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Yes Bank: Firing on all cylinders - Views on News from Equitymaster
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Yes Bank: Firing on all cylinders
Oct 21, 2009

Performance summary
  • Interest income grows 18% YoY in 1HFY10 on the back of 42% YoY growth in advances.
  • Other income grows by a sterling 96% in 1HFY10 YoY and 89% YoY in 2QFY10.
  • Net interest margin improves from 2.9% in 2QFY09 to 3.1% at the end of 2QFY10.
  • Bottomline grows 80% YoY in 1HFY10 due to better management of operating costs.
  • Capital adequacy ratio (CAR) comfortable at 17.3%, gross NPA at 0.3%.


Rs (m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Interest income 4,897 5,269 7.6% 9,043 10,696 18.3%
Interest expenses 3,671 3,669 -0.1% 6,688 7,459 11.5%
Net Interest Income 1,226 1,600 30.5% 2,355 3,237 37.5%
Net interest margin       2.9% 3.1%  
Other Income 803 1,516 88.8% 1,518 2,968 95.5%
Other Expense 1,048 1,197 14.2% 1,980 2,309 16.6%
Provisions and contingencies 7 234 3242.9% 91 689 657.1%
Profit before tax 974 1,685 73.0% 1,802 3,207 78.0%
Tax 336 567 68.8% 623 1,089 74.8%
Profit after tax/ (loss) 638 1,118 75.2% 1,179 2,118 79.6%
Net profit margin (%) 13.0% 21.2%   13.0% 19.8%  
No. of shares (m)       296.9 298.1  
Book value per share (Rs)*         61.9  
P/BV (x)         4.0  
* Book value as on 30th September 2009

What has driven performance in 2QFY10?
  • With a growth in loan book that far exceeded the average banking sector’s growth, notwithstanding Yes Bank’s size, the bank put up a sterling performance in 2QFY10. While the bank’s management acknowledged that the growth of 42% in loan book in 1HFY10 is not sustainable, the same nevertheless will boost the bank’s interest income in the coming quarters. Yes Bank continued to grow at twice the sector growth rate. The incremental growth was, however, limited to the large corporate borrowers. The bank still has no exposure to mortgages, credit cards and auto loans. CASA (current and savings accounts) as a proportion of total deposits improved from 7.9% in 1HFY09 to 9.5% in 1HFY10 mainly due to a larger franchise. 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 1HFY10 at 3.1% is well within our estimates.

    Yes Bank’s CASA which comprised 9.5% of its deposit book in 1HFY10 comprised 80% of current accounts. 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.

    Growth on full steam…
    (Rs m) 1HFY09 % of total 1HFY10 % of total Change
    Advances 115,150   162,940   41.5%
    C&IB 71,393 62.0% 103,467 63.5% 44.9%
    Business Banking 43,412 37.7% 57,681 35.4% 32.9%
    Retail 345 0.3% 1,792 1.1% 418.8%
    Deposits 143,380   193,650   35.1%
    CASA 11,271 7.9% 14,100 7.3% 25.1%
    Term deposits 132,109 92.1% 179,550 92.7% 35.9%
    Credit deposit ratio 80.3%   84.1%    

  • The proportion of Yes Bank’s non-funded income to total income improved to 49% in 2QFY10 from 40% in 2QFY09. The growth can be largely attributed to higher revenues from financial advisory and third party sales businesses. Notwithstanding the fact that the bank has set a target of maintaining its non-interest income at 45% of total income until FY10, we have estimated the same to come down to a tad below 40% in the next 3 years. However, we may have to revise our estimates higher on this front for the medium term.

  • Despite an addition to franchise as well as employee base, Yes Bank has managed to lower its cost to income ratio from 51% in 1HFY09 to 37% in 1HFY10 because of improved productivity and operating leverage. The bank sees this ratio sustaining at the current levels in FY10.

  • Yes Bank’s CAR stood comfortable at 16.6% (as per Basel II) in 2QFY10. Having raised Tier II debt to the tune of Rs 2.6 bn during the quarter, the bank has reiterated that it will not require any equity dilution 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 bank had negligible net NPA while the gross NPA stood at 0.3% of advances at the end of 1HFY10. Yes Bank had loan-loss coverage ratio of 75%. Its exposure to stressed sectors like real estate, metals, sugar, textiles, and auto components was about 10% at the end of the quarter. The bank had restructured assets worth Rs 1.5 bn at the end of September 2009, which is a miniscule proportion of its loan book.

What to expect?
At the current price of Rs 248, the stock is trading at 2.3 times our estimated FY12 adjusted book value. Yes Bank has managed to perform in line with our growth and margin estimates. Further, we are enthused by the growth in other income and improvement in asset quality. No further dilution of equity will also help stabilise the bank’s return ratios. Having said that, the valuations of the bank adequately price in the upsides in the medium term.

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