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Yes Bank Q3FY12 results update by Nirmal Bang

Contributed by Nirmal Bang

By Nirmal Bang

Yes Bank�'s performance for Q3FY12 was marginally above our estimates. The bank reported a net profit of Rs.254 crs in Q2FY12 resulting in a growth of 33.0% on a YoY basis and a QoQ increase of 8.8% resulting from lower provisioning.

- Loan book grows moderately
Yes Bank loan book grew at 15.3% YoY and 4.9% on a QoQ basis in Q3FY12. Out of the total advances portfolio, Corporate & Institutional Banking accounted for 63.4%, Commercial banking accounted for 21.4% and Branch Banking accounted for 15.2%. We have factored in loan growth of 17.7% and 30.6% for FY12E and FY13E respectively.

- CASA showed visible signs of improvement
The bank�'s CASA deposits showed improvement and increased by 46.5% YoY on absolute basis and 22.2% on QoQ basis. CASA as a % of total deposits increased from 11.0% in Q2FY12 to 12.6% in Q3FY12. We expect CASA ratio to be at 12.7% for FY12E and 14.0% for FY13E respectively.

- NIMs impacted by higher cost of funds
Interest earned increased by 17.1% on sequential basis resulting from higher base rate. However, higher cost of funds resulting from higher cost of deposits (+19.3% QoQ) impacted the NIMs of the bank. We expect NIMs to be at 2.6% for FY12E and then marginally improve to 2.7% for FY13E.

- Non�] interest income continues to grow YoY
Non Interest Income grew 30.8% to Rs 211.4 crs in Q3FY12 resulting from growth in Transaction Banking, Financial Advisory and Financial markets. However, on sequential basis, non interest income remained flat.

- Asset quality remains healthy on a consistent basis
Gross NPA increased 4.7% QoQ and declined 1.1% YoY to Rs.72 Crs in the quarter ended December 2011. The bank has restructured assets worth Rs. 175.7 crs as at December, 2011 which represents 0.49% of gross advances.

Valuation & Recommendation

Yes Bank has shown consistent performance and has been able to maintain its NIMs. Moreover, the bank is on track with its plans to expand in the retail and SME segment. The bank has also continued its focus on non interest income and has maintained superior profitability and return ratios (RoA of 1.5% for last 13 quarters and RoE at approximately 20% for the same period).

At the current price of Rs. 320, Yes Bank is trading at a PE of 12.15x of FY12E EPS & 9.6x of FY13E EPS and at an adjusted P/BV of 2.4x and 1.95x of FY12E & FY13E Adj BV respectively. We have a target price of Rs 342 on the stock. We believe that the upside is limited in near term and partial profit may be booked at current levels. However, long term outlook continues to remain positive.