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Yes Bank 3QFY2013 performance highlights and results update

Contributed by Angel Broking

During 3QFY2013, Yes Bank reported a strong performance, posting a net profit growth of 34.7% yoy, exceeding our estimates, due to higher-than-estimated growth in non-interest income, contributed largely by ‘financial advisory’ fees. Key positive takeaways from the results were strong momentum in savings deposits, maintenance of healthy asset quality and strong loan growth during the quarter.

NIMs improve on lower cost of funds: During 3QFY2013, the bank registered a healthy growth in its business, as advances and deposits grew by 22.3% and 20.2% yoy, respectively. CASA deposits grew by 74.9% yoy, thereby taking its CASA ratio to 18.3% from 12.6% as of 3QFY2012. Savings deposits quadrupled on a yoy basis and rose by 26.5% qoq to Rs.4,905cr. Cost of funds for the bank dipped by 20bp sequentially to 8.5%, on account of the significant traction in savings deposits and easing of wholesale rates. Hence, the NIMs improved by 10bp qoq to 3.0%. Importantly, the management informed that they have received 146 tier-I branch licenses for this year vs. 56 in the previous year, which is expected to keep the bank well on track to meet its version2.0 branches, CASA, and other growth targets. The bank’s non-interest income grew strongly by 48.1% yoy to Rs.313cr, largely on account of substantial growth witnessed in financial advisory and retail fee income streams. The fee income from financial advisory segment (which is largely linked to deal closures during the quarter) more than doubled on a yoy basis. On the asset quality front, the bank witnessed sequential improvement, with the gross and net NPA ratio coming down by 7bp and 1bp to a marginal 0.17% and 0.04%, respectively. As per the Management, on the Deccan Chronicle account, till now the bank has already provided roughly 80% of the net exposure. The management expects to recover ~10-15% of the net exposure over the next two quarters and eventually ~20-25% over the next four quarters, which would lead to release of some provisioning already made to the extent of extra recovery.

Outlook and valuation: Yes Bank has taken the challenge of building a retail deposit base head-on, nearly doubling its branch network over the past two years to 412 branches now and aggressively increasing savings rate to 7% as a smart customer-acquisition strategy. In our view, the bank is in a sweet spot, wherein retail franchise growth is likely to remain strong as large banks cede some market share to it rather than offering higher savings rates to their entire customer base. Though retail growth prospects appear stronger now, it currently trades at a valuation of 2.6x FY2014E ABV, which in our view, offers decent upside from current levels. Hence, we recommend Accumulate on the stock with a target price of Rs.576.