Yes Bank: 2Q FY11 results: high loan growth drives profit:: Daiwa

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Yes Bank:: 2Q FY11 results: high loan growth drives profit, other income declines


What has changed?
 Yes Bank’s 58% YoY net-profit rise for 2Q FY11 was higher than our forecast and
those in the market. Loan growth stayed high at 86% YoY. The net interest margin
(NIM) fell by only 10 basis points QoQ to 3%. Asset quality was well maintained.
Impact
 The 78% YoY rise in net interest income (NII) for 2Q FY11 was the highest
sequential increase of the past eight quarters and was driven largely by loan growth,
as NIM declined by about 20 basis points YoY. Large corporate borrowers
remained the driver of loan-book growth and comprised 70% of total loans.
Infrastructure, engineering and agriculture were the main sectors which saw
improved loan growth quarter-on-quarter.
 Deposit growth was the strongest for the past ten quarters and rose by 107% YoY.
Even after adjusting for one-off items, the increase was high at about 90%. While
the current and savings deposits (CASA) ratio of 10% of total deposits was almost
stable quarter-on-quarter, if we were to adjust for one-off term deposits, the CASA
ratio would have improved by about 40 basis points QoQ, which we view as quite
respectable (given high growth and the rising interest-rate environment).
 Fresh non-performing-loan (NPL) additions were insignificant for the quarter
and asset quality was maintained, with gross NPLs of 0.22% (0.23% for 1Q
FY11) and net NPLs of 0.06% (0.04% for 1Q FY11).
 A sharp drop in financial market-related income and modest growth in fee income
year-on-year affected overall non-interest income, which declined 3% YoY.
Valuation
 Yes Bank has maintained both its superior balance-sheet growth compared with
its peers and its asset quality. We believe Yes Bank should remain one of the
best-performing India banks in terms of loan growth, asset quality, earnings
growth, ROA and ROE for the next two years. We maintain our six-month
target price of Rs390, based on a target 3x PBR on our FY12 BVPS forecast.
Catalysts and action
 We maintain our 1 (Buy) rating on Yes Bank. Sustaining NIM and asset quality at
their current levels would be key positives, in our view.