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Execution at its best; Superior return ratio
Robust growth; impeccable asset quality; Buy
Yes Bank reported 76% CAGR in assets over FY06-10 however its market share is still
lower at 0.83% as of December 2010. The management aims to increase its market share
by 10bp every year until FY15 and grow its loan book by 2x of the industry growth. Rapid
branch network expansion, acquisition of new customers and deepening of existing
customer relationships will ensure that the bank's asset growth is higher than that of
the industry. We expect loan CAGR of 33% and PAT CAGR of ~27% over FY11-13. Yes Bank
is comfortably placed in terms of capital with tier-I of 10.4% and total CAR of 18.2%
Reach, liability franchise - the next growth drivers: As of December 2010, Yes
Bank had 185 operational branches. It aims to scale up its branches to 250 by June
2012 and to 750 by FY15. Branch productivity is expected to improve, driven by aging
of existing network. We believe CASA growth will outpace overall deposit growth,
going forward, and CASA ratio will increase from the current 10% to 14% by FY13.
Superior margin performance across the cycle: Yes Bank is a predominantly
wholesale funded bank, however it has a well matched ALM profile to cushion against
the interest rate risk. About 95% of loans are either linked to PLR or have duration of
less than a year, which provides flexibility to the bank to pass on increased costs and
limit moderation in NIMs in a tight liquidity scenario. Historically the bank delivered
superior margin performance across the cycle despite being a wholesale funded bank.
With focus on increasing retail deposits (currently ~24% of total deposits) we believe
reported NIMs to remain in the range of 2.8-3% over FY11-13. However, on a conservative
basis we factor in a 20bp decline in FY12 margins.
Strong execution, superior asset quality: The bank's key strengths are its capable
and incentives-driven top management team, and its relationship-based business
strategy. Under the leadership of Mr Rana Kapoor the bank posted "above industry"
loan CAGR of 96% and PAT CAGR of 70%+ over FY05-10. Yes Bank's asset quality
is among the best in the industry. As of December 2010 its GNPA ratio was 23bp and
provision coverage ratio was 76% (including specific provisions of 283%). Its standard
restructured loans are among the lowest at 27bp. We believe short-term concerns
about asset quality (related to MFI and 2G exposure) is over done and expects asset
quality to remain healthy.
Superior return ratios, attractive valuations: Strong growth, proven execution
capabilities, diversified fee income and superior return ratios are key positives for Yes
Bank, whereas relatively weak liability mix is an overhang (especially in the current
scenario).RoA is expected to remain healthy at 1.3-1.5% and RoE at ~23% over
FY11-13. Buy with a price target of 415 (2.5x FY13E BV).
3QFY11 highlights
Key positives
Strong loan growth of 66% YoY and deposits growth
of 79% YoY. CASA deposit grew 81% YoY.
Superior asset quality with GNPA ratio of 23bp and
net NPA ratio of 6bp. PCR stood at 76% against
75% in 2QFY11 (total loan loss coverage was 283%
against 299% a quarter earlier).
Despite adding 14 branches in 3QFY11, cost-toincome
(CI) ratio improved sequentially to 35.8%
from 36.6% due to controlled opex and strong growth
in total income.
Key negatives
NIM declined 20bp sequentially to 2.8%. Higher
proportion of investments in total assets and lower
re-pricing benefit on investment portfolio resulted in
the margin decline.
Other highlights
Non-interest income increased 27% YoY and 24%
QoQ to Rs1.6b, led by higher income from the
financial market and transaction banking segment.
Transaction banking fees grew 30% QoQ (34% YoY)
to Rs498m and income from third-party product
distribution was up 18% QoQ.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Execution at its best; Superior return ratio
Robust growth; impeccable asset quality; Buy
Yes Bank reported 76% CAGR in assets over FY06-10 however its market share is still
lower at 0.83% as of December 2010. The management aims to increase its market share
by 10bp every year until FY15 and grow its loan book by 2x of the industry growth. Rapid
branch network expansion, acquisition of new customers and deepening of existing
customer relationships will ensure that the bank's asset growth is higher than that of
the industry. We expect loan CAGR of 33% and PAT CAGR of ~27% over FY11-13. Yes Bank
is comfortably placed in terms of capital with tier-I of 10.4% and total CAR of 18.2%
Reach, liability franchise - the next growth drivers: As of December 2010, Yes
Bank had 185 operational branches. It aims to scale up its branches to 250 by June
2012 and to 750 by FY15. Branch productivity is expected to improve, driven by aging
of existing network. We believe CASA growth will outpace overall deposit growth,
going forward, and CASA ratio will increase from the current 10% to 14% by FY13.
Superior margin performance across the cycle: Yes Bank is a predominantly
wholesale funded bank, however it has a well matched ALM profile to cushion against
the interest rate risk. About 95% of loans are either linked to PLR or have duration of
less than a year, which provides flexibility to the bank to pass on increased costs and
limit moderation in NIMs in a tight liquidity scenario. Historically the bank delivered
superior margin performance across the cycle despite being a wholesale funded bank.
With focus on increasing retail deposits (currently ~24% of total deposits) we believe
reported NIMs to remain in the range of 2.8-3% over FY11-13. However, on a conservative
basis we factor in a 20bp decline in FY12 margins.
Strong execution, superior asset quality: The bank's key strengths are its capable
and incentives-driven top management team, and its relationship-based business
strategy. Under the leadership of Mr Rana Kapoor the bank posted "above industry"
loan CAGR of 96% and PAT CAGR of 70%+ over FY05-10. Yes Bank's asset quality
is among the best in the industry. As of December 2010 its GNPA ratio was 23bp and
provision coverage ratio was 76% (including specific provisions of 283%). Its standard
restructured loans are among the lowest at 27bp. We believe short-term concerns
about asset quality (related to MFI and 2G exposure) is over done and expects asset
quality to remain healthy.
Superior return ratios, attractive valuations: Strong growth, proven execution
capabilities, diversified fee income and superior return ratios are key positives for Yes
Bank, whereas relatively weak liability mix is an overhang (especially in the current
scenario).RoA is expected to remain healthy at 1.3-1.5% and RoE at ~23% over
FY11-13. Buy with a price target of 415 (2.5x FY13E BV).
3QFY11 highlights
Key positives
Strong loan growth of 66% YoY and deposits growth
of 79% YoY. CASA deposit grew 81% YoY.
Superior asset quality with GNPA ratio of 23bp and
net NPA ratio of 6bp. PCR stood at 76% against
75% in 2QFY11 (total loan loss coverage was 283%
against 299% a quarter earlier).
Despite adding 14 branches in 3QFY11, cost-toincome
(CI) ratio improved sequentially to 35.8%
from 36.6% due to controlled opex and strong growth
in total income.
Key negatives
NIM declined 20bp sequentially to 2.8%. Higher
proportion of investments in total assets and lower
re-pricing benefit on investment portfolio resulted in
the margin decline.
Other highlights
Non-interest income increased 27% YoY and 24%
QoQ to Rs1.6b, led by higher income from the
financial market and transaction banking segment.
Transaction banking fees grew 30% QoQ (34% YoY)
to Rs498m and income from third-party product
distribution was up 18% QoQ.
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