Yes Bank – 2QFY11 – Raise estimates, target price; re-iterate Buy:: Anand Rathi

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Yes Bank – 2QFY11 – Raise estimates, target price; re-iterate Buy

n       Raise estimates, target price. Yes Bank’s earnings rose 57.8% yoy, led by better net interest income (up 77.9% yoy) and lower provisions (down 25.4% yoy). We raise FY11e/FY12e EPS estimate 17.1%/15.6% on higher business growth assumptions. Due to better RoEs, we value Yes Bank at 3.1x PBV (2.8x PBV earlier) and raise our target price to `430 from `380.

n       Strong business growth, CASA improves. Advances & deposits grew 86.3% yoy & 106.6% yoy respectively. NIMs saw a marginal decline of 10bps yoy to 3.1%, with CASA improving 54bps yoy to 10.1%. We expect CAGR of 51.6% in advances and 56% in deposits over FY10-13e, due to its robust branch expansion plans.

n       Better productivity, fees aid profitability. While treasury income fell 57.9% yoy, growth in income from third-party distribution (up 43.3% yoy), financial advisory (13.1% yoy) and transaction banking (8.5% yoy) arrested the decline in non-interest income to only 3.3% yoy. Cost-to-assets fell 38bps yoy to 1.6% in 1HFY11, and is one of the lowest in the industry.

n       Asset quality slips, but coverage adequate. Gross NPAs increased 13.5% qoq, but comprise a low 0.22% of loans. Yes Bank’s re-structured advances declined `114m to `690m (0.2% of loans). NPA coverage is 74.7%, with capital adequacy of 19.4% (tier-1 of 11%) sufficient to support likely high business growth.

n       Valuation. At our target price, Yes Bank would trade at 3.2x FY12e and 2.5x FY12e ABV. Maintain Buy.