Result Update on Yes Bank for 4QFY2011

For 4QFY2011, Yes Bank reported strong net profit growth of 45.2% yoy and 6.4% qoq to `203cr, above our estimates of `181cr on account of better-than-estimated increase in non-interest income and robust advances growth. Healthy operating performance and stable asset quality were the key positives of the result. We maintain our Accumulate recommendation on the stock.

Robust business growth with steady NIMs and asset quality: Advances and deposits grew by robust 54.8% yoy (10.5% qoq) and 71.4% yoy (16.4% qoq), respectively, compared to industry advances growth of 21.4% yoy (4.7% qoq) and deposits growth of 15.8% yoy (5.0% qoq). During the quarter, CASA ratio improved by 10bp qoq to 10.3%, while NIMs remained stable at 2.8%, leading to 7.8% qoq growth in NII to `349cr. Non-interest income increased by healthy 15.5% qoq and 16.6% yoy to `187cr mainly on account of strong traction in financial advisory and transaction banking income. During the quarter, the bank’s asset quality remained stable with gross and net NPA ratios at 0.23% and 0.03% (0.23% and 0.06% in 3QFY2011), respectively. In 4QFY2011, the bank opened 29 branches, taking its branch network to 214 branches. Management plans to take the branch network to 250 branches by 1QFY2012 and ~325 branches by the end of FY2012, with new branches directed towards improving its retail franchise.  

Outlook and valuation: Cyclically, with the increase in interest rates, the bank’s cost of funds is expected to rise at a faster rate (as witnessed in 4QFY2011 – 70bp qoq rise) due to the bank’s wholesale-based funding mix. Structurally, as the bank’s balance sheet continues to grow rapidly, we believe there may be downside risks to the bank’s RoA. The stock is trading at 2.1x FY2013E ABV.
We maintain our Accumulate recommendation on the stock with a target price of `355, based on a target multiple of 2.3x FY2013E ABV.