Yes bank: 2QFY2011 Result Update by Angel Broking

Visit http://indiaer.blogspot.com/ for complete details 􀂄 􀂄


Yes Bank reported robust net profit growth of 57.8% yoy and 12.7% qoq to
`176cr well above our estimates of `138cr on account of substantially higher
balance sheet growth than guided by the bank towards the beginning of the year.
Robust growth and stable asset quality were the key positives of the results. We
recommend an Accumulate on the stock.
Robust growth in balance sheet continues: Advances grew by a strong 15.6% qoq
and 86.3% yoy compared to a marginal industry qoq growth of ~0.6%. Deposits
increased 32.3% qoq and 106.6% yoy compared to ~1.6% qoq industry growth.
This drove 95.8% yoy growth in NII, in spite of the sequential NIM compression of
10bp due to the higher-than-sector-average (40bp) increase in cost of funds.
Non-interest income declined 13.6% yoy and 8.9% qoq to `131cr in 2QFY2011
due to the sharp fall in financial market income. During the quarter, the bank’s
asset quality remained stable with the gross NPA ratio at 0.2% and net NPA ratio
at 0.1% (as against 0.2% and 0.04% in 1QFY2011, respectively). The bank’s
capital adequacy ratio (CAR) improved to 19.4%, with tier-I capital of 11.0% (total
CAR of 16.6% in 1QFY2011).
Outlook and Valuation: As in the past, the inherent challenges of building a retail
franchise continue to be substantial despite management’s high pedigree.
Moreover, with rising interest rates, the bank’s cost of funds is expected to rise at
a faster rate due to the bank’s wholesale-based funding mix. That said,
notwithstanding the medium-term downside risks to RoA’s vis-a-vis sectoral
averages as well as execution risks with respect to its retail expansion plans, the
bank’s high rate of growth within the wholesale segment is likely to drive strong
earnings growth and capital consumption in the near term (potentially leading to
another book-accretive dilution in the next 12 months). At the CMP, the stock is
trading at 2.7x FY2012E ABV. We recommend Accumulate on the stock, with a
Target Price of `373, at which level the stock would trade at 2.9x FY2012E ABV.