Visit http://indiaer.blogspot.com/ for complete details Highlights of Q2FY11 results
Yes Bank delivered strong set of results with PAT at Rs1.76bn (58% yoy growth); marginally ahead of our estimate of
~R1.7bn. The robust performance was driven by momentum in NII, in turn buoyed by stellar growth in business
volumes.
• Stellar NII growth, margins decline sequentially: NII grew by a robust 78% yoy and 19% qoq to Rs3.1bn in Q2FY11,
ahead of our estimates, driven by strong business volumes. Margins declined marginally by 10bp qoq to 3.0% from
3.1% in Q1FY11 as cost of funds increased by 40bp qoq to 6.70%. Yield on advances also declined by 10bp qoq to 9.5%
in Q2FY11. However yield on investments (calculated on average quarterly balances) increased by 39bp qoq which
mitigated the negative impact on margins. (Exhibit 1)
• Exponential credit growth continues: Advances grew by a strong 86% yoy to ~Rs303bn buoyed by the strong growth
in large corporate loans. Even after adjusting for short term telecom and BWA loans overall advances grew by a
strong 74% yoy in Q2FY11. The traction was led by agribusiness, engineering, infrastructure, technology and
healthcare segment which collectively constitutes ~80% of total advances as of Q2FY11.
• Strong growth in CASA deposits; ratio declines sequentially: Yes Bank’s CASA deposits increased at a rapid pace of
27% qoq. However term deposits grew by a faster pace of 33% qoq benefiting from higher one-off IPO inflow during
the quarter. Overall, deposits increased by 32% qoq and 107% yoy in Q2FY11. Thus CASA ratio declined sequentially
by 40bp to 10.1% from 10.5% in Q1FY11. Given the fast paced growth in deposits, CD ratio declined from 87% in
Q1FY11 to 76% in Q2FY11.
• Muted growth in other income: Yes Bank’s overall other income declined by 3% yoy to Rs1.3bn due lower fee from
treasury sales of Rs141m compared to Rs335m in Q2FY10. The bank also booked ~Rs150m as investment losses in the
quarter (including MTM). Growth in transaction banking fees also remained muted at 9% yoy rise, while financial
advisory fees increased by 13% yoy. Third party distribution fees increased by 37% qoq and 43% yoy – benefiting
from a low base. (Exhibit 3)
• Cost ratios remain under leash: Operating costs increased by 36% yoy (4% qoq), owing to aggressive hiring (~592
employees added in Q2) and network expansion carried out by the bank. However, given the fast paced growth in
revenue, cost to income ratio declined to 36.6% (decline of 200bp qoq). The bank had received 91 new branch licenses
in Q1FY11 out of which 18 were rolled out in this quarter. Overall, the management plans to take the branch network
to ~250 by June 2011. While this might lead to higher costs in the near term, we expect revenue growth to outpace
costs and see cost to income ratio remaining stable at 36% over FY11-12.
• Strong asset quality: Gross NPAs have remained flat sequentially at 0.22% as against 0.23% in Q1FY11 - a rise of
Rs80m qoq in absolute terms. Net NPAs have also remained largely stable at 0.06% (0.04% in Q1FY11 and 0.08% in
Q2FY10). Cumulative restructured loans remained a negligible proportion and declined 14% qoq to Rs690m (0.23% of
gross advances) in Q2FY11. Coverage ratio (excluding write-offs) came in at 75%, down from 81% in Q1FY11. The
management indicated that slippages in the quarter remained low at ~Rs250m.
• Capital position healthy: Aided by the Rs2.3bn of perpetual tier I capital raised during the quarter, tier I ratio
increased from 10.3% in Q1FY11 to 11% in Q2FY11. The bank also raised Rs9.5bn of tier II capital (Rs4.4bn of upper
tier II subordinated debt, Rs2bn of upper tier II 15 year maturity, Rs3.1bn of lower tier II debt) resulting in an
expansion of tier II ratio to 8.4% in Q2FY11 from 6.3% in Q1FY11. Overall CAR stood at a strong 19.4% compared to
16.6% witnessed in Q1FY11.
Valuations & View
Yes Bank delivered a strong performance driven by exponential credit growth and stellar net interest income. While
asset growth continues to be robust, comfortable capital adequacy and traction in deposits offer comfort on the bank’s
ability to grow at a brisk pace. Though fee income remained sluggish, it’s expected to gain traction on back of
buoyant capital markets and continued traction in credit. Additionally, a clean asset book with elevated coverage ratio
is likely to restrict provision expenses in the future. Owing to higher than expected momentum in loans and strong
NII, we are upgrading our earnings estimate by 8.3% for FY11 and 9.6% for FY12. Going forward, we expect strong
growth outlook and earnings expansion (44% CAGR over FY10-12E) to drive stock performance. The stock is currently
trading at 3.2x FY11E and 2.6x FY12E P/BV. Reiterate Outperformer with a 12 month price target of Rs440 (3.3x FY12E
adjusted book).
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