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Yes Bank: Balance sheet growth picks up - Views on News from Equitymaster
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Yes Bank: Balance sheet growth picks up
Nov 4, 2014

Yes Bank declared its results for the second quarter of financial year 2014-15 (2QFY15). The bank has reported 27% YoY and 30% YoY growth in net interest income and net profits respectively in 2QFY15. Here is our analysis of the results.

Performance summary
  • Net interest income grows by 20% YoY in 1HFY15 on the back of 30% YoY growth in advances.
  • Other income grows by just 3.5% YoY in 1HFY15 due to sharp fall in treasury income. Other income to total income falls to 36% from 40% in 1HFY14.
  • Net interest margin moves up to at 3.2%, due to rise in proportion of CASA deposits.
  • Bottomline grows 18% YoY in 1HFY15 due to write-back of provisions.
  • Capital adequacy ratio (CAR) comfortable at 17.4% (Tier 1- 12.2%), gross NPA at 0.36% of advances at the end of September 2014.

(Rs m) 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
Interest income 25,012   28,323 13.2% 48,992 55,119 12.5%
Interest Expense 18,292  19,759 8.0% 35,679 39,102 9.6%
Net Interest Income 6,720 8,564 27.4% 13,313 16,017 20.3%
Net interest margin (%)       2.9% 3.2%  
Other Income 4,461 5,056 13.3% 8,881 9,192 3.5%
Other Expense 4,053 5,448 34.4% 8,265 10,716 29.7%
Provisions and contingencies 1,791 1,195 -33.3% 2,761 1,432 -48.1%
Profit before tax 5,337 6,977 30.7% 11,168 13,061 17.0%
Tax 1,626 2,151 32.3% 3,447 3,920 13.7%
Profit after tax/ (loss) 3,711 4,826 30.0% 7,721 9,141 18.4%
Net profit margin (%) 14.8% 17.0%   15.8% 16.6%  
No. of shares (m)         414.7  
Book value per share (Rs)*         265.2  
P/BV (x)         2.6  
*Book value as on 30th September 2014

What has driven performance in 2QFY15?
  • The second quarter proved to be buoyant for Yes Bank in terms of both balance sheet growth and margin expansion. Yes Bank has been soliciting savings accounts at an interest rate of 7% per annum, which is significantly higher than the industry average. Nevertheless, the banks has managed to sustain above average NIMs so far by raising the proportion of CASA deposits. Yes Bank clocked 30% growth in advances for 1HFY15, backed by 37% YoY growth in high yielding retail loans. The deposit growth came in much lower at 18.6% YoY. The 30.8% YoY growth in CASA came on account of the higher interest offered by the bank on savings accounts. This catapulted the CASA deposits to 22.5% of total loan book. While NIMs are currently stable at 3.2% at the end of September 2014, there may be limited headroom for expansion in NIMs despite the possibility of fall in interest rates..

  • Yes Bank's non-funded income to total income dropped from 40% in 1HFY14 to 36% in 1HFY15. This can be largely attributed to lower treasury income.

    Good growth in advances
    (Rs m) 1HFY14 % of total 1HFY15 % of total Change
    Advances 477,172   620,296   30.0%
    Retail    95,434 20.0% 131,503 21.2% 37.8%
    Corporate 381,738 80.0% 488,793 78.8% 28.0%
    Deposits 675,751   801,309 18.6%
    CASA 137,760 20.4% 180,145 22.5% 30.8%
    Term deposits 537,991 79.6% 621,164 77.5% 15.5%
    C/D ratio 70.6%   77.4%    

  • Yes Bank increased its branch network by 81 over the past year and 21 over the past 6 months and the total count stood at 581 at the end of September 2014. The bank's total headcount stood at 9,612 in September 2014 (up 21% 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. The cost to income ratio, went up from 37.2% to 42% over the past year. Having said that, at 17% 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.

  • In relative terms, Yes Bank had a higher slippage in asset quality while the gross NPA stood at 0.36% of advances at the end of September 2014. Also, the possibility of slippages from the restructured loan book (0.2% of gross advances) looms large. After the write back of provisions during the second half of FY14 and in 1HFY15, Yes Bank had a lower provision coverage ratio of 75.8% as against 85% earlier.
What to expect?

At the current price of Rs 679, the stock of Yes Bank is trading at 2.0 times our estimated FY17 adjusted book value. Due to Yes Bank's aggressive growth stance, margin and asset quality pressures will remain in the medium term. Moreover, operating cost pressures can also dent margins. At the current valuations, there is hardly enough upside from a medium term perspective. We recommend investors to not buy the stock at current levels. A gentle reminder that no stock should comprise more than 5% of your overall stock portfolio.

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