Yes Bank- Mixed quarter: Macquarie Research,

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Yes Bank
Mixed quarter
Event
 Yes Bank reported 2Q12 PAT of Rs2.4bn up 33%YoY and 6% above our
estimates. The surprise was mainly due to stronger than expected fees
growth. We retain Outperform.
Impact
 Loan growth including credit substitutes healthy. Loan growth including
credit substitutes (basically corporate bonds and commercial paper) grew at
27%YoY. Management indicated that larger clients preferred corporate bonds
rather than loans, given higher loan rates. The loan book itself grew by
~13%YoY, which management expects to accelerate to 25% by end of FY12E.
 Margins increased 10bp QoQ. Net interest margins were up 10bp QoQ to
2.9%, in line with our estimates. The key driver was loan repricing, as loan
yields increased 60bp QoQ. We expect the bank to be able to maintain the
current margin levels for FY12.
 CASA growth was disappointing, being virtually flat in the quarter.
 Non interest income enjoyed a strong quarter. Non interest income grew
63% YoY and was the key driver for surprise. Income from financial markets
including forex income nearly doubled YoY, while financial advisory, the biggest
component of non-interest income, was up 54% driven by debt syndication fees.
According to management, the deal pipeline remained strong.
 Micro finance restructurings were in this quarter. Three MFI accounts
were restructured by Yes this quarter, amounting to Rs900m. Management
believes it has adequately provided for these assets. Restructured assets
constitute 0.5% of total loan book, one of the best in our coverage universe.
 Gross NPLs were up 23%QoQ on a small base but coverage remained
comfortable at 80%.Delinquencies this quarter were very low at 0.2% of loans.
 Given the adverse capital market conditions, management does not have any
immediate plans to raise capital. We have not build in any capital raising in
our numbers for FY12E.
Earnings and target price revision
 No change.
Price catalyst
 12-month price target: Rs380.00 based on a Gordon growth methodology.
 Catalyst: pick up in loan growth in 2HFY12E
Action and recommendation
 Given the return ratios, valuations remain attractive. Maintain OP