Yes Bank Q3FY1; Slower growth restricts NIMs contraction; Target: Rs 300:: Emkay

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Yes Bank

Slower growth restricts NIMs contraction

ACCUMULATE

CMP: Rs 273                                       Target Price: Rs 300

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n     Yes Bank’s Q3FY11 results were inline with expectations with NII at Rs3.2bn and PAT at Rs1.9bn

n     Lower than expected 20bps contraction in NIMs was a positive surprise. As the asset repricing will continue for next two quarters, pressure on NIMs will be minimal

n     Yes Bank consciously decelerated loan book growth to 2.6% qoq due to volatile rates. Asset quality maintained at 0.2% gross and 0.1% net NPAs

n     Valuations attractive at 2.5x FY11E/2.0x FY12E ABV. Upgrade to ACCUMULATE as the recent correction in the stock price leaves 10% upside to our target price of Rs300

NII growth inline with expectations

Yes Bank’s NII grew by 53.2% yoy to Rs3.2bn inline with our expectations. The NII

growth was driven by a restricted 20bps qoq contraction in margins, albeit advance

growth was slower at 2.5% qoq.

NIMs contraction restricted at 20bps – a positive

The better than expected NIMs were driven by 50bps increase in yield on advances

which has partially offset the cost increase of 40bps. However, we believe that there

may be some sharp drop in the yield on investments and other assets which has

resulted in only 20bps increase in overall yields.

Cost of funds up despite cutting the deposits

Even as Yes Bank has not grown its deposits during the quarter, the cost of funds has still

gone up by ~40bps due to sharp increase in the interest rates and very short maturity of the

deposits.

NIMs can make bounce back over H1CY11
Yes Bank has ~55% of assets which are short maturity (6 months) and having fixed price.
As this advances come up for renewal and the balance 45% of the book keeps repricing
due to change in BPLR/base rate, we expect the NIMs to bounce back in H1CY11. We
have built in a contraction of 11bps in NIMs in FY12E.

Advances growth slows down to 2.5%qoq
As the interest rates remained steeply high during Q3FY11, Yes Bank has consciously
slowed down the growth in advances to 2.5% qoq after double digit qoq growth in last five
quarters. However, the management is still confident about clocking 60% yoy growth for
FY11 which is in line with our estimates.

Non-financials income continues to show traction
The strong traction in the business services and retail services continued during the quarter
as the wealth management and transaction banking business contributed 41% of the fee
income which have shown very high double digit sequential growth.

Asset quality remains stable
The asset quality remained stable during the quarter as the gross and net NPA were just
0.2% and 0.1% respectively. The provision stood strong at 76.1%.

Valuations and view
We are marginally changing our growth numbers for Yes Bank from 53% CAGR over FY10-
12E to ~48% as we remain upbeat on resilience of Yes Bank’s NIMs. We believe that short
term nature of liabilities and assets will over next half help the NIMs to sustain at current
levels. Recent correction in the stock leaves ~10% upside to our target price. We upgrade
the stock to ACCUMULATE with target price of Rs300.