Yes Bank - "Strong growth in line with expectations" ::LKP

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Key Highlights

Ø  Yes Bank reported a PAT growth of 38% yoy and an operating profit growth of 31% yoy on the back of growth NII and lower provisioning numbers. The results were inline with our FY12 full year estimates.

Ø  Net interest income (NII) grew 35%/2% yoy/qoq. The bank has done well to maintain qoq NIMs at 2.8% inline with our estimates. On a yoy basis NIMs were lower by 30 bps due to higher cost of funds.

Ø  Loan book grew by 26%/(4%) yoy/qoq. The growth across business segments (commercial banking 11%/7%, BB 176%/3%, CNIB (14%)/(3%) yoy/qoq) represented the intention of the bank build in granularity through mid banking & SME banking.

Ø  Deposit growth (44%/(5%) yoy/qoq) slowed down qoq, on account of a lower term deposit growth. CASA grew 50%/flat yoy/qoq with the share of 10.9% marginally higher yoy and qoq.

Ø  The bank has met its version 2 target and has a network of 255 branches at June 2011. Operating expenses have increased by 24%/4% yoy/qoq, led by higher employee expenses of 35%/7% yoy/qoq. The bank is in the growth phase and we expect this to be reflected in the C/I ratios of the bank. C/I ratio during the quarter was 37.4% v/s 38.7%/34.8% yoy/qoq.

Ø  Non-interest income grew by 15%/(11%) yoy/qoq. The yoy growth was driven by trade transactional at 22%, and branch banking (incl. third party) at 45%.

Ø  Asset quality of the bank has improved which is resulted in lower provisioning by (88%)/ (97%) yoy/qoq while specific provisioning was 404% and general at 95% in Q1FY12. Gross npas on an absolute level decreased by 6%/30% yoy/qoq and net npas decreased by 76%/71% yoy/qoq. As a percent gross and net npas were 0.17% and 0.01% the lowest in past 12 quarters.

Ø  Yes Bank has grown its balance sheet by 39% yoy. The bank's CAR as at June 2011 was 16.2%. The Bank reported a RoE of 22%  marginally higher v/s previous quarters and has maintained its RoA of 1.5%.

Ø  We maintain our FY12E and FY13E ABV and EPS estimates. The stock is trading at a P/ABV of 2.4x FY12E ABV and 1.7x FY13E ABV. The 5 year average rolling 12 forward P/ABV is 2.6x and the 1 year average rolling P/ ABV is 2.2x.We continue to value the stock at a 2.0x P/ABV and maintain a BUY with a  target price of Rs.368 per share (FY13).