Stock Market Result Update on Yes Bank for 2QFY2012

Stock Market Result Update on Yes Bank for 2QFY2012 with an Accumulate recommendation and a Target Price of `324 (12 months).

For 2QFY2012, Yes Bank reported a strong performance. Net profit grew by 33.3% yoy (8.8% qoq) to `235cr, above our estimate of `216cr. Profit growth was driven by 10bp increment in NIM and strong non-interest income, which registered 63.4% yoy growth. The bank continued with its strategy of slower balance sheet growth in 2QFY2012 to manage margins and risks in the current environment. We maintain our Accumulate rating on the stock.

Business growth moderates; steady NIM and strong asset quality: The bank continued with its strategy of slower balance sheet growth in 2QFY2012 to manage margins and risks in the current environment. Advances grew by 12.7% yoy (3.3% qoq) and deposits grew by 10.2% yoy (1.1% qoq). CASA deposits accretion remained healthy at 19.7% yoy (almost flat qoq). The bank managed to increase its CASA ratio marginally by 4bp qoq to 11.0% due to the relative slower deposit growth. Reported NIM rose by 10bp qoq to 2.9% as yield on advances grew by 60bp to 12.2%. Higher yield on advances was supported by the 51.3% qoq growth in credit substitutes to `6,566cr. Thus, NII posted healthy growth of 23.1% yoy. The bank witnessed some weakening in NPA ratios in 2QFY2012; however, gross NPA ratio at 0.3% (0.2% in 1QFY2012) and net NPA ratio at 0.04% (0.01% in 1QFY2012) continued to be the best in the industry. 

Outlook and valuation: Structurally, we believe there may be downside risks to the bank’s RoA as Yes Bank’s balance sheet continues to grow rapidly. On the liabilities side, building a savings deposit franchise involves execution risks. On the positive side, the bank has doubled its branch network over the last 18 months to 305 branches. Also, we believe we are very close to the peak of the current interest rate cycle; and as liquidity has improved compared to the extreme tightness during the last few quarters, the environment is expected to be relatively more conducive for banks such as Yes Bank. The stock is trading at 1.8x FY2013E ABV. We maintain our Accumulate recommendation on the stock with a target price of `324.