.0%
Other Expense 1,570 1,944 23.8%
Provisions and contingencies 126 15 -88.1%
Profit before tax 2,363 3,235 36.9%
Tax 800 1,075 34.4%
Profit after tax/ (loss) 1,563 2,160 38.2%
Net profit margin (%) 21.1% 15.4%  
No. of shares (m)   348.1  
Book value per share (Rs)*   115.5  
P/BV (x)   2.7  

What has driven performance in 1QFY12?
  • Despite starting FY12 at a relatively moderated pace, Yes Bank got closer to some of its larger peers in terms of market share in SME lending. Although term deposits comprised more than two thirds of the bank’s overall deposit book, the bank was able to sustain CASA proportion. The margins (NIMs) were affected due to higher costs with the aggressive rate hikes over the past few quarters. Having said that the bank has re-priced some SME assets and also booked new loans at higher rates. This will impact margins in the subsequent quarters.

    Also in the results conference call the management cited that while it will continue to grow above sector average, the current rate of growth may not be sustainable. However since most of its loan book can be re-priced in 12-months time, the bank does not see rising interest rates putting pressure on its margins. In fact Yes Bank sees NIMs sustaining at around 3% for the fiscal.

    CASA (current and savings accounts) as a proportion of total deposits remained stable at 10.9% at the end of June 2011. 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.

    Retail led growth on full steam...
    (Rs m) 1QFY11 % of total 1QFY12 % of total Change
    Advances 262,568   331,042   26.1%
    C&IB 168,044 64.0% 208,556 63.0% 24.1%
    Business Banking 72,206 27.5% 79,450 24.0% 10.0%
    Retail 22,318 8.5% 39,725 12.0% 78.0%
    Deposits 302,387   435,759   44.1%
    CASA 31,707 10.5% 47,498 10.9% 49.8%
    Term deposits 270,680 89.5% 388,261 89.1% 43.4%
    Credit deposit ratio 86.8%   76.0%    

  • The proportion of Yes Bank's non-funded income to total income dropped to 32% in 1QFY12 from 35% in 1QFY11. The drop 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 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 bring down its cost to income ratio at 37% in 1QFY12 from 39% in 1QFY11 because of improved productivity and operating leverage. The bank hired more than 900 employees in FY11 bringing the total headcount to 3,900. 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 225 in 1QFY12 to 260 by the end of the fiscal.

  • Yes Bank's CAR stood comfortable at 16.2% (as per Basel II) at the end of 1QFY12. 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 0.1% of advances at the end of June 2011. Yes Bank had total loan-loss coverage ratio of 400%, well above the RBI's mandate.

What to expect?
At the current price of Rs 307, the stock is trading at 1.6 times our estimated FY14 adjusted book value. Yes Bank has managed to perform in line with our broader growth estimates for FY12. Further, we are enthused by the bank's conservative provisioning policy. Having said that, the rate of growth may continue to be moderated. 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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