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Yes Bank
Performance Highlights
Particulars (` cr) NII Pre-prov. profit PAT 3QFY12 428 399 254 2QFY12 386 386 235 % chg (qoq) 10.9 3.3 8.1 3QFY11 323 311 191 % chg (yoy) 32.3 28.1 32.9
ACCUMULATE
CMP Target Price Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Banking 11,482 1.4 341/231 3,28,788 10 17,234 5,092 YESB.BO YES@IN
For 3QFY2012, Yes Bank reported a strong performance. Net profit grew by 32.9% yoy (8.1% qoq) to `254cr, above our estimate of `234cr. Profit growth was driven by healthy growth in operating income and lower-than-expected provisioning expenses. The robust traction in saving account deposits and maintenance of healthy asset quality profile were the key positive takeaways from the results. We maintain our Accumulate rating on the stock. Business growth picks up a bit, CASA traction strong and stable asset quality: The banks business growth picked up a bit during the quarter as compared to 2QFY2012. Advances grew by 15.3% yoy (4.9% qoq) and deposits grew by a rather healthy 19.5% yoy (6.5% qoq). CASA deposits accretion was robust at 22.2% qoq and 46.5% yoy. The bank had aggressively hiked the saving account interest rates immediately post the de-regulation which helped the bank in strengthening the weak link in its liability franchise. Saving account deposits growth was a robust 40% qoq and almost 100% on a yoy basis, consequently the CASA ratio improved by a substantial 162bp qoq to 12.6%. Reported NIM declined albeit by a marginal 10bp to 2.8%. The rise in cost of funds (30bp qoq) was only partly compensated by the 20bp qoq rise in yield on advances. The bank maintained its strong asset quality profile during the quarter as well, with gross NPA ratio declining by 10bp qoq to 0.2% and the net NPA ratio remaining stable sequentially at a marginal 0.04%. Provision coverage ratio (excluding technical write-offs) also remained stable sequentially at 80%.
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 26.3 9.7 50.7 13.4
3m (0.3) 5.8
Outlook and valuation: Yes Banks growth premium has reduced over time due
to execution challenges (now trading at 2.0x due to cyclical slowdown vs. five-year median of 2.5x). However, taking the challenges of building a retail deposit base head-on, the bank has more than doubled its branch network over the past 18 months to 331 branches and aggressively increased savings rate to 7% as a customer acquisition strategy. While it has fallen short of its retail expansion goals in the past and challenges remain significant, valuations at 2.0x FY2013E ABV in our view provide a reasonable upside from current levels. Hence, we maintain
FY2010 788 54.1 478 57.2 2.8 14.1 23.2 3.6 1.6 20.3
FY2011 1,247 58.2 727 52.2 2.7 20.9 15.6 3.0 1.5 21.1
FY2012E 1,621 30.0 973 33.7 2.6 28.0 11.6 2.4 1.5 23.0
FY2013E 1,928 18.9 1,048 7.8 2.6 30.2 10.8 2.0 1.4 20.6
Vaibhav Agrawal
022 3935 7800 Ext: 6808 vaibhav.agrawal@angelbroking.com
Shrinivas Bhutda
022 3935 7800 Ext: 6845 shrinivas.bhutda@angelbroking.com
Varun Varma
022 3935 7800 Ext: 6847 varun.varma@angelbroking.com
3QFY12 2QFY12 % chg (qoq) 3QFY11 % chg (yoy) 1,684 1,173 506 5 1 1,256 428 211 48 81 64 19 639 240 122 118 399 22 376 122 254 32.5 1,439 1,032 398 4 5 1,053 386 214 41 98 61 14 600 214 110 104 386 38 348 113 235 32.5 17.1 13.7 27.1 17.6 (87.8) 19.3 10.9 (1.2) 17.8 (17.6) 4.9 30.8 6.6 12.4 10.7 14.1 3.3 (41.0) 8.2 8.3 8.1 4bp 1,126 818 299 7 2 803 323 162 41 54 50 17 485 174 90 83 311 25 286 95 191 33.2 49.5 43.4 69.0 (30.6) (72.2) 56.5 32.3 30.8 17.8 50.7 28.3 7.5 31.8 38.4 34.7 42.3 28.1 (10.4) 31.5 28.6 32.9 (73)bp
Var. (%) 4.5 5.1 4.7 5.7 4.1 (40.5) 8.9 9.1 8.8
3QFY12 2QFY12 % chg (qoq) 3QFY11 % chg (yoy) 35,868 46,929 76.4 5,914 12.6 16.1 9.2 12.4 8.9 2.8 37.6 72 0.2 14 0.04 80.0 34,194 44,076 77.6 4,839 11.0 16.0 9.4 12.2 8.6 2.9 35.6 69 0.3 14 0.04 80.2 4.9 6.5 (115)bp 22.2 162bp 12bp (20)bp 20bp 30bp (10)bp 194bp 4.7 (10)bp 5.6 0bp (18)bp 31,112 39,453 78.9 4,037 10.2 18.2 10.4 10.0 7.1 2.8 35.8 73 0.2 17 0.1 76.1 15.3 18.9 (243)bp 46.5 237bp (212)bp (120)bp 240bp 180bp 0bp 178bp (1.1) (3)bp (17.1) (2)bp 387bp
66.3
54.8
26.1
12.7
79.0
71.4
44.1
10.2
15.3
18.9
CASA deposits accretion was robust at 22.2% qoq and 46.5% yoy. The bank had aggressively hiked the saving account interest rates immediately post the deregulation which helped the bank in strengthening the weak link in its liability franchise. Saving account deposits growth was a robust 40% qoq and almost 100% on a yoy basis. Consequently, the CASA ratio improved by a substantial 162bp qoq and 237bp yoy to 12.6%. The share of non-wholesale (CASA and
January 27, 2012
branch banking deposits) has now risen to 31% of total deposits, thereby reducing the banks dependence on higher costing bulk corporate deposits. During the quarter, the bank opened 26 branches (taking the network size to 331 branches) and recruited ~300 new employees.
12.6
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
2.9 2.8
2.8
2.6
Exhibit 10: Overall fee income growth remains healthy at 30.8% yoy
Particulars (` cr) Financial markets Financial advisory Transaction banking Retail and others Other income
Source: Company, Angel Research
3QFY12 2QFY12 % chg (qoq) 3QFY11 % chg (yoy) 48 81 64 19 212 41 98 61 14 214 17.8 (17.6) 4.9 30.8 (1.2) 41 54 50 17 162 17.8 50.7 28.3 7.5 30.8
4QFY11
1QFY12
1.4
1.2
1.0
6.8
6.6
6.6
6.9
10.0
5.0
10.4
9.7
9.6
9.4
9.2
Investment arguments
A-list management and ability to raise capital
Yes Bank has an A-list top management team, which brings to the table rich experience from the best banks in India, including Bank of America, ABN AMRO, Citibank, ICICI Bank, Rabo India and HDFC Bank. The banks performance also benefits from managements ability to raise equity capital (at increasing, book-accretive premiums).
provision coverage ratio even without inclusion of technical write-offs remained healthy at 80% in 3QFY2012.The bank has also been astute in
managing its growth rate and asset-liability durations in-line with the changing external environment.
Investment concerns
Medium-term downside risks to RoAs
The banks credit market share has steadily increased on the back of a robust credit CAGR of 53.9% over FY2008-11, which at 0.9% represents an increasingly meaningful market share. The bank has so far managed to source loans with relatively above-average profitability, keeping its NIM above 2.7% since FY2009, in spite of just 12.6% CASA ratio. Going forward though, as the size of the balance sheet increases, we believe RoA compression remains a risk to the bank. Having said that the recent deregulation of saving account interest rates and the consequent strong accretion of SA deposits for Yes Bank is likely to aid in maintaining the margins.
However, taking the challenges of building a retail deposit base head-on, the bank has more than doubled its branch network over the past 18 months to 331 branches and aggressively increased savings rate to 7% as a customer acquisition strategy. While it has fallen short of its retail expansion goals in the past and challenges remain significant, valuations at 2.0x FY2013E ABV in our view provide a reasonable upside of ~12% from current levels. Hence, we maintain our
Accumulate recommendation on the stock with a target price of `367. Exhibit 15: Key assumptions
Particulars (%) Credit growth Deposit growth CASA ratio NIMs Other income growth Growth in staff expenses Growth in other expenses Slippages
Source: Angel Research
Earlier estimates FY2012 18.0 18.0 11.7 2.5 26.5 28.5 28.5 0.3 FY2013 19.0 21.0 13.2 2.5 19.0 30.0 30.0 0.5
Revised estimates FY2012 16.0 16.0 12.1 2.6 30.6 34.0 34.0 0.2 FY2013 19.0 21.0 13.8 2.6 18.3 30.0 30.0 0.4
Earlier estimates
1,579 789 2,368 874 1,494 117 1,377 447 930
FY2012 FY2013 Revised Revised Earlier Var. (%) Var. (%) estimates estimates estimates
1,621 814 2,435 911 1,524 84 1,440 467 973 2.7 3.2 2.8 4.3 2.0 (28.1) 4.6 4.6 4.6 1,861 939 2,800 1,136 1,664 172 1,492 484 1,008 1,928 962 2,891 1,184 1,706 155 1,551 503 1,048 3.6 2.5 3.3 4.3 2.5 (9.8) 4.0 4.0 4.0
Dec-05
Aug-07
Mar-07
Dec-10
Apr-09
Jul-05
Oct-06
Jul-10
Oct-11
Nov-08
May-06
FY2011-13E EPS CAGR (%) 18.2 16.2 30.4 19.2 13.5 20.1 9.6 (4.8) 9.8 0.1 26.3 (7.0) (24.3) (1.8) 2.4 9.9 3.8 7.1 14.9 (7.4) 7.3 26.0 13.7 10.9 (0.3) 4.3 4.1
FY2013E RoA (%) 1.5 1.2 1.8 1.3 0.9 1.4 0.9 0.8 1.1 0.6 0.7 0.8 0.4 0.8 0.8 0.7 1.2 0.5 1.4 0.7 1.0 0.8 0.7 0.6 0.7 0.6 0.5
May-11
FY2013E RoE (%) 20.2 13.2 21.0 14.4 17.5 20.6 17.6 14.6 19.3 13.3 16.9 15.8 11.4 15.5 14.9 13.4 18.4 13.0 18.6 11.1 19.7 17.9 16.5 15.4 15.4 12.1 11.6
Source: Company, Angel Research; Note:*Target multiples=SOTP Target Price/ABV (including subsidiaries), Without adjusting for SASF
Mar-12
Sep-09
Feb-10
Jan-08
Jun-08
Income statement
Y/E March (` cr) Net Interest Income - YoY Growth (%) Other Income - YoY Growth (%) Operating Income - YoY Growth (%) Operating Expenses - YoY Growth (%) Pre - Provision Profit - YoY Growth (%) Prov. & Cont. - YoY Growth (%) Profit Before Tax - YoY Growth (%) Prov. for Taxation - as a % of PBT PAT - YoY Growth (%) FY07 171 94.6 201 101.1 372 98.0 194 124.7 179 75.4 35 101.3 144 49 34.3 94 FY08 331 92.9 361 79.7 691 85.8 341 76.3 350 96.0 44 24.9 306 106 34.7 200 FY09 511 54.6 435 20.6 946 36.9 419 22.7 528 50.7 62 41.6 466 52.0 162 34.8 304 51.9 FY10 788 54.1 576 32.3 1,363 44.1 500 19.5 863 63.6 137 121.6 726 55.9 249 34.2 478 57.2 FY11 1,247 58.2 623 8.3 1,870 37.2 680 35.9 1,190 37.9 98 (28.2) 1,092 50.3 365 33.4 727 52.2 FY12E 1,621 30.0 814 30.6 2,435 30.2 911 34.0 1,524 28.0 84 (14.1) 1,440 31.8 467 32.4 973 33.7 FY13E 1,928 18.9 962 18.3 2,891 18.7 1,184 30.0 1,706 12.0 155 83.9 1,551 7.8 503 32.4 1,048 7.8
70.1 113.3
70.4 111.9
Balance sheet
Y/E March (` cr) Share Capital Reserves & Surplus Deposits - Growth (%) Borrowings Tier 2 Capital Other Liab. & Prov. Total Liabilities Cash Balances Bank Balances Investments Advances - Growth (%) Fixed Assets Other Assets Total Assets - Growth (%) FY07 280 507 8,220 182.5 867 479 750 11,103 390 903 3,073 6,290 161.3 71 377 11,103 166.7 FY08 296 1,023 13,273 61.5 986 728 677 16,982 959 668 5,094 9,430 49.9 101 730 16,982 52.9 FY09 297 1,327 16,169 21.8 2,189 1,513 1,405 22,901 1,278 645 7,117 12,403 31.5 131 1,327 22,901 34.8 FY10 340 2,750 26,799 65.7 2,564 2,185 1,745 36,383 1,995 678 10,210 22,193 78.9 115 1,191 36,383 58.9 FY11 347 3,447 45,939 71.4 3,333 3,358 2,583 59,007 3,076 420 18,829 34,364 54.8 132 2,186 59,007 62.2 FY12E 347 4,298 53,289 16.0 5,743 3,895 2,912 70,485 3,464 1,410 22,985 39,862 16.0 153 2,611 70,485 19.5 FY13E 347 5,185 64,480 21.0 6,013 4,635 3,458 84,119 4,191 1,682 27,516 47,436 19.0 178 3,116 84,119 19.3
10
Ratio analysis
Y/E March Profitability ratios (%) NIMs Cost to Income Ratio RoA RoE B/S ratios (%) CASA Ratio Credit/Deposit Ratio CAR - Tier I Asset Quality (%) Gross NPAs Net NPAs Slippages Loan Loss Prov. /Avg. Assets Provision Coverage Per Share Data (`) EPS ABVPS (75% cover.) DPS Valuation Ratios PER (x) P/ABVPS (x) Dividend Yield DuPont Analysis NII (-) Prov. Exp. Adj. NII Treasury Int. Sens. Inc. Other Inc. Op. Inc. Opex PBT Taxes RoA Leverage RoE 2.2 0.5 1.8 0.1 1.9 2.5 4.4 2.5 1.9 0.6 1.2 11.2 13.9 2.4 0.3 2.0 0.4 2.5 2.1 4.6 2.4 2.2 0.8 1.4 13.3 19.0 2.6 0.3 2.3 0.7 3.0 1.4 4.4 2.1 2.3 0.8 1.5 13.6 20.6 2.7 0.5 2.2 0.3 2.5 1.6 4.1 1.7 2.5 0.8 1.6 12.6 20.3 2.6 0.2 2.4 (0.1) 2.3 1.4 3.7 1.4 2.3 0.8 1.5 13.9 21.1 2.5 0.1 2.4 0.0 2.4 1.2 3.6 1.4 2.2 0.7 1.5 15.3 23.0 2.5 0.2 2.3 0.0 2.3 1.2 3.5 1.5 2.0 0.7 1.4 15.2 20.6 96.7 11.6 48.2 7.3 31.9 6.0 23.2 3.6 0.5 15.6 3.0 0.8 11.6 2.4 0.9 10.8 2.0 1.2 3.4 28.1 6.8 44.6 10.2 53.9 14.1 1.5 20.9 2.5 28.0 3.0 30.2 4.0 91.0 109.3 133.8 159.4 0.1 0.0 0.2 0.0 80.0 0.7 0.4 0.9 0.3 48.5 0.3 0.1 0.9 0.3 78.4 0.2 0.0 0.2 0.1 88.6 0.2 0.0 0.2 0.1 88.6 0.2 0.0 0.4 0.2 88.5 5.8 76.5 13.6 8.2 8.5 71.0 13.6 8.5 8.7 76.7 16.6 9.5 10.5 82.8 20.6 12.9 10.3 74.8 16.5 9.7 12.1 74.8 16.6 9.9 13.8 73.6 16.6 9.9 2.3 52.0 1.2 13.9 2.5 49.4 1.4 19.0 2.7 44.2 1.5 20.6 2.8 36.7 1.6 20.3 2.7 36.3 1.5 21.1 2.6 37.4 1.5 23.0 2.6 41.0 1.4 20.6 FY07 FY08 FY09 FY10 FY11 FY12E FY13E
11
E-mail: research@angelbroking.com
Website: www.angelbroking.com
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
Yes Bank No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Returns):
12