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Consolidating position
For 2QFY12, Yes Bank reported profit of Rs2.4bn up 33% YoY. In order to
manage quality and profitability of portfolio the bank is consolidating
growth. As a result, the asset growth has moderated sharply to 21% YoY
(62% in Mar-11), but NIMs expanded by 10bps in spite of high interest
rates. We are concerned about slowdown in CASA growth to 20% as this
is critical to support a profitable growth. Fee growth was strong and asset
quality remains robust. Being a corporate lender, bank is more exposed to
a corporate cycle and we see limited upside from here.
Preferring profitability over growth
During 2QFY12, Yes Bank’s loan growth and asset growth moderated sharply
to 13% and 21%, respectively (from 55% and 62% in Mar-11) as the bank is
focussing on margin defence. As a result, bank was able to expand its
margins by 10bps to 2.9% even in a high interest rate environment. Recently,
bank has also become more selective of borrowers and has reduced exposure
to riskier segments. Share of non-SLR investments has increased as the bank
seems to be lending to larger corporate through bonds where coupons may
be below the Base Rate.
CASA growth slows, branch expansion may help
During 2Q, CASA growth moderated sharply to 20% YoY largely due to a high
interest rate environment. However, CASA ratio has improved marginally to
11% due to slower deposit growth (up 10%). In 2Q, liability-mix changed
with share of wholesale borrowings (partly in foreign currencies) rising to
16% of total liabilities from 11% in 1Q. Improvement in CASA ratio is critical
and achievable with expansion in branch network and steadier loan growth.
Asset quality robust and fee growth picks-up
Bank’s asset quality remains strong with gross NPLs growing by just 2% YOY
to just 20bps of loans and coverage ratio remains high at 80% (360% with
floating provisions). Restructured loans increased due to restructuring of
exposures to micro-finance institutions (MFI), but its still very low at 0.5%
(sector average of 3.5%). A strong fee growth of 40% also boosted earnings
driven by growth in investment banking as well as transactional banking fees.
Limited upside
Over FY11-14, we expect Yes Bank to report 25% Cagr in profit largely driven
by loan growth. With Tier I ratio at 9.4% the bank may need to raise capital.
Being a corporate lender, bank is more exposed to a corporate cycle and we
believe that could cap multiples in the short term; hence we see limited
upside from here - our target price is based on 2x FY13 adj PB. Improvement
in capex cycle, pick up in corporate activity would be the key catalysts.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Consolidating position
For 2QFY12, Yes Bank reported profit of Rs2.4bn up 33% YoY. In order to
manage quality and profitability of portfolio the bank is consolidating
growth. As a result, the asset growth has moderated sharply to 21% YoY
(62% in Mar-11), but NIMs expanded by 10bps in spite of high interest
rates. We are concerned about slowdown in CASA growth to 20% as this
is critical to support a profitable growth. Fee growth was strong and asset
quality remains robust. Being a corporate lender, bank is more exposed to
a corporate cycle and we see limited upside from here.
Preferring profitability over growth
During 2QFY12, Yes Bank’s loan growth and asset growth moderated sharply
to 13% and 21%, respectively (from 55% and 62% in Mar-11) as the bank is
focussing on margin defence. As a result, bank was able to expand its
margins by 10bps to 2.9% even in a high interest rate environment. Recently,
bank has also become more selective of borrowers and has reduced exposure
to riskier segments. Share of non-SLR investments has increased as the bank
seems to be lending to larger corporate through bonds where coupons may
be below the Base Rate.
CASA growth slows, branch expansion may help
During 2Q, CASA growth moderated sharply to 20% YoY largely due to a high
interest rate environment. However, CASA ratio has improved marginally to
11% due to slower deposit growth (up 10%). In 2Q, liability-mix changed
with share of wholesale borrowings (partly in foreign currencies) rising to
16% of total liabilities from 11% in 1Q. Improvement in CASA ratio is critical
and achievable with expansion in branch network and steadier loan growth.
Asset quality robust and fee growth picks-up
Bank’s asset quality remains strong with gross NPLs growing by just 2% YOY
to just 20bps of loans and coverage ratio remains high at 80% (360% with
floating provisions). Restructured loans increased due to restructuring of
exposures to micro-finance institutions (MFI), but its still very low at 0.5%
(sector average of 3.5%). A strong fee growth of 40% also boosted earnings
driven by growth in investment banking as well as transactional banking fees.
Limited upside
Over FY11-14, we expect Yes Bank to report 25% Cagr in profit largely driven
by loan growth. With Tier I ratio at 9.4% the bank may need to raise capital.
Being a corporate lender, bank is more exposed to a corporate cycle and we
believe that could cap multiples in the short term; hence we see limited
upside from here - our target price is based on 2x FY13 adj PB. Improvement
in capex cycle, pick up in corporate activity would be the key catalysts.
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