Sunday, April 15, 2012

>YES BANK: Insulated from exposure to stress sectors

  Moving in-line with Version 2.0 targets
Yes Bank unveiled a plan, named Version 2.0, on 29th April 2010, wherein, it aimed to grow its Balance Sheet, Advances and Deposits at a CAGR of 32%, 35% and 36% over FY10-15 to INR 1500 bn, INR 1000 bn and INR 1250 bn respectively. As of Dec 2011, it has been able to grow the same at a CAGR of 45%, 32% and 38% to INR 711 bn, INR 359 bn and INR 469 bn respectively from FY10.

In the near term, the management is focussing more on asset quality and margin maintenance over growth. It aims to grow 500-750 bps higher than the system growth rates over the next couple of years aided by expanding distribution base and gaining market share. One of the biggest beneficiaries of savings rate deregulation Banking on the savings rate deregulation, Yes Bank was among the first banks to raise interest rates on savings accounts to 6% initially and later to 7%, resulting in 99.2% YoY and 40.0% QoQ growth in savings deposits in Q3FY12 (leading to 160 bps QoQ improvement in CASA ratio to 12.6%). It has successfully tapped
several salary accounts and the account opening rate has grown by ~4x the pre-deregulation regime (earlier it was attracting ~6000- 7000 customers a month, now it is almost at ~25,000 a month). The management remains confident on the traction that it has been witnessing on CASA mobilization and aims to improve its CASA ratio by ~1-1.5% each quarter for the next few quarters. The company is targeting a CASA ratio of 30% by FY15.

 Change in lending mix to improve yields
Yes Bank is looking to increase its presence in high yielding segment by targeting to tab more mid-sized corporate and SME/retail. It is aiming to change the proportion of large corporate, mid-sized corporate and SME/retail from 63%, 21% and 16% in Dec 11 to 40%, 30% and 30% of its total advances book in FY15. This would lead to improvement in yields, as yields in the mid-corporate and SME segment are higher by ~75 bps and ~150 bps respectively than
large corporate yields.

 NIMs to improve in long term
Yes bank expects NIMs to improve to ~3.6% by FY15 from 2.8% in Dec 11. This will be aided by improvement in yield on advances led by increased penetration in the mid corporate & retail segments and reduction in cost of deposits helped by rapid branch expansion (from 331 in Dec 11 to 750 by Mar 15) and sharp mobilization of low cost CASA deposits.

 Outlook & Valuation
Yes Bank has superlative asset quality and well diversified balance sheet mix. It has a strong track record of consistently delivering superior returns. The main focus areas of Yes Bank at this point of time are driving CASA deposits, growing fee income and branch expansion.
Currently the stock is trading at 2.9x its TTM BV of INR 129.5, which is reasonable for a bank that has grown its NII & Profit at a CAGR of 56% & 54% respectively over FY08-11. Asset quality of Yes Bank remains among the best in the industry with gross NPA of 0.20% and
also has one of the best return ratios (RoA of 1.5% and RoE of 23.0%).

To read report in detail: YES BANK