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Proven execution track record; Growth at 2x the industry
Peaking of interest rates a key trigger; Earnings CAGR at ~25%
Yes Bank's (YES) key strengths are (1) capable, incentive-driven top management team, and
(2) relationship-based business strategy. Under the leadership of Mr Rana Kapoor, the bank posted
significantly-above-industry loan and PAT CAGR of ~70% over FY06-11. YES's asset quality is the best
in the industry with near zero net NPA's. Earnings traction is expected to remain strong with 25%
CAGR over FY11-13 and RoEs at 22%+ during the same period.
Above industry growth rates; market share gain to continue: YES's market share is low at 0.8% as
of 1QFY12. It aims to increase market share by 10bp every year until FY15 and grow its loan book at 2x
the industry growth rate. During FY06-11, YES posted loan CAGR of 70% v/s 20% CAGR for the industry.
In the near term, corporate loans (especially mid market segment) will continue to drive growth.
Margins to remain in the range of 2.8-3.1%: YES is a predominantly wholesale funded bank; however
it has a well matched ALM profile to cushion the interest rate risk. About 95% of YES's loans are either
PLR/Base Rate-linked or have duration of less than a year, which provides YES flexibility to pass on
increased costs and limit moderation in NIMs in a tight liquidity scenario. Nevertheless, expected fall in
interest rates will be beneficial for YES as 80% of its deposits are bulk in nature.
Rapid expansion in branch network: As of 1QFY12, YES had 255 operational branches. It aims to
scale up the number of its branches to 350 by 1QFY13 and to 750 by FY15. Over FY08-1QFY12, branch
network is up almost 4x. Expect CASA ratio to also increase from the current 10% to 14% by FY13.
Superior asset quality performance: As of 1QFY12, YES's GNPA ratio was 17bp and PCR was 95%,
(including specific provisions of 404%), and restructured loans were just 26bp of loans, demonstrating
above industry asset quality. Since inception to date, YES's GNPA ratio remained lower than 30bp (except
68bp in FY09). Going forward, GNPAs are likely to remain lower than 40bp.
Strong play on peaking rates; valuation attractive: Rapid branch expansion, acquisition of new
customers and deepening of existing customer relationships will ensure that YES's asset growth is higher
than that of the industry. Expected fall in interest rates augurs well for YES. RoA is expected to remain
healthy at 1.3%+ and RoE at ~23% over FY11-13. We maintain Buy with a price target of INR360.
YES, which started operations in a highly
competitive business environment, has been able
to increase its share in total loans in the system
from just 7bp in FY05 to 80bp as of 1QFY12.
Capitalizing on its niche presence of knowledge
banking and increased focus on small and mid
corporate segment, we expect growth to remain
strong at 2x of the industry.
Under its version 2, YES has kept "Reach and
liability franchise" as key growth drivers. Bank
is effectively utilizing current moderation in
macroeconomic environment to build branch
network for the next growth phase. As the
branch network has reached the inflection point
we expect CASA and fees to accelerate fast.
The bank has already opened its flagship
branches in all the major cities of India and now
focuses mainly on mid-size branches, most of
which will be opened in North and West India.
Efficient utilization of branch license will help
to grow its CASA base
Despite an wholesale funded entity and low
CASA ratio, NIMs have remained in the narrow
band of 2.8-3.1% across the cycle for the bank
led by strong ALM.
Management's cautious stance of not growing
in an unfavorable environment and focus on
margins is leading to moderation in business
growth. YES targets a growth of 35% CAGR
over FY11-15.
Yes Bank's bottomline is evenly distributed
between income from lending & borrowing
activities and fee income. Given its access to
superior technology and highly skilled manpower,
the bank is able to offer new product and
services boost its fee income.
On back of strong growth in the past and lower
branch network, core retail liabilities could not
keep pace with overall growth, led to muted
CASA ratios and higher proportion of bulk
deposits. While liability profile is weak, effective
ALM provides stability to margins in the range
of 2.8-3.1%
Diversified loans, higher proportion of working
capital loans, strong risk management practices
and superior recovery efforts have helped YES
to demonstrate above industry asset quality
performance. YES is operating at almost NIL
NPAs
1QFY12: Diversified fee income - a key strength; asset quality performance best in the industry
Management's cautious stance of not growing
in an unfavorable environment and focus on
margins is leading to moderation in business
growth. YES targets a growth of 35% CAGR
over FY11-15.
Yes Bank's bottomline is evenly distributed
between income from lending & borrowing
activities and fee income. Given its access to
superior technology and highly skilled manpower,
the bank is able to offer new product and
services boost its fee income.
On back of strong growth in the past and lower
branch network, core retail liabilities could not
keep pace with overall growth, led to muted
CASA ratios and higher proportion of bulk
deposits. While liability profile is weak, effective
ALM provides stability to margins in the range
of 2.8-3.1%
Diversified loans, higher proportion of working
capital loans, strong risk management practices
and superior recovery efforts have helped YES
to demonstrate above industry asset quality
performance. YES is operating at almost NIL
NPAs
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Proven execution track record; Growth at 2x the industry
Peaking of interest rates a key trigger; Earnings CAGR at ~25%
Yes Bank's (YES) key strengths are (1) capable, incentive-driven top management team, and
(2) relationship-based business strategy. Under the leadership of Mr Rana Kapoor, the bank posted
significantly-above-industry loan and PAT CAGR of ~70% over FY06-11. YES's asset quality is the best
in the industry with near zero net NPA's. Earnings traction is expected to remain strong with 25%
CAGR over FY11-13 and RoEs at 22%+ during the same period.
Above industry growth rates; market share gain to continue: YES's market share is low at 0.8% as
of 1QFY12. It aims to increase market share by 10bp every year until FY15 and grow its loan book at 2x
the industry growth rate. During FY06-11, YES posted loan CAGR of 70% v/s 20% CAGR for the industry.
In the near term, corporate loans (especially mid market segment) will continue to drive growth.
Margins to remain in the range of 2.8-3.1%: YES is a predominantly wholesale funded bank; however
it has a well matched ALM profile to cushion the interest rate risk. About 95% of YES's loans are either
PLR/Base Rate-linked or have duration of less than a year, which provides YES flexibility to pass on
increased costs and limit moderation in NIMs in a tight liquidity scenario. Nevertheless, expected fall in
interest rates will be beneficial for YES as 80% of its deposits are bulk in nature.
Rapid expansion in branch network: As of 1QFY12, YES had 255 operational branches. It aims to
scale up the number of its branches to 350 by 1QFY13 and to 750 by FY15. Over FY08-1QFY12, branch
network is up almost 4x. Expect CASA ratio to also increase from the current 10% to 14% by FY13.
Superior asset quality performance: As of 1QFY12, YES's GNPA ratio was 17bp and PCR was 95%,
(including specific provisions of 404%), and restructured loans were just 26bp of loans, demonstrating
above industry asset quality. Since inception to date, YES's GNPA ratio remained lower than 30bp (except
68bp in FY09). Going forward, GNPAs are likely to remain lower than 40bp.
Strong play on peaking rates; valuation attractive: Rapid branch expansion, acquisition of new
customers and deepening of existing customer relationships will ensure that YES's asset growth is higher
than that of the industry. Expected fall in interest rates augurs well for YES. RoA is expected to remain
healthy at 1.3%+ and RoE at ~23% over FY11-13. We maintain Buy with a price target of INR360.
Loan growth to be ~2x the industry; branch network doubled in last two years
YES, which started operations in a highly
competitive business environment, has been able
to increase its share in total loans in the system
from just 7bp in FY05 to 80bp as of 1QFY12.
Capitalizing on its niche presence of knowledge
banking and increased focus on small and mid
corporate segment, we expect growth to remain
strong at 2x of the industry.
Under its version 2, YES has kept "Reach and
liability franchise" as key growth drivers. Bank
is effectively utilizing current moderation in
macroeconomic environment to build branch
network for the next growth phase. As the
branch network has reached the inflection point
we expect CASA and fees to accelerate fast.
The bank has already opened its flagship
branches in all the major cities of India and now
focuses mainly on mid-size branches, most of
which will be opened in North and West India.
Efficient utilization of branch license will help
to grow its CASA base
Despite an wholesale funded entity and low
CASA ratio, NIMs have remained in the narrow
band of 2.8-3.1% across the cycle for the bank
led by strong ALM.
YES, which started operations in a highly
competitive business environment, has been able
to increase its share in total loans in the system
from just 7bp in FY05 to 80bp as of 1QFY12.
Capitalizing on its niche presence of knowledge
banking and increased focus on small and mid
corporate segment, we expect growth to remain
strong at 2x of the industry.
Under its version 2, YES has kept "Reach and
liability franchise" as key growth drivers. Bank
is effectively utilizing current moderation in
macroeconomic environment to build branch
network for the next growth phase. As the
branch network has reached the inflection point
we expect CASA and fees to accelerate fast.
The bank has already opened its flagship
branches in all the major cities of India and now
focuses mainly on mid-size branches, most of
which will be opened in North and West India.
Efficient utilization of branch license will help
to grow its CASA base
Despite an wholesale funded entity and low
CASA ratio, NIMs have remained in the narrow
band of 2.8-3.1% across the cycle for the bank
led by strong ALM.
Management's cautious stance of not growing
in an unfavorable environment and focus on
margins is leading to moderation in business
growth. YES targets a growth of 35% CAGR
over FY11-15.
Yes Bank's bottomline is evenly distributed
between income from lending & borrowing
activities and fee income. Given its access to
superior technology and highly skilled manpower,
the bank is able to offer new product and
services boost its fee income.
On back of strong growth in the past and lower
branch network, core retail liabilities could not
keep pace with overall growth, led to muted
CASA ratios and higher proportion of bulk
deposits. While liability profile is weak, effective
ALM provides stability to margins in the range
of 2.8-3.1%
Diversified loans, higher proportion of working
capital loans, strong risk management practices
and superior recovery efforts have helped YES
to demonstrate above industry asset quality
performance. YES is operating at almost NIL
NPAs
1QFY12: Diversified fee income - a key strength; asset quality performance best in the industry
Management's cautious stance of not growing
in an unfavorable environment and focus on
margins is leading to moderation in business
growth. YES targets a growth of 35% CAGR
over FY11-15.
Yes Bank's bottomline is evenly distributed
between income from lending & borrowing
activities and fee income. Given its access to
superior technology and highly skilled manpower,
the bank is able to offer new product and
services boost its fee income.
On back of strong growth in the past and lower
branch network, core retail liabilities could not
keep pace with overall growth, led to muted
CASA ratios and higher proportion of bulk
deposits. While liability profile is weak, effective
ALM provides stability to margins in the range
of 2.8-3.1%
Diversified loans, higher proportion of working
capital loans, strong risk management practices
and superior recovery efforts have helped YES
to demonstrate above industry asset quality
performance. YES is operating at almost NIL
NPAs
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