Buy Yes Bank 3QFY11 – CASA, fees and productivity improve; Anand Rathi

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Yes Bank
3QFY11 – CASA, fees and productivity improve; Buy
Yes Bank’s earnings rose 51.8% yoy, led by better net interest
income (up 53.2% yoy) and lower provisions (down 1.7% yoy).
We estimate Yes would sustain RoA of +1.5% over FY11-13e on
account of expanding distribution, stable margin, better fees
and adequate capital. Hence, in our view, Yes would trade at
higher than current valuations. Maintain Buy.

 Strong business growth, CASA improves. Advances & deposits
grew 66.3% yoy & 79% yoy respectively. NIMs saw a marginal
decline of 20bps yoy to 2.8%, with CASA improving 10bps yoy to
10.2%. We expect CAGR of 51.6% in advances and 56% in
deposits over FY10-13e, due to its robust branch expansion plans.
 Better productivity, fees aid profitability. While financial
advisory income declined 6.1% yoy, growth in income from thirdparty
distribution (up 205% yoy), financial markets (46.4% yoy)
and transaction banking (34.2% yoy) kept non-interest income
growth healthy, at 26.5% yoy. Cost-to-assets fell 30bps yoy to
1.6% in 9MFY11, and is one of the lowest in the industry.
 Asset quality slips, but coverage adequate. Gross NPAs rose
7.5% qoq, but comprise a low 0.23% of loans. Restructured
advances increased `147m qoq to `837m (0.27% of loans). NPA
coverage is 76.1%, with capital adequacy of 18.2% which is
sufficient to support likely high business growth. Micro-loans
comprise 0.94% of loans, with management indicating nil defaults.
 Valuation. At our target price of `430, Yes Bank would trade at
3.2x FY12e and 2.5x FY12e ABV.