Yes Bank: Stellar business growth in Sept 2010 quarter:: Alchemy

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Stellar business growth
Key highlights of the 2QFY11 results reported by Yes Bank are: a) Core
performance inline with our estimate at 95% YoY b) Stellar business growth of
97% YoY c) NIMs dip by 10bps QoQ on account of rise in cost of funds c) Other
income muted due to slowdown in the transaction banking fees and MTM losses of
Rs~120mn. We estimate the business growth at 58% for FY11E and 32% for
FY12E, as management indicates some short term business to run off in near
future. With stable asset quality we maintain slippage ratio of 0.5% for FY11E. The
Tier I ratio stood comfortable at 11% (audited), and if bank maintains current
aggressive business growth, it may need to raise Tier I resources within next 12
months. With relative stable margins and revival in fees growth in H2FY11 we raise
our earnings estimate by 4% in FY11E and 9% for FY12E. We closely watch
developments pertaining to business growth strategy and Maintain Accumulate
rating with a price target of Rs376 per share
Business growth on a strong footage
The business growth stood strong at 97% YoY. The advances at Rs303bn have
expanded by 86% YoY led by rising exposures to corporate and institutional banking
segment, up by 81% at Rs212bn. Deposits increased by 107% YoY and 32% QoQ to
Rs400bn. The proportion of the CASA deposit remained stable sequentially at 10.1%.
The credit-to-deposit (CD) ratio decreased sharply by 1,100bps QoQ to 76%, led by
higher deposit growth. However management induicated that the actusal average CD
ratio for Q2FY11 stood at ~85% - flat QoQ. The Tier I ratio stood comfortable at 11%
(audited), and if bank maintains current aggressive business growth, it may need to raise
Tier I resources within next 12 months. We estimate the business growth at 58% for
FY11E and 32% for FY12E.
Margins dip led by rising cost : Other income mutes led by investment related
losses
The NIM for the 2QFY11 stood at 3.0% lower by 10 bps QoQ led by increase in cost of
funds by 35 bps QoQ and decline in CD ratio to 76%. The period calculated yield on
advances increased by 104 bps QoQ to 10.25%. The spreads are well guarded in the
current rising interest rate scenario, as the asset-liability tenure is in favour of the bank,
given a) average duration of the advances at 17 months and liabilities at 19 months and
b) 95% of advances are linked to the PLR/base rate and/or lower than 1-year maturity.
The fee income declined by 14% YoY led by sharp fall in income from financial markets,
which decreased by 72% YoY. Fee income (adjusted for financial markets income) grew
by 15% YoY. We estimate the fees to grow at 39% YoY for FY11E, further aided by
strong traction in the loan off take.