Multi Baggers

Yes Bank

Yes Bank announced its audited results for quarter and full year ended Q4FY12 and FY12. The growth in top-line as well as bottom line came largely in line with our expectations.

Key Highlights

Net Profit up 33.6% YoY (7.0% QoQ) for Q4 FY12

The growth in profit was mainly driven by strong net income growth and lower provisioning. Net interest income grew by 28.6% YoY (4.8% QoQ) while growth in non-interest income stood at 42.6% YoY. The growth in NII was mainly driven by robust growth in customer assets (including credit substitutes) at 20.3% YoY (5.4% QoQ). Non-interest income growth was driven by strong growth in financial markets coupled with steady growth in financial advisory and retail fee income. Cost / Income ratio increased sharply by 493 bps YoY (219 bps QoQ) to 39.8% led by onetime expenses pertaining to bond issuances. Adjusted C / I ratio stood at 38.3%.

Reported NIMs remained stable both on YoY and QoQ basis at 2.8% as the increase in savings rate offering to the existing as well as new customers weighed on the overall cost of funds offsetting the cost benefit from the increased share of low cost CASA deposits.

Business growth gains momentum, strong uptick in CASA - total business of the bank grew by 8.5% YoY (5.2% QoQ) to Rs  871.4 bn. Advances grew (10.5% YoY, 5.9% QoQ) to Rs  379.9 bn, however including the credit substitutes advances grew healthy at 20.3% YoY (5.4% QoQ) to Rs 461.2 bn. The bank continues to prefer lower yield credit substitutes over advances owing to flat yield curve currently making it attractive. Besides this, it aide the bank to remain capital efficient as growth in credit substitutes primarily pertains to high rated corporates which attracts lower risk weights. Going forward, the management expects loan book (including credit substitutes) to grow by ~25.0% by FY13E. Deposits on the other hand grew by 7.0% YoY (4.7% QoQ). The bank witnessed strong uptick in CASA balance post deregulation of savings rate by RBI in October. The bank saw an uptick of 2.4% in CASA balance from 12.6% in Q3FY12 to 15.0% in the current quarter aided by ~108.2% growth in savings balances and ~3.8% QoQ growth in current account balances. The management expects the CASA share to reach 20% by FY13E.

Asset quality continues to be impressive with gross NPAs at 0.22% of gross advances and net NPA of 0.05%. Restructured advances during the quarter increased slightly from 0.49% of the advances to 0.53%.

The bank opened 25 new branches during the quarter (142 branches in FY12) taking the total number of branches to 356. Going forward, the management expects run rate of 125 branches per year with an upward bias for the next 2-3 years.

Outlook and Valuations

Yes bank reported strong Q4FY12 numbers with stable asset quality and strong fee income growth. However, continued reliance on credit substitutes kept the loan book growth tepid. The bank's stable asset quality, strong uptick in low cost CASA deposits, superior return ratios and adequate capitalization bodes well for its future growth. We believe the bank to be the biggest beneficiary of an easing interest rate cycle and deregulation of the savings bank rate. We estimate Yes Bank to report an EPS CAGR of 24.5% over FY12-FY14E. ABV is estimated to grow at 22.9% CAGR during the same period. The stock currently trades at 2.0x FY13E ABV and 1.6x FY14E ABV. We maintain our positive view on the stock and change our rating from Accumulate to BUY with a revised price target of Rs  398.5 (Rs  353.9 earlier), implying an upside potential of 22.1%.

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