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YES Bank (YES)
Banks/Financial Institutions
Strong results in a tough environment. Yes Bank delivered strong earnings with PAT
growth of 45% and an impressive loan growth of 55%. Yes Bank has been able to
sustain its margins qoq at about 2.8%, as loan repricing was strong to take care of
higher deposit costs. The bank is looking to raise US$500 mn to fund the next phase of
growth. Valuations are attractive at 2.5X FY2012E PBR and 13X PER for 20%+ RoE
business. Increasing liability focus in its next leg of growth will be crucial to sustain its
high valuations. Retain BUY with a TP of `420 (`370), moving our TP on FY2013E.
Impressive performance in a tight liquidity environment
With better repricing environment for lending and commensurate hike in deposit rates—focus
shifted back to growth with 10% qoq loan growth for the quarter. Margins remaining stable
despite rising interest rates is positive. We maintain our loan growth expectation for Yes Bank at
32% CAGR over FY2011-13E with a marginal compression in margins. Post the results, we also
revise our earnings for FY2012-13E. Valuations at 2.5X FY2012E book and 12X FY2012E EPS are
attractive for consistently maintained RoA of ~1.4% and RoEs of about 20%. The management is
looking to raise US$500 mn as new capital, which has not been factored in our estimates and may
provide upsides to our BV. Retain BUY with a revised price target of `420, as we move on to
FY2013E-based multiples. At our TP the stock will trade at 2.1X FY2013E book and 10X EPS.
Better lending yields in the market give opportunity to re-focus on growth
Yes Bank reported a stronger loan growth for the quarter at 10.5% qoq and 55% yoy to `344 bn,
excluding loan sold. The bank has increased exposure to SME/commercial loans (23% of loans
compared to 22% in December 2010) on the back of improved confidence in asset quality and
better pricing power. Food and agriculture showed sharp improvement qoq (mainly to build its
priority sector portfolio). Telecom (TMT) exposure has reduced to 10% of loans from 23% in June
2010 largely due to runoff of 3G/broadband exposure. We expect loan growth to remain higher
than industry average at about 32% CAGR for FY2011-13E. Increased ability to pass on higher
rates also allowed the bank to grow fast during the quarter, despite a higher reliance on expensive
wholesale borrowing.
Margins maintained at 2.8% qoq
Sharp improvement in lending yields offset the increase in cost of funds and decline in CD ratio to
maintain margins at 2.8% for the quarter. Cost of deposits increased by 70 bps qoq to 7.8%
while lending yields improved sharply by 70 bps qoq to 10.7%. CD ratio declined to 75% from
79% for the quarter. Net interest income grew by 43% yoy and 8% qoq to `3.5 bn.
Deposit growth strong at 71%; CASA at 10.3%
Deposits grew by 71% yoy (16% qoq) primarily led by CASA deposits which grew by 69%
yoy (18% qoq). However, strong balance sheet growth continues to result in flat CASA ratio
(10.3% of deposits). The management targets to reach CASA ratio of industry average by
FY2015E, which will be a big scale-up from current CASA levels. Investments continue with
the bank opening another 29 branches in 4Q and 64 branches in FY2011, taking the total
branch network to 214. The bank is looking to open another 100 branches in FY2012 but
currently has licenses to open 46 branches.
Transaction banking fee income boosts non-interest income
Despite overall non-interest income growing only by 17% yoy, growth from transaction
banking fees was impressive at 51% yoy. Financial advisory grew by 34% yoy while retail
fees grew by 72% yoy (on a lower base). Income from financial markets was weak—
declined 49% yoy as the bank booked losses on certain investments. Overall contribution of
non-interest income to overall assets is at 1.3% of average assets as compared to 1.9% in
March 2010. Contribution of overall fee income continues to remain volatile and importantly,
lower than balance sheet growth as the bank shifted focus in the past two years. We are
building fee income to grow by 30% CAGR for FY2011-13E.
Equity dilution announced to fund future growth
Tier-1 ratio for the bank declined to 9.7% for the quarter and the bank has announced a
capital raising plan of US$500 mn to fund future growth. We are currently not factoring the
expected capital raising plans to our estimates, but expect this raising to be completed in
FY2012E.
Other highlights for the quarter
Cost-income ratio for the quarter declined to 35% from 36% in December 2010. This is
somewhat surprising given fast branch/employee additions and inflation levels. However,
we expect this to rise as investments in people and branches increase over time and
expect it to be near 40% in FY2012-13E. Non-staff expenses were flat for the quarter
while staff expenses increased by 14% qoq and 45% yoy.
Asset quality continues to remain in a sweet spot: Ratios were stable for the quarter with
gross NPL at 0.2% and net NPLs 0.03% of loans. Restructured assets are flat at `829 mn
compared to `800 mn in December 2010. Asset quality remains comfortable for the bank
as of now, but given a strong growth over the last couple of years, we expect gross NPLs
to rise to 0.8% by FY2012E.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
YES Bank (YES)
Banks/Financial Institutions
Strong results in a tough environment. Yes Bank delivered strong earnings with PAT
growth of 45% and an impressive loan growth of 55%. Yes Bank has been able to
sustain its margins qoq at about 2.8%, as loan repricing was strong to take care of
higher deposit costs. The bank is looking to raise US$500 mn to fund the next phase of
growth. Valuations are attractive at 2.5X FY2012E PBR and 13X PER for 20%+ RoE
business. Increasing liability focus in its next leg of growth will be crucial to sustain its
high valuations. Retain BUY with a TP of `420 (`370), moving our TP on FY2013E.
Impressive performance in a tight liquidity environment
With better repricing environment for lending and commensurate hike in deposit rates—focus
shifted back to growth with 10% qoq loan growth for the quarter. Margins remaining stable
despite rising interest rates is positive. We maintain our loan growth expectation for Yes Bank at
32% CAGR over FY2011-13E with a marginal compression in margins. Post the results, we also
revise our earnings for FY2012-13E. Valuations at 2.5X FY2012E book and 12X FY2012E EPS are
attractive for consistently maintained RoA of ~1.4% and RoEs of about 20%. The management is
looking to raise US$500 mn as new capital, which has not been factored in our estimates and may
provide upsides to our BV. Retain BUY with a revised price target of `420, as we move on to
FY2013E-based multiples. At our TP the stock will trade at 2.1X FY2013E book and 10X EPS.
Better lending yields in the market give opportunity to re-focus on growth
Yes Bank reported a stronger loan growth for the quarter at 10.5% qoq and 55% yoy to `344 bn,
excluding loan sold. The bank has increased exposure to SME/commercial loans (23% of loans
compared to 22% in December 2010) on the back of improved confidence in asset quality and
better pricing power. Food and agriculture showed sharp improvement qoq (mainly to build its
priority sector portfolio). Telecom (TMT) exposure has reduced to 10% of loans from 23% in June
2010 largely due to runoff of 3G/broadband exposure. We expect loan growth to remain higher
than industry average at about 32% CAGR for FY2011-13E. Increased ability to pass on higher
rates also allowed the bank to grow fast during the quarter, despite a higher reliance on expensive
wholesale borrowing.
Margins maintained at 2.8% qoq
Sharp improvement in lending yields offset the increase in cost of funds and decline in CD ratio to
maintain margins at 2.8% for the quarter. Cost of deposits increased by 70 bps qoq to 7.8%
while lending yields improved sharply by 70 bps qoq to 10.7%. CD ratio declined to 75% from
79% for the quarter. Net interest income grew by 43% yoy and 8% qoq to `3.5 bn.
Deposit growth strong at 71%; CASA at 10.3%
Deposits grew by 71% yoy (16% qoq) primarily led by CASA deposits which grew by 69%
yoy (18% qoq). However, strong balance sheet growth continues to result in flat CASA ratio
(10.3% of deposits). The management targets to reach CASA ratio of industry average by
FY2015E, which will be a big scale-up from current CASA levels. Investments continue with
the bank opening another 29 branches in 4Q and 64 branches in FY2011, taking the total
branch network to 214. The bank is looking to open another 100 branches in FY2012 but
currently has licenses to open 46 branches.
Transaction banking fee income boosts non-interest income
Despite overall non-interest income growing only by 17% yoy, growth from transaction
banking fees was impressive at 51% yoy. Financial advisory grew by 34% yoy while retail
fees grew by 72% yoy (on a lower base). Income from financial markets was weak—
declined 49% yoy as the bank booked losses on certain investments. Overall contribution of
non-interest income to overall assets is at 1.3% of average assets as compared to 1.9% in
March 2010. Contribution of overall fee income continues to remain volatile and importantly,
lower than balance sheet growth as the bank shifted focus in the past two years. We are
building fee income to grow by 30% CAGR for FY2011-13E.
Equity dilution announced to fund future growth
Tier-1 ratio for the bank declined to 9.7% for the quarter and the bank has announced a
capital raising plan of US$500 mn to fund future growth. We are currently not factoring the
expected capital raising plans to our estimates, but expect this raising to be completed in
FY2012E.
Other highlights for the quarter
Cost-income ratio for the quarter declined to 35% from 36% in December 2010. This is
somewhat surprising given fast branch/employee additions and inflation levels. However,
we expect this to rise as investments in people and branches increase over time and
expect it to be near 40% in FY2012-13E. Non-staff expenses were flat for the quarter
while staff expenses increased by 14% qoq and 45% yoy.
Asset quality continues to remain in a sweet spot: Ratios were stable for the quarter with
gross NPL at 0.2% and net NPLs 0.03% of loans. Restructured assets are flat at `829 mn
compared to `800 mn in December 2010. Asset quality remains comfortable for the bank
as of now, but given a strong growth over the last couple of years, we expect gross NPLs
to rise to 0.8% by FY2012E.
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