YESBANK

Accumulate YES BANK; target of Rs 354

Yes Bank announced its unaudited results for Q3FY12. The growth in top-line as well as bottom line came above our expectations on account of lower than estimates credit costs.

Net Profit after tax for the current quarter increased 32.9% YoY mainly driven by strong net income growth. Net interest income grew by 32.3% YoY (10.9% QoQ) while growth in non-interest income stood at 30.8% YoY. The growth in NII was mainly driven by robust growth in customer assets (including credit substitutes) at 28.1% YoY (7.3% QoQ). Non Interest Income was up on the back of strong growth in Financial Advisory (50.6% YoY), Financial Markets (17.7% YoY), and Transaction Banking (28.3% YoY) business streams.

Total Business of the bank grew by 17.3% YoY (5.8% QoQ) to Rs 828.0 bn. Advances grew (15.3% YoY, 4.9% QoQ) to Rs 358.7 bn, however including the credit substitutes advances grew healthy at 28.1% to Rs 437.5 bn. The bank has witnessed strong traction in SME and retail portfolio which currently constitutes 15.1% of the total loan book. During the quarter the bank has introduced six retail asset products including auto loans, CV financing, home loans, etc to enhance its product proposition for retail. Going forward, the management expects loan book (excluding credit substitutes) to grow by ~20.0%. Deposits on the other hand grew by 19.0% YoY (6.5% QoQ). The bank witnessed strong uptick in CASA balance post deregulation of savings rate by RBI in October. The bank saw an uptick of 1.6% in CASA balance from 11.0% in Q2FY12 to 12.6% in the current quarter aided by ~18% QoQ growth in current account balances and ~40.0% growth in savings balances. We expect CASA ratio to improve to 13.4% by FY12E and to 16.4% by FY13E. NPAs continue to be impressive with gross NPAs at 0.2% of gross advances and net NPA of 0.04%. Besides this, restructured advances remained unchanged sequentially at Rs 1.75 bn (0.49% of the advances) in the current quarter. The bank has seen rating upgrades for the corporates to which it has exposure, reflecting the superior quality of the loan book. The management is confident of maintaining the asset quality at current levels.

Yes bank reported strong Q3FY12 numbers with stable asset quality and strong fee income growth. We have raised our earnings estimates by 2.6% and 2.8% for FY12E and FY13E respectively. The bank's stable asset quality, strong uptick in low cost CASA deposits, superior return ratios and adequate capitalization bodes well for its future growth. We estimate Yes Bank to report an EPS CAGR of 26.3% over FY11-FY13E. ABV is estimated to grow at 21.9% CAGR during the same period. The stock currently trades at 2.4x FY12E ABV and 2.0x FY13E ABV. We maintain our positive view on the stock and recommend Accumulate rating with a revised price target of Rs353.9 (Rs345.0 earlier), implying an upside potential of 10.8%.

 

Accumulate Yes Bank; target Rs 338

For 3QFY2012, Yes Bank reported 32.9% yoy (8.1% qoq) growth in its net profit to Rs 2.54 billion, above our estimates, mostly due to lower provisioning expenses than estimated by us. The bank`s NII grew by healthy 32.3% yoy to Rs 4.28 billion, while non interest income grew by 30.8% yoy, leading to operating income growth of 31.8% yoy to Rs 6.39 billion. Provisioning expenses for the bank fell by 10.4% yoy to Rs 220 million, leading to PAT growth of 32.9% yoy to Rs 2.54 billion.

The bank`s business gathered pace in 3QFY2012, with advances growing by 4.9% qoq and deposits growing by 6.5% qoq. The bank had raised its saving account rate to 6% (7% for savings deposit above Rs 1,00,000) post the deregulation, due to which the bank witnessed strong traction in saving account deposits. Saving account deposits grew by 40% qoq (99.2% yoy) to Rs 12.02 billion. Current account deposits also rose by healthy 14.5% qoq (37.2% yoy) to Rs 47.1 billion. Consequently, CASA ratio jumped from 11.0% as of 2QFY2012 to 12.6% as of 3QFY2012. The bank`s cost of funds increased by 30bp compared to a 20bp increase in yield on advances, leading to a 10bp qoq compression in reported NIM.

The bank continued to maintain a healthy asset quality in 3QFY2012, with gross NPA ratio of 0.2% and net NPA ratio of 0.04%. Provision coverage ratio also stood elevated at 80.0%. At the CMP, the stock is trading at valuations of 2.0x FY2013E ABV. We recommend an Accumulate rating on the stock with a target price of Rs 338. 

Hold YES BANK; target of Rs 342

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.

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. 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. 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 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.

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

 

Buy Yes Bank; target Rs 314

Private sector lender Yes Bank has raised the saving account interest rate for balance above Rs 1 lakhs to 7% from 6%. Yes bank, had earlier hiked saving deposit rates to 6% from 4% on October 25, on a day when the Reserve Bank of India announced to deregulate saving deposit rates. Kotak Mahindra Bank had also hiked saving deposit rates to 6%.

We do not expect larger banks to follow suit since Yes bank`s smaller distribution risk does not pose threat to the bigger bank`s market share. However the development is positive for Yes Bank as it will help garner CASA deposits which will be at cheaper cost anyways as compared to its wholesale borrowings. At the CMP, Yes Bank is trading at 1.6x FY2013E ABV. We maintain our `Buy` recommendation on the stock with a target price of Rs 314.

Accumulate Yes Bank; target Rs 325

Asset quality: 2008-09 cycle a test:

Yes Bank has delivered rapid growth post Lehman, with 70% growth between FY09-11 which raises asset quality risks in the current environment, especially its SME exposure. Though we expect credit costs to move up to 70bps over FY11-13E, we do not expect large negative surprises given (1) <1% exposure to power projects limiting risks of lumpy slippages and (2) 2008-09 cycle was an asset quality test for Yes after rapid growth over FY06-09 and low delinquency trends in that cycle provides confidence on underwriting and asset quality.

High ROEs consistently:

Yes Bank has maintained ROEs >20% even in years of equity issuance. Yes` high ROE is a combination of stable margin, low opex and credit costs We expect ROAs to remain >1.5% despite expected increase in credit costs as higher than balance sheet growth in fees would help to offset some credit costs pressure.

Limiting factor still to build on the retail franchise:

The only limiting factor for further re-rating is unproven retail liability franchise. CASA growth has kept pace with high B/S growth but that is of a very low SA base. Building on a liability franchise would be an uphill task with retail brand acceptability being a much more difficult task than building a corporate banking franchise. SA deregulation is a very positive development and better branch penetration should aid in improving the retail franchise.

Accumulate; PT of Rs 325/ share:

Our Sep-12 PT of Rs 325/ share based on twostage Gordon growth implies 15% upside from current levels and more potential upside if Yes is able to deliver on its retail strategy. Slow growth could impact banks like Yes which are significantly adding to branch presence but it is also an opportunity to consolidate and build on retail franchise.

Buy Yes Bank; target Rs 355

Yes Bank has posted a net profit of Rs 2,350.2 million for the quarter ended Sept. 30, 2011 as compared to Rs 1,762.6 million for the quarter ended Sept. 30, 2010, reflecting an increase of 33.34%. Total income has increased from Rs. 10,847.9 million for the quarter ended September 30, 2010 to Rs. 16,527 million for the quarter ended September 30, 2011, representing a surge of 52.35%. The EPS of the bank is stood at Rs.6.69 for the quarter ended Sep 2011.

Gross NPAs and Net NPAs were at 0.20% & 0.04%, respectively as of Sept 30, 2011compared to 0.22% Gross NPA and 0.06% Net NPA as of Sept 30, 2010. Restructured advances (excluding NPAs) stand at Rs 1,755 million (0.51% of Gross

Advances) as at Sept 30, 2011.

Total Advances grew by 12.7% to Rs 34,1941 crore as at September 30, 2011 from Rs.30,348.1 crore as at September 30, 2010. Total Deposits grew by 10.2% to Rs. 44,075.9 crore as at September 30, 2011 from Rs 40, 013.7crore as at September 30, 2010. Current and Savings Account (CASA) ratio remained stable at 11.0% as of September 30, 2011 with CASA deposits at Rs.4,838.8 crore.

At the current market price of Rs.314.20, the stock is trading at 11.75 x FY12E and 9.93 x FY13E respectively. Earning per share (EPS) of the bank, the earnings for FY12E and FY13E is seen at Rs.26.74 and Rs.31.64 respectively. Net income and PAT of the bank are expected to grow at a CAGR of 45% and 32% over 2010 to 2013E respectively. Price to Book Value of the stock is expected to be at 2.33 x and 1.89 x respectively for FY12E and FY13E. We recommend ‘BUY’ in this particular scrip with a target price of Rs 355 for medium term investment.

Buy YES BANK; target of Rs 345

Yes Bank announced its audited results for Q2FY12. The growth in top-line as well as bottom line came above our expectations; however this was largely aided by strong non-interest income growth. Net Profit after tax for the current quarter increased 33.3% YoY mainly driven by strong non-interest income growth (63.4% YoY, 29.5% QoQ) and modest Net Interest Income growth (23.1% YoY, 8.9% QoQ). Non Interest Income was up on the back of sound growth in Transaction Banking (59.1% YoY), Financial Markets (190.2% YoY) and Financial Advisory businesses the biggest component of non-interest income (53.4% YoY).

Total Business of the bank grew by 11.2% YoY (2.1% QoQ) to Rs 782.7 bn. Advances grew (12.7% YoY, 3.3% QoQ) to Rs 341.9 bn, however including the credit substitutes advances grew healthy at 27.4% to Rs 407.6 bn. Going forward, the management expects loan book (excluding credit substitutes) to grow by 25.0%. Deposits on the other hand grew by 10.2% YoY (1.1% QoQ) mainly led by lower term deposit growth. CASA deposits remained stable at 11.0% ratio for the quarter. Going forward, we expect the CASA ratio to improve to 13.4% by FY12E mainly driven by deregulation of savings rate by RBI, aggressive branch expansion plans and higher CASA growth (~64.6% YoY) as compared to total deposit growth of 27.0% YoY in FY12E.

Considering the bank’s strategy of de-bulking its advance book coupled with expectation of credit growth moderation in the industry, we have reduced our credit growth target for the bank for FY12E from 35% to 27%. The bank is adequately capitalised currently with a CAR of 16.0% (Tier I at 9.4%). The management has indicated that the bank will tap capital market only when the market conditions are favourable. We believe, deregulation of savings rate by RBI is a huge positive for Yes Bank and it will present an opportunity for all the banks which are intending to increase its CASA to lure savers by offering exotic products and higher rates. We estimate Yes Bank to report an EPS CAGR of 25.4% over FY11-FY13E. ABV is estimated to grow at 21.9% CAGR during the same period. The stock currently trades at 2.3x FY12E ABV and 1.9x FY13E ABV. We maintain our positive view on the stock and recommend Accumulate rating with a revised price target of Rs 345.0 (Rs 355.4 earlier), implying an upside potential of 12.0%.

Buy Yes Bank; target of Rs 360

Yes Bank reported PAT growth of 33% YoY in 2QFY12 to ~INR2.3b (8% higher than our estimate). Reported margins improved 10bp QoQ to 2.9% - a positive surprise, leading to strong NII growth (5% higher than our estimate).

Reported NIM expanded 10bp QoQ to 2.9%. While yield on loans increased 60bp QoQ, cost of funds increased by merely 10bp QoQ to 8.6%, leading to margin expansion. Loans grew ~13% YoY (~3% QoQ) to INR342b. However, increased investment in credit substitutes led to strong customer asset growth of 27% YoY and 9% QoQ to INR407b. While YTD loans are flat, the management guided for growth of 25% for FY12. In percentage terms, GNPA was up 3bp to 20bp and NNPA was at 4bp - best in the industry. Gross slippages for 2QFY12 stood at INR150m (annualized slippage of 20bp). During the quarter, the bank restructured three MFI's loans worth INR885m (26bp of overall loans), taking the cumulative restructured loans to INR1.8b (51bp of overall loans). Further, bank provided INR100m towards NPA and restructured loans and INR70m- 80m as ad-hoc provision for future contingency in 2QFY12.

We expect Yes Bank to report an EPS of INR27 in FY12 and INR33.2 in FY13. BV would be INR132 in FY12 and INR160 in FY13. We expect RoA of ~1.4% and RoE of 22%+. Maintain Buy.

Buy Yes Bank; target Rs 369

The bank has added 50 branches in Q2FY12 taking the total to 305 branches further improving its retail presence. Branch additions have helped the bank to improve CASA by 10 bps QoQ to 11% which it expects to improve to ~12% by FY12E. Its retail proportion in advances increased from 10.6% in Q2FY11 to 14.8% in Q2FY12. Even though in investment phase, it has been able to maintain its cost to income ratio at 36.7% in Q2FY12, which is commendable.

The bank has best in class asset quality with GNPA ratio of 0.2% (Rs 688 million) and NNPA ratio of 0.04% (Rs 136 million) in Q2FY12. It has diversified exposure across sectors, of which power & electricity contribute 4.1% & 3.3%, respectively. The bank has seen a rise in restructured assets from Rs 870 million in Q1FY12 to Rs 1.75 billion due to Rs 900 million restructuring of three MFI accounts. We expect GNPA & NNPA ratio of 0.3% and 0.1%, respectively in FY12E.

Valuation:

Yes Bank is on track with its Version 2.0 strategy (next growth phase of strengthening its retail presence). We believe that CASA accretion and subsequent NIM expansion could be the next trigger for the bank. It has delivered RoA and RoE of over 1.5% and 20%, respectively, for the past 12 quarters. We estimate RoA of 1.5% and RoE of 21.5% by FY13E. Hence, we maintain our target price of Rs 369 (2x FY13E ABV).

Accumulate Yes Bank; target Rs 321

For 2QFY2012, Yes Bank reported a strong performance with net profit growth of 33.3% yoy (8.8% qoq) to Rs 2.35 billion, above our estimate of Rs 2.16 billion. Profit growth was driven by a 10 bp increment in NIM and strong non-interest income, which registered growth of 63.4% yoy. Asset quality continued to be stable with low gross NPA and net NPA ratios of 0.3% and 0.04%, respectively.

The bank continued with its strategy of slower balance sheet growth during 2QFY2012 to reduce the proportion of wholesale-based loans in its portfolio and to maintain its NIM, owing to a weak funding profile in a high interest rate environment. Advances for the bank grew by 12.7% yoy (3.3% qoq), while deposits grew by 10.2% yoy (1.1% qoq). CASA deposits accretion remained healthy at 19.7% yoy (almost flat sequentially). Due to the relative slower growth in deposits, the bank managed to increase its CASA ratio by 10bp to 11.0%. Reported NIM rose by 10bp to 2.9%, as yield on advances rose by 60bp to 12.2%.

Higher yields on advances were supported by the 51.3% qoq increase in credit substitutes to Rs 65.66 billion. Consequently, NII posted healthy growth of 23.1% yoy. Asset quality of the bank continued to be in a sweet spot, with best-in-the-industry gross and net NPA ratios of 0.3% and 0.04%, respectively. The provision coverage ratio (excluding technical write-offs), however, declined from 95.2% in 1QFY2012 to 80.2% in 2QFY2012. Branch expansion plans were on track, with addition of 50 branches to take the network to 305 branches.

We remain positive on the bank, considering the strong branch expansion in the last 18 months. In fact, the bank has doubled its branch network over this period. Also, we believe that we are very close to the peak of the current interest rate cycle; and as liquidity has relatively improved compared to the last few quarters, the environment is expected to be relatively more conducive for banks such as Yes Bank. At the CMP, the stock is trading at 1.8x FY2013E ABV. We value the stock at 2.1x FY2013 ABV and, hence, we maintain `Accumulate` on the stock with a target price of Rs 321.

Buy Yes Bank; target Rs 360

Yes Bank`s Q2FY2012 results were ahead of our estimates as net profits grew 33% year on year (YoY) and 8.8% quarter on quarter (QoQ) to Rs 2.35 billion. This was on account of a strong growth in net interest income (NII; 23% YoY) and a robust growth in the non interest income (63.4% YoY). The net interest margin expanded by 10 basis points (bps) sequentially to 2.9%, aided by repricing of advances and containment of funding cost by a diversified borrowing mix. The advances grew by 12.7% YoY while including the credit substitutes it grew by 27.4% YoY. The asset quality largely remained stable while restructured assets grew to 0.5% of loans due to restructuring of the micro finance institution (MFI) loans. We believe the bank would continue to grow significantly ahead of the industry and is likely to retain its asset quality. We expect the bank`s earnings to grow at a compounded annual growth rate (CAGR) of 27% over FY2011-13. We maintain our Buy recommendation with a price target of Rs360 (2x FY2013E book value [BV]) for the stock.

Healthy growth in NII: The NII of the bank grew by 23.1% YoY and 8.9% QoQ to Rs 3,856 million majorly led by a strong growth in advances (including credit substitutes) and expansion in margins. The core advances grew at a slower rate ie at 12.7%, while including credit substitutes it grew by 27.4% YoY. Within advances, the branch banking segment reported a strong growth of 58% YoY (24% QoQ), followed by the commercial banking segment (36.8% YoY). The management has guided for an over 25% growth in core advances for FY2012.

Margins expand 10bps QoQ to 2.9%: The NIM of the bank grew by 10bps sequentially to 2.9% from 2.8% in the previous quarter. This was majorly led by an uptick in the yield on advances which grew by 60bps QoQ to 12.2% contributed by the re-pricing of the advances. Further the funding costs were contained leading to an only 10bps Q-o-Q increase in the cost of funds. The current account-savings account (CASA) ratio of the bank was also stable at 11% as against 10.9% in the previous quarter.

Robust growth in non interest income: The non interest income of the bank grew by 63.4% YoY and 29.5% QoQ to Rs 2.14 billion majorly led by a strong growth in the financial advisory income (54% YoY and 18% QoQ) followed by financial market income which grew by 191% YoY to Rs 410 million). The transaction banking income also grew by 59% YoY and 45% QoQ while retail fees dipped by 3% YoY.

Cost-income ratio declines: The cost to income ratio of the bank also declined to 35.6% in Q2FY2012 as against 36.6% in Q2FY2011 and 37.4% in Q1FY2012. The bank has added 50 branches during the quarter thereby increasing the branch tally to 305.

Asset quality remains stable: The asset quality of the bank remained stable with gross and net non performing assets (NPAs) at 0.2% and 0.04% respectively as against 0.17% and 0.01% in the previous quarter. However the bank restructured loans worth Rs 900 million (mainly pertaining to micro finance companies) during the quarter thereby increasing the restructured loans to 0.5% of the advances (Rs 1.75 billion. The specific loan loss coverage ratio declined sharply to 80.2% from 95.2% in the previous quarter.

Capital Adequacy Ratio: The capital adequacy ratio (CAR) of the bank stands at 15.98% and the tier I capital stands at 9.4%. The bank has raised Rs322 crore of lower tier II capital during the quarter. We have assumed a 10% equity dilution in FY2013 estimates to factor the possible dilution.

Outlook: Yes Bank delivered a strong set of numbers in Q2FY2012 driven by a strong operating performance and healthy asset quality. The increase in NIM was a positive surprise, though it could decline slightly in the coming quarters due to a low CASA base and high interest rates. We believe the bank would continue to grow significantly ahead of the industry and is likely to retain its asset quality. We expect the bank`s earnings to grow at a CAGR of 27% over FY2011-13. We maintain our Buy recommendation with a price target of Rs360 (2x FY2013E BV) for the stock.

Hold Yes Bank; target of Rs 340

Yes Bank’s performance for Q2FY12 was marginally above our estimates. The bank reported a net profit of Rs.235 crs in Q2FY12 resulting in a growth of 33.3% on a YoY basis and a QoQ increase of 8.8%. The bank's CASA deposits stood at 11.0% in Q2FY12, up from 10.1% in Q2FY11. Yes Bank loan book grew at 12.7% YoY and 3.3% on a QoQ basis in Q2FY12. Net Interest Margin (NIM) stood at 2.9% in Q2FY12, as compared to 2.8% in Q1FY12 and 3.0% in Q2FY11. Management expects the bank’s advances to grow in excess of 25% for FY12E.

The bank’s total deposits grew by 10.2% YoY and only 1.1% QoQ in Q2FY12. However, CASA deposits increased by 19.4% YoY on absolute basis and were almost flat on QoQ basis. CASA ratio stood at 11% for FY12E. Although the bank added 50 new branches and added approximately 330 employees in Q2FY12, the bank has managed to keep its cost to income ratio at lower levels. One of the key strength of the bank continues to be its strong hold on its non interest income. Non Interest Income grew at a healthy 63.4% YoY and 29.5% QoQ to Rs 214 crs in Q2FY12 resulting from growth in Transaction Banking, Financial Advisory and Financial markets Gross NPA increased 23.0% QoQ and 1.6% YoY to Rs.69 Crs in the quarter ended September 2011. Yes Bank has continued to maintain minimal Net NPAs. Gross NPAs and Net NPAs stood at 0.20% & 0.04%, respectively as on June 30 2011.

The bank has shown consistent performance in its financial and operational parameters and is on track with its plans to expand in the retail and SME segment. At CMP, the stock is trading at 2.17x and 1.75x FY12E and FY13E Adj BVPS respectively. Considering the overall slowdown in the banking industry we have toned down our credit growth outlook for the bank from 32% to 23% for FY12E. Consequently we have lowered our target multiple for the bank from 2.75x to 2.6x and our target price stands revised at Rs 340 indicating an upside of 20%. We maintain our HOLD rating on the stock.

Hold Yes Bank; target of Rs 340

Yes Bank’s performance for Q2FY12 was marginally above our estimates. The bank reported a net profit of Rs.235 crs in Q2FY12 resulting in a growth of 33.3% on a YoY basis and a QoQ increase of 8.8%. The bank's CASA deposits stood at 11.0% in Q2FY12, up from 10.1% in Q2FY11. Yes Bank loan book grew at 12.7% YoY and 3.3% on a QoQ basis in Q2FY12. Net Interest Margin (NIM) stood at 2.9% in Q2FY12, as compared to 2.8% in Q1FY12 and 3.0% in Q2FY11. Management expects the bank’s advances to grow in excess of 25% for FY12E.

The bank’s total deposits grew by 10.2% YoY and only 1.1% QoQ in Q2FY12. However, CASA deposits increased by 19.4% YoY on absolute basis and were almost flat on QoQ basis. CASA ratio stood at 11% for FY12E. Although the bank added 50 new branches and added approximately 330 employees in Q2FY12, the bank has managed to keep its cost to income ratio at lower levels. One of the key strength of the bank continues to be its strong hold on its non interest income. Non Interest Income grew at a healthy 63.4% YoY and 29.5% QoQ to Rs 214 crs in Q2FY12 resulting from growth in Transaction Banking, Financial Advisory and Financial markets Gross NPA increased 23.0% QoQ and 1.6% YoY to Rs.69 Crs in the quarter ended September 2011. Yes Bank has continued to maintain minimal Net NPAs. Gross NPAs and Net NPAs stood at 0.20% & 0.04%, respectively as on June 30 2011.

The bank has shown consistent performance in its financial and operational parameters and is on track with its plans to expand in the retail and SME segment. At CMP, the stock is trading at 2.17x and 1.75x FY12E and FY13E Adj BVPS respectively. Considering the overall slowdown in the banking industry we have toned down our credit growth outlook for the bank from 32% to 23% for FY12E. Consequently we have lowered our target multiple for the bank from 2.75x to 2.6x and our target price stands revised at Rs 340 indicating an upside of 20%. We maintain our HOLD rating on the stock.

 

Hold Yes Bank; target of Rs 340

Yes Bank’s performance for Q2FY12 was marginally above our estimates. The bank reported a net profit of Rs.235 crs in Q2FY12 resulting in a growth of 33.3% on a YoY basis and a QoQ increase of 8.8%. The bank's CASA deposits stood at 11.0% in Q2FY12, up from 10.1% in Q2FY11. Yes Bank loan book grew at 12.7% YoY and 3.3% on a QoQ basis in Q2FY12. Net Interest Margin (NIM) stood at 2.9% in Q2FY12, as compared to 2.8% in Q1FY12 and 3.0% in Q2FY11. Management expects the bank’s advances to grow in excess of 25% for FY12E.

The bank’s total deposits grew by 10.2% YoY and only 1.1% QoQ in Q2FY12. However, CASA deposits increased by 19.4% YoY on absolute basis and were almost flat on QoQ basis. CASA ratio stood at 11% for FY12E. Although the bank added 50 new branches and added approximately 330 employees in Q2FY12, the bank has managed to keep its cost to income ratio at lower levels. One of the key strength of the bank continues to be its strong hold on its non interest income. Non Interest Income grew at a healthy 63.4% YoY and 29.5% QoQ to Rs 214 crs in Q2FY12 resulting from growth in Transaction Banking, Financial Advisory and Financial markets Gross NPA increased 23.0% QoQ and 1.6% YoY to Rs.69 Crs in the quarter ended September 2011. Yes Bank has continued to maintain minimal Net NPAs. Gross NPAs and Net NPAs stood at 0.20% & 0.04%, respectively as on June 30 2011.

The bank has shown consistent performance in its financial and operational parameters and is on track with its plans to expand in the retail and SME segment. At CMP, the stock is trading at 2.17x and 1.75x FY12E and FY13E Adj BVPS respectively. Considering the overall slowdown in the banking industry we have toned down our credit growth outlook for the bank from 32% to 23% for FY12E. Consequently we have lowered our target multiple for the bank from 2.75x to 2.6x and our target price stands revised at Rs 340 indicating an upside of 20%. We maintain our HOLD rating on the stock.

 

Yes Bank `Accumulate`; target Rs 340

Yes Bank`s Q2FY12 NII at Rs 3.8 billion was largely in line with our estimates of Rs 3.6 billion. Net profit at Rs 2.3 billion, however, was way ahead of our estimates of Rs 2 billion and street estimates at Rs 2.2 billion. Calculated NIM expanded 13 bps qoq to 2.6% (our estimates of 10 bps expansion).

Robust growth in non-interest income (up 64% yoy) compensated for higher provisioning charges. Restructuring assets were up 2x sequentially and was due to 3 MFI accounts. The bank, however, has made adequate provisioning for the same. On the balance sheet front, deposits were up 10.2% yoy (1% qoq). A large part of the incremental deposits during the quarter was in the form of retail and CASA deposits.

Borrowings were up 70% qoq and the management attributed the same towards higher borrowing under foreign currency window. On the asset front, loan growth moderates to 3% qoq (13% yoy). Investments were up 48% yoy and 22% qoq; largely due to investments in non-SLR securities. In our numbers, we have assumed 26% growth in total customer assets for FY12.

Through branch additions (134 branches yoy and 50 branches qoq) and primarily in non corporate segment, the bank has gained substantial traction in branch banking franchise. This is clearly evident in the incremental deposit mix during the quarter. As against mere 10.2% yoy (1% qoq) growth in deposits, retail + CASA deposits were up 58% yoy and 6% qoq and comprised 29% of total deposits.

Loan portfolio during the quarter expanded 3.3% qoq (12.7%) and was largely in the nature of branch banking business. Increasing penetration in SME and retail segment has enabled the proportion of branch banking to increase from 5% in Q2FY10 to 15% now. Exposure to risky segments stands at: Power (4.1%), Electricity (3.3%) and Infrastructure (3.2%).

Other income at Rs 2.1 billion was up 64% yoy and much ahead of our estimates of Rs 1.5 billion. Healthy growth was witnessed across segments of non-interest income stream: Financial markets (up 1.9x yoy), financial advisory (up 53% yoy) and transaction banking (up 59% yoy). Financial markets income was also driven by few large deals done during the quarter and the performance may not be repeated.

Asset quality continues to remain in comfortable zone with GNPA/NNPA at 0.2%/0.04%. Restructured assets at Rs 1.7 billion zoomed 2x sequentially, largely due to MFI companies. The bank has however made adequate provisioning towards the same. The bank has made specific and general provisioning of Rs 100 million each and remains well protected with PCR at 80.2%.

Valuation:

We remain positive on Yes Bank given its smooth transition towards branch banking business model and improved liability franchise. Also given improving retail deposits franchise (retail + CASA deposits) and resilience to margin performance, we now upgrade the stock to Accumulate (Hold earlier). The current valuations at 2.2x FY12E and 1.5x FY13E ABV provide room for decent upside.

Sell YES BANK; target of Rs 270

YES BANK, prices have seen a decent bounce back from the rising trend line support over the last one week, however failed to sustain its recovery and closed below the same yesterday. This could signal the resumption of down trend from July high of 340 and keep the sentiment weak towards the supports near Rs 281 and then Rs 274 in the forthcoming trading sessions. Daily MACD (12/26/9) is trending down and is below the zero line while the RSI (14) is turning down from the equilibrium and would be supportive for the same.

On the upside, trend line break down level of Rs 293 and yesterday’s high of Rs 299 act as good resistance. Only a decisive close above the latter would turn the sentiment mixed to positive negating the expected weak tone. Sell Yes Bank initially below Rs 287.75 and then on any rise to Rs 292, SL Rs 300, target Rs 275/270.

Buy Yes Bank; target of Rs 355

Yes Bank, net profit after tax for the current quarter increased 38.2% YoY mainly driven by strong net interest income (NII) growth (35.1% YoY), better operational efficiency (C/I ratio – 37.4% vs. 38.7% YoY) and lower provisions (88.0% YoY decline). The decline in provisions was led by write back in provision of Rs 150 mn on a single account which had been fully provided earlier, and it was fully recovered and settled in the current quarter. The sharp decline in provisions (96.5% QoQ) also aided the net profit growth sequentially. Net profit grew 6.2% QoQ despite muted NII growth (1.6% QoQ), lower non-interest income (11.5% decline) and higher operating cost (260 bps increase QoQ).

Net Interest Margins remained stable on sequential basis at 2.8% for Q1FY11 as rise in cost of funds was offsetted by upward repricing of assets. Added to this, the bank also squared off low priced less attractive bulky loans during the quarter, which aided in maintaining the margins. However on YoY basis it declined by 30 bps as the cost of funds increased by 220 bps as against 200 bps in yield on advances. The bank registered a 4.5% decline in business sequentially. Advances declined by 3.7% while deposits registered a decline of 5.1%.

The decline in advances was on the back of de-risking strategy of the bank during the quarter wherein low priced less attractive bulky loans were squared off. On YoY basis, overall business registered a growth of 35.7% with deposits and advances registering a growth of 44.1% and 26.1% respectively. CASA ratio for the quarter stood at 10.9% up by 60 bps on QoQ basis. Going forward, we expect the CASA ratio to improve to 12.4% by FY12E mainly driven by aggressive branch expansion plans and higher CASA growth (~62% YoY) as compared to total deposit growth of 35.0% YoY in FY12E. Asset quality improved further during the quarter with gross and net NPA ratios at 0.17% and 0.01% (0.23% and 0.03% in 4QFY2011). The bank has restructured assets worth Rs 870 mn as at June 30, 2011 which represents 0.26% of gross advances. The bank opened 41 new branches during the quarter taking the total number of branches to 255. The bank intends to open 325 branches by FY12E.

Considering the bank’s strategy of de-bulking its advance book coupled with expectation of credit growth moderation in the industry, we have slightly reduced our credit growth target for the bank for FY12E from 38% to 35%. The bank is adequately capitalised currently with a CAR of 16.2% (Tier I at 9.6%). Last quarter, the bank has passed a resolution to raise $500 mn in one or more tranches over the next 12-15 months. However, the management has indicated that the bank has enough headroom to raise capital through Tier II bonds to support growth in the current fiscal and it will tap capital market only when the market conditions are favourable. We estimate Yes Bank to report an EPS CAGR of 27.8% over FY11-FY13E. ABV is estimated to grow at 22.2% CAGR during the same period. The stock currently trades at 2.3x FY12E ABV and 1.9x FY13E EPS. We maintain our positive view on the stock and recommend Buy rating with a revised price target of Rs 355.4 (Rs 362.6 earlier), implying an upside potential of 15.9%

Sell Yes Bank Future; target of Rs 308

Since last three weeks Yes Bank has been hovering below its intermediate falling trend line trying to breach past it. However the small bodied Doji candles getting formed indicates that upward momentum is weakening. Yesterday prices fell sharply forming a Bearish Engulfing pattern for the day. A breach of immediate support at 318 would lead to further fall towards Rs 305-300 levels. Below Rs 318 prices would also breach the rising trend line support implying that the short term trend has turned negative.

Weekly momentum is turning at overbought zone and is about to give a negative crossover adding strength to our bearish view. Only a close above Rs 335 would negate our bearish view delaying the expected weakness. Sell Yes Bank futures initially below Rs 318 and then on rise to Rs 323 for a target of Rs 308-305 with stop placed above Rs 333.50 on closing basis,

Accumulate Yes Bank; target Rs 353

For 1QFY2012, Yes Bank reported a strong performance with net profit growth of 38.2% yoy (6.2% qoq) to Rs 2.16 billion, marginally above our estimate of Rs 2.12 billion. Profit growth was driven by sequentially stable NIMs and a sharp drop in provisioning expenses (due to write-back of Rs 150 million), which offset the lower-than-expected non-interest income. During the quarter, the bank seemed to have moderated its balance sheet growth to maintain NIMs, as evident from the sequential decline in advances of 3.7%.

Consequently, deposit accretion also declined by 5.1% qoq. CASA deposits continued to grow at a brisk pace of 49.8% yoy, leading to an improvement in CASA ratio to 10.9% from 10.5% in 1QFY2011. The bank surprised positively with sequentially stable NIMs at 2.8% on the back of a 90 bp rise in yield on advances, which offset the 70bp qoq increase in cost of funds. Asset quality of the bank continued to be in a sweet spot, with gross and net NPA ratios of 0.17% and 0.01%, respectively, coupled with provision coverage (excluding technical write-offs) of 95.2%. Branch expansion plans were on track, with addition of 41 branches to take the network to 255 branches. The stock is trading at of 2.0x FY2013E ABV. We maintain our `Accumulate` recommendation on the stock with a target price of Rs 353.

Buy Yes Bank; target Rs 450 

Yes Bank reported Q1FY12 PAT of Rs 2.16 billion, up 38.2% YoY and 6.2% QoQ, in line with our expectations of Rs 2.14 billion. Net Interest Income (NII) for the quarter grew by 35.1% YoY and 1.6% QoQ to Rs3.54billion, driven by a 117bps QoQ improvement in CD ratio to 76.0% coupled with stable reported margins at 2.8%. On a sequential basis, the increase in the yield on advances (90bps QoQ) outpaced the increase in the cost of funds (70bps QoQ). Fee income declined by 11.5% QoQ on account of a sharp 35.8% and 21.9% QoQ decline in the transaction banking and distribution income respectively. Provisioning expenses declined by 88.0% YoY to Rs 15 million net of provision write back of Rs 150 million on one single large account, which boosted profitability.

Business growth remains healthy; CASA ratio improves:

Advances grew by 26.1% YoY but declined by 3.7% QoQ as the management cautiously de-risked its portfolio from some of the segments from the credit quality perspective. On a sequential basis, only business banking loans grew by 2.6% QoQ, while the corporate loans de-grew by 6.5% QoQ. The pace of deposit growth moderated as deposits grew by 44.1% YoY, but declined by 5.1% QoQ. The sequential decline in deposits was lead by a 5.8% QoQ decline in term deposits, while the CASA deposits grew strongly by 50.1% YoY. As a result the CASA ratio improved to 0.9% from 10.3% in Q4FY11. Notably the bank opened 41 branches during the quarter resulting into addition of 75 new branches in past two quarters.

Asset quality improves considerably:

Gross NPAs declined by 30.5% QoQ on account of recoveries from one single large account. Provision coverage improved further to 95% from 89% in Q4FY11. The cumulative restructured assets stood stable at Rs 0.87 billion or 0.26% of gross advances. The net NPAs stood at an all time low and at near zero levels at 0.01%.

Valuation and Outlook:

Yes Bank reported a healthy set of numbers with stable margins and impeccable asset quality. The bank is progressing well on its growth plan chalked out under the current growth phase of the bank. The bank is aggressively rolling out its branch network which should enable it to strengthen its liability franchise. We expect Yes Bank  to record earnings CAGR of 36% during the period FY11-13E with RoA`s remaining high at around 1.5% levels. We have also factored in equity dilution of ~11% in FY12 as the bank is likely to raise capital to fund its future growth requirements. At the current market price (CMP) of Rs 318, the stock trades at 2.0x and 1.7x its FY12E and FY13E ABV, respectively. We maintain our `Buy` rating and price target of Rs 450 on the stock.

Buy Yes Bank; target Rs 415

Yes Bank`s Q1FY2012 results came in higher than our estimates as the net profits registered a growth of 38.2% year on year (YoY) to Rs 2,161 million. While the net interest income (NII) growth was in line with our estimates (35.1% YoY), the decline in provisions due to write back on non performing assets (NPA; Rs 150 million) led to a higher than estimated growth in profits. Stable margins (2.8% in Q1FY2012) contributed by repricing of the advances book and improvement in the asset quality were the other key positives during the quarter. In view of caution on loan growth we have trimmed our loan growth estimates for FY2012 resulting in a marginal reduction in FY2012 estimates. We maintain buy rating on the stock with a target price of Rs 415.

Strong growth in NII, advances growth contracts on Q-o-Q basis: Yes Bank`s NII grew by 35.1% YoY and 1.6% quarter on quarter (QoQ) to Rs 3.54 billion. This was led by a healthy growth in advances which grew by 26.1% YoY and stable margins. However, the advances contracted by 4% QoQ on a sequential basis as the bank consolidated its book by running down some bulk low yielding loans. However advances growth factoring the credit substitutes (advances + credit substitutes) grew at a higher rate ie at 34.7% YoY.

Higher yields and contraction in advances book cushions NIM: Led by a 90 basis point QoQ increase in yield on advances (11.6% from 10.7% in Q4FY2011) and contraction in the advances book, the margins remained stable at 2.8%. According to the bank`s management, about 95% of the assets are on floating rates (of these 30% assets are with less than a year maturity) which in our view would keep margins stable in the coming quarters.

CASA ratio inches to 11%: Though the absolute current account-savings account (CASA) balances remain flat on a sequential basis the CASA ratio increased to 10.9% from 10.1% as deposits contracted by approximately 5% QoQ. Going forward, the management expects a significant pick up in CASA deposits as it attains a critical size of around 350 branches. Currently the bank has a network of 255 branches and it plans to add 25-30 new branches every quarter.

Non-interest income growth remains subdued, cost to income ratio expands: The overall non interest income of the bank grew by 14.9% YoY but has declined by 11.5% QoQ to Rs 1.65 billion. The YoY increase in the non interest income was contributed by a 44% YoY growth in the retail segment and a 22.4% increase in the transactional banking segment. The cost to income ratio expanded sequentially to 37.4% (was 34.8% in Q4FY2011) due to salary revisions and addition of branches.

Asset quality improves: The asset quality of the bank improved with the gross NPA of the bank declining to 0.17% from 0.23% in the earlier quarter whereas the net NPA of the bank declined to 0.01% from 0.03% in the earlier quarter. This was mainly contributed by the recovery of a significant NPA account which also contributed to lower provisions during the quarter. The coverage ratios were healthy; the specific loan loss coverage ratio of the bank stood at 95.2% as against 88.6% in the earlier quarter.

Capital raising likely over next 8-12 months: The capital adequacy ratio (CAR) of the bank stands at 16.2% with a tier I capital of 9.6% (10.1% including Q1 profit). The bank is planning to raise Rs325 crore through tier II bonds to fund business growth. The bank plans to raise the tier I capital in FY2012 and would wait for the right price for the issue.

Valuations: In view of Q1FY2012 results, we have moderated the loan growth estimates for FY2012 while having increased the loan yields leading to a marginal reduction in FY2012 estimates. However, we believe the bank would continue to grow significantly ahead of the industry and is likely to retain its asset quality. We expect the bank`s earnings to grow at a compounded annual growth rate (CAGR) of 27% over FY2011-13. We maintain our Buy recommendation with a target price of Rs 415 (2.3x FY2013 book value) for the stock.

Buy YES Bank; target of Rs 319

Yes Bank has given breakout above the horizontal neckline of inverted H&S on Monday along with prices penetrating the hurdle resistance of 200 DMA. With such dual bullish confirmation, the stage is set for the stock to attempt its intermediate peak of Rs 341. Any consolidation near its 200 DMA should open opportunity for accumulating stock with better reward to risk ratio. We advise buying stock in the range of Rs 303-305 with stop loss of Rs 298 for target of Rs 320. (Duration 3 days).

Buy Yes Bank; target Rs 415

Given Yes Bank`s robust growth in advances over the initial years (at a CAGR of 54% over FY07-11), the management expects to sustain the growth momentum with a targeted growth of 35% CAGR in advances over FY11-15. The Version 2.0 marks more diversified growth with increased focus on high yielding SME and retail segments.

The net interest margin (NIM) is expected to decline in the rising interest rate scenario, though not substantially due to the strong re-pricing power on the assets side (about 95% of the assets are on floating rates) and favourable asset liability duration. The management believes that increasing the branch tally to 350-450 (350 branches by June 2012) would be the inflection point and there will be an exponential growth in the deposits (including CASA), which would support the margins.

Yes Bank maintains the best asset quality in the industry with the lowest NPAs (gross NPAs at 0.23% and net NPAs at 0.03% in FY11). Hence, we do not expect any significant deterioration in asset quality. The bank`s total exposure to microfinance institutions (MFIs) is less than 1% of the loan book (ie Rs 2.5 billion) and the portfolio continues to do well.

Yes Bank`s return ratios have consistently remained at higher levels (18-20%) despite several rounds of equity infusion. We believe the bank will maintain its RoEs and RoAs at about 20% and 1.4% respectively over the next two years led by a 28% CAGR in its earnings.

While the advances growth is likely to moderate from the current levels (52% CAGR over FY07-11), it would substantially be higher than the industry`s, which would result in a strong growth in the earnings. We expect Yes Bank`s advances to grow at a CAGR of 38% over FY11-13, leading to an approximately 28% growth in the earnings. Currently, the stock is trading at 1.9x FY12 BV and 1.6x FY13 BV. We maintain `Buy` rating on the stock with a price target of Rs 415 (2.7x FY12 BV).

Buy YES BANK; target of Rs 388

Yes Bank Ltd. India's new age private sector Bank, is an outcome of the professional entrepreneurship of its Founder, Rana Kapoor. The Bank has fructified into a 'full service' commercial Bank that has steadily built Corporate and Institutional Banking, Financial Markets, Investment Banking, Corporate Finance, Business and Transaction Banking, Retail and Wealth Management business lines across the country. The Bank has a network of 214 branches across India.

Yes Bank delivered a healthy 64% and 14% YoY and QoQ growth in business, backed by 71% YoY and 16% QoQ growth in deposits from Rs. 394,528 mn in Q3FY11 to Rs. 459,389 mn in Q4FY11. CASA deposits grew by 68.6% YoY to Rs. 47.5 bn, whereas CASA ratio increased by 1 bps to 10.3% in Q4FY11 from 10.2% in Q3FY11. _ Advances grew by 55% YoY and 11% QoQ to Rs. 343,636 mn in Q4FY11 from Rs. 311,122 mn in Q3FY11. Yes Bank skewed its interest towards branch banking in this quarter which denotes its intent to foray into the retail segment. Branch Banking contributed 12.0%, Corporate and Institutional Banking constituted 65% and Commercial Banking contributed 23% of its loan portfolio.

The bank has always been a success at maintaining a healthy asset quality. Gross NPA’s in absolute terms grew by 11% in Q4FY11 to Rs. 805 mn from Rs. 728 mn in Q3FY11. Net NPA’s in absolute terms diminished by 47% in Q4FY11 to Rs. 92 mn from Rs. 174 mn in Q3FY11 on account of higher provisioning. Gross NPA’s during the quarter stood stable at 0.23% and Net NPA’s stood at 0.03% as against 0.06% in the previous quarter. Provision Coverage Ratio stood at 88.6% and 76.1% in Q4FY11 and Q3FY11 respectively. Yes Bank has been able to maintain its NIM in Q4FY11 at 2.8% as compared to similar NIMs in Q3FY11 notwithstanding lower C/D ratio at 75% in the reporting quarter as against 79% in the previous quarter. NIMs were stable owing to repricing of loan book. Yield on advances increased by 70 bps to 10.7% in the reporting quarter as against 10.0% in Q3FY11. We expect the bank to sustain its NIMs around 3%, as most of the loan book will be reset by Q2FY12.

At CMP the stock is trading at a P/BV of 2.4x, and 2.0x for FY12E and FY13E respectively. We have revised our FY12 and FY13 book value estimates to Rs. 131 and Rs 161 respectively and arrived at a target price of Rs 388 (15 months) on FY13E book value at a P/BV multiple of 2.41x and maintain our ‘BUY” recommendation.

Accumulate Yes Bank; target of Rs 362.6

Yes Bank, net profit after tax for the current quarter increased 45.2% YoY mainly driven by strong net interest income (NII) growth (42.7% YoY led by robust loan growth), healthy non interest income growth (16.6% YoY and 15.5% QoQ) and better operational efficiency (C/I ratio – 34.8% vs. 36.3% YoY and 35.8% QoQ). Non interest income grew on the back of 33.6% YoY (44.3% QoQ) growth in financial advisory segment and 51.4% YoY (31.3% QoQ) growth in transaction banking. Net Interest Margins remained stable on sequential basis at 2.8% for Q4FY11. However on YoY basis it declined by 40 bps. The sharp rise in cost of funds by 70 bps was offsetted by sharp upward repricing of assets by 70 bps. The management has guided that bulk of the repricing in deposits to get over by Q1FY12 and the increase in cost will be limited thereafter. The management expects to maintain NIM at 2.9-3.1% in the current fiscal.

The bank registered a robust business growth of 63.9% YoY and 13.8% QoQ during the quarter. Deposits grew by 71.4% YoY (16.4% QoQ) from Rs 268 billion in Q4FY10 to Rs 459.4 billion in the current quarter, whereas Net Advances grew by 54.8% YoY (10.5% QoQ) from Rs 221.9 billion to Rs 343.6 billion over the same period. CASA ratio for the quarter stood at 10.3% up by 10 bps on QoQ basis. Going forward, we expect the CASA ratio to improve to 12.4% by FY12E mainly driven by aggressive branch expansion plans and higher CASA growth (~64% YoY) as compared to total deposit growth of 37.5% YoY in FY12E. The management has guided for 35% growth for both deposits and advances in FY12.

We have raised our earning estimates by 6-7% for FY12-13E driven by stable asset quality, better operational efficiency and robust business growth. We believe the bank is adequately capitalised currently with a CAR of 16.5%. However, to achieve its growth target of ~35%+, the bank has passed a resolution to raise USD 500 million in one or more tranches over the next 12-15 months. We have not factored in this capital raising plan by the bank in our estimates. We estimate Yes Bank to report an EPS CAGR of 29.0% over FY11-FY13E. ABV is estimated to grow at 22.5% CAGR during the same period. The stock currently trades at 2.4x FY12E ABV and 1.9x FY13E EPS. We maintain our positive view on the stock and recommend Accumulate rating with a revised price target of Rs 362.6 (Rs 335.3 earlier), implying an upside potential of 14.2%.

Accumulate Yes Bank; target of Rs 351

For 4QFY2011, Yes Bank registered strong net profit growth of 45.2% yoy (6.4% qoq) to Rs 2.03 billion, better than our estimate of Rs 1.81 billion, mainly on account of higher other income and robust advances growth. Both advances and deposits grew by robust 54.8% yoy (10.5% qoq) and 71.4% yoy (16.4% qoq), respectively, compared to industry advances growth of 21.4% yoy (4.7% qoq) and deposits growth of 15.8% yoy (5.0% qoq). CASA deposits increased by 68.6% yoy (17.6% qoq). However, CASA ratio declined by 20bp yoy to 10.3% during the quarter.

Given the recent rise in interest rates and the bank`s wholesale-based funding mix, its cost of funds increased by 70bp qoq. Reported NIMs remained flat at 2.8% sequentially. Non-interest income grew at a moderate rate of 16.6% yoy. Operating profit increased by 35.4% yoy. Cost-to-income ratio during the quarter improved to 34.8% from 35.8% in 3QFY2011 and 36.3% in 4QFY2010. The bank`s asset quality improved with net NPAs declining by 47.4% sequentially. Gross NPA and net NPA ratios for the quarter came in at 0.23% and 0.03%, respectively. Provision coverage ratio (excluding technical write-offs) improved to 88.6% from 76.1% in 3QFY2011. The bank`s CAR stood at 16.5% with Tier-I CAR at 9.7%. The stock is currently trading at 2.1x FY2013E ABV. We maintain an `Accumulate` rating on the stock with a target price of Rs 351.

Accumulate Yes Bank; target of Rs 343

Yes Bank is slated to announce its 4QFY2011 results. We expect the bank to report healthy NII growth of 34.6% yoy, driven by strong growth in advances over the past few quarters. Non-interest income is expected to come in flat at Rs 1.65 billion. The cost-to-income ratio is expected to increase to 36.9% in 4QFY2011 compared to 35.8% in 3QFY2011 and 36.3% in 4QFY2010 on account of branch expansion and employee addition. Preprovision profit is expected to register growth of 20.8% yoy, while net profit is expected to increase by healthy 29.3% yoy to Rs 1.81 billion due to lower provisions. At the CMP, the stock is trading at 2.1x FY2013E ABV. We maintain our `Accumulate` recommendation on the stock with a target price of Rs 343.

Accumulate Yes Bank; target of Rs 343

Yes Bank is slated to announce its 4QFY2011 results. We expect the bank to report healthy NII growth of 34.6% yoy, driven by strong growth in advances over the past few quarters. Non-interest income is expected to come in flat at Rs 1.65 billion. The cost-to-income ratio is expected to increase to 36.9% in 4QFY2011 compared to 35.8% in 3QFY2011 and 36.3% in 4QFY2010 on account of branch expansion and employee addition.

Preprovision profit is expected to register growth of 20.8% yoy, while net profit is expected to increase by healthy 29.3% yoy to Rs 1.81 billion due to lower provisions. At the CMP, the stock is trading at 2.1x FY2013E ABV. We maintain our `Accumulate` recommendation on the stock with a target price of Rs 343.

Hold Yes Bank; target of Rs 370

Yes Bank`s performance for Q4FY11 was marginally above our expectations. Yes Bank reported a net profit of Rs 2.03 billion in Q4FY11 resulting in a growth of 44.8% on a YoY basis and a QoQ increase of 6.3%. The bank`s profit for FY11 stood at Rs 727 crs. The strong performance was due to higher net Interest Income coupled with lower provisions. Total business of the bank grew by 63.9% on a YoY basis to Rs 803.03 billion. The bank`s CASA deposits stood at 10.3% in Q4FY11, up from 10.2% in Q3FY11.

Business of the bank grew by 63.9% on a YoY basis to Rs 803.03 billion in FY11. Advances witnessed a 54.8% YoY increase which was supported by strong growth in the branch banking and commercial banking segments. In addition the bank also witnessed a strong increase in Deposits by 71.4% on a YoY basis. Net Interest Margin (NIM) of the bank stood at 2.8% in Q4FY11 while for FY11 it stood at 2.9%. Management has indicated that the loan book will grow by approximately 30%-35% in FY12.

Increasing focus on Non interest income:

Non-interest income of the bank grew by 16.6% on YoY basis to Rs 187 in Q4FY11 on the back of growth in transaction banking (51.4%), financial advisory (41.3%) and branch banking fees (71.8%). Going forward transaction banking and financial advisory will continue to be the key focus areas of the bank.

Healthy asset quality:

Yes Bank continues to enjoy the best asset class in the industry with minimal net NPAs. Gross NPA as a % of total advances stood at 0.23% while Net NPA as a % of total advances stood at 0.03%.

Decline in cost to income ratio of the bank:

Cost to income ratio of the bank stood at 34.8% for Q4FY11, as compared to 35.8% in Q3FY11 and 36.7% in Q4FY10. Going forward Management has guided that the cost to income ratio will continue to remain under control.

Valuation & Recommendation:

We had recommended the stock at CMP Rs 271 on 07 March 2011. Since then the stock has given returns of 21.8%. We believe that the stock is still trading at attractive valuations. At the current price of Rs. 330, Yes Bank is trading at a PE of 12.2x of FY12E EPS & 9.0x of FY13E EPS and at an adjusted P/BV of 2.5x and 2.0x of FY12E & FY13E Adj BV respectively. We recommend `Hold` with the target price of Rs 370.

Buy YES BANK; target of Rs 370

Yes Bank Ltd (Yes Bank), founded by Mr. Rana Kapoor and his highly competent top management team, is India’s new age private sector Bank. It is one of the banks which have the distinction of obtaining RBI’s Greenfield banking license. Yes Bank is recognized amongst the top five private banks in terms of business size and is one of the fastest growing banks in recent times. The total balance sheet size of the bank is Rs. 52,000 Crs with a total business (advances & deposits) of Rs. 70,000 Crs as on 31st December 2010.

We expect the Bank to continue to grow much ahead of the industry given that it is the youngest bank in the sector with low credit base and an aggressive growth strategy. Management has guided its loan growth to be around 2x the industry’s loan growth. Management expects the bank’s total business to increase at a CAGR of 35% till FY 2015 with a total business size of Rs. 2.25 lakh Crs. Yes Bank is expanding its retail base aggressively. The bank plans to increase the number of branches to 750 by 2015 from 185 as on December 2010. In our view, extensive branch expansion will strengthen its asset base leading to higher growth and increase its low cost deposits thereby enhancing the bank’s CASA share.

We expect the bank’s fee income to expand further with an increase in business and to grow at a CAGR of 26% over FY 2010-2013E. Financial advisory and transaction banking will continue to be the key focus areas for growth in non interest income. The bank's asset quality remains healthy with one of the lowest proportion of stressed assets (0.5% of total loan book). We have conservatively built in higher delinquencies given the fact that increased loans to retail and SME segment along with a significant credit growth may also result in higher slippages. Nevertheless it is noteworthy to mention, that even after factoring in an increase in NPAs it still remains low as compared to its peer group.

At CMP of Rs. 271, the stock is trading at 2.01x of its FY12E ABV. Looking at the historical trend and Yes Bank’s growth phase we value it at 2.75x P/ABV of FY 2012E. Based on our estimated book value of Rs 134.7 per share for FY 2012E and P/ABV target multiple of 2.75x we arrive at a target price of Rs.370. Consequently, we recommend BUY on the stock with a target price of Rs 370 indicating potential upside of 37%.

Buy YES BANK; target of Rs 386

Yes Bank Ltd. India's new age private sector Bank, is an outcome of the professional entrepreneurship of its Founder, Rana Kapoor. The Bank has fructified into a 'full service' commercial Bank that has steadily built Corporate and Institutional Banking, Financial Markets, Investment Banking, Corporate Finance, Business and Transaction Banking, Retail and Wealth Management business lines across the country. The Bank has a network of 185 branches across 149 cities in India.

Indian Economy has been growing at a phenomenal pace since the beginning of CY10. Although, India’s Industrial Production decelerated to 1.55% for the month ending December 2010. We expect, the Indian economy to fare relatively better in FY12, when wholesale price inflation would prune to RBI’s projected rate of 7% by March and subsequent to which RBI would relax its hawkish monetary stance. RBI expects average industry growth rate to be 20% during FY11, backed by its stout branch expansion plan and varied product offerings we expect Yes Bank to grow above the projected industry growth rate. Yes Bank’s loan portfolio consists of ~68% lending to mid and large corporate, which demonstrate healthy performance during rising economic phase. On the back of strong economic activity and its historical familiarity to perform exclusively better even in case of economic downturn, we expect Yes Bank’s advances to grow at ~40% CAGR over FY10-FY13E.

Yes Bank has been able to deliver exceptional profitability on account of strengthening net interest income, above industry growth in business and invariable development in efficiency ratio. Historically, Other Income too has played a pivotal role in the enhancement of net profit. Bank has been able to leverage on its unarguable list of large and mid corporate clients to cross sell fee income products. The bottom line derived as a result has displayed an incomparable performance of return ratios. Return on Average Equity (ROAE) and Return on Average Assets (ROAA) ratios of the bank has improved over the years. The bank successfully delivered 1.5% ROAA and 21.3% ROE during Q3FY11. The return ratios could be strained marginally going forward given substantial branch expansion plans.

The Bank’s Net Interest Income (NII) has grown 54% in FY10 from Rs. 5,112 mn to Rs. 7,880 mn. in FY10, we expect 45% CAGR in NII between FY10-FY13E to Rs. 24,046 mn. Yes Bank has shown a steady improvement in its efficiency ratio, historically its cost to income ratio has subdued from ~53% in FY07 to ~36.7% in FY10, we expect the C/I ratio to continue to progress further on the back of newer branches turning profitable, despite rising employee costs due to branch expansion.

At CMP of Rs 272, the stock is trading at a P/BV of 2.55x, 2.11x, and 1.72x for FY11E, FY12E and FY13E respectively. We have used twostage Gordon growth model to derive the implied forward FY13E P/BV multiple of 2.44x to achieve a target price of Rs 386 with an investment horizon of 18 months. 

Buy Yes Bank; target of Rs 356

Yes reported a solid 43.1% increase (YoY) in the Operating income to Rs 485 crore with its NII (Net Interest Income) surging by more than 53.2% (YoY) to Rs 323 crore though the same remained almost flat on Quarterly comparison and recorded 3.2% rise. Rise in NII would have been further strong if growth in Interest expenses had been in-line with Interest earned. Other than this, the Non-Int Income grew by 26.5% (YoY) to Rs 162 crore whereas its contribution to Operating Income declined over 400 bps to 33.3% (Q3, 11) as against 37.7% (Q3, 10).

Interest expenses as a % of Total Interest Income to enhanced to 71.3% (Q3, 11) as against 66.3% (Q3, 10) and compared to 62.2% (Q2, 11). Imputed by a rising interest rate scenario, the NIM (Net Interest Margin) fell by 30 bps (YoY) to 2.8%. the management is confident that the dip in NIM's is a temporary scenario and Yes has adjusted its advances according to the rise in costs. However, we feel NIM's to continue in sub 3% levels over the next few quarters as high inflation shall result in further rate hikes inflicting the company's margins as, Yes has lower CASA and is largely dependent on wholesale funding.

On the operating front, cost to income ratio of the company stood stable around the 36% level wherein the Operating expenses rose by 41.6% (YoY) and 6.7% (QoQ) to Rs 174 crore. EBITDA stepped up to Rs 311 Crore registering a 44% growth (YoY) and moving up by 10.6% (QoQ). The Net Profit on the other side accelerated by 51.8% (YoY) and 8.4% (QoQ) to Rs 191 crore mainly led lower provisions and contingencies during the quarter. By FY12E, we anticipate Yes's NII to grow at a CAGR of 36.1% to Rs 1459 Crore as against Rs 788 crore (FY 10) while its Non-Int Income is seen clocking a CAGR of around 10%. Cumulatively the Operating Income is seen clocking a CAGR of over 25%. Following the similar pattern, the Operating profit is expected to step up to Rs 1369 crore (FY 12E) as equated from Rs 863 crore (FY 10).

Owing to the overall macroeconomic trend in the domestic economy due to sustained high inflation and increasing interest rate scenario, we anticipate lower than historical growth in Credit and Deposit appended with incremental costs of funds for Yes. Accommodating the above changes, we have reduced our Rating on the stock to “Accumulate” (Buy) with a modified target price of Rs 356 (Rs 406 Earlier).

 

Buy YES Bank; target of Rs 400

Yes Bank reported Q3FY11 PAT of Rs 1.91 billion, up 51.8% YoY and 9.1% QoQ, marginally above our as well as street expectations of Rs 1.8 billion. NII for the quarter grew by 53.2% YoY and 3.5% QoQ to Rs 3.23 billion.

Although the advances grew by robust 66.3% YoY and 2.5% QoQ, a 20bps QoQ contraction in margins restricted the overall NII growth. While yield on advances grew by 50bps QoQ, cost of funds grew by 40bps QoQ, thereby, affecting the margins on a sequential basis. However, with significant portion of the loan book due for re-pricing in the coming few quarters, the margins are likely to have an upward bias from hereon.

Deposits grew by 79.0% YoY, but declined marginally by 1.4% QoQ. CASA deposits grew at a slightly faster pace, translating into a 10bps QoQ increase in CASA ratio to 10.2%. Fee income from financial markets, third-party distribution and transaction banking segment resulted into a healthy 26.5% YoY and 23.4% QoQ increase in the overall fee income. Capital adequacy is comfortable at 19.2%, with Tier-I ratio of 10.4%.

Gross NPAs grew by 7.5% QoQ in absolute terms, while it remained fairly stable at 0.23% in relative terms on a QoQ basis. Provision coverage improved by 1% point QoQ to 76% and remains among the best in the industry. The cumulative restructured assets stood at Rs 0.84 billion or 0.27% of gross advances. Bank sees no asset quality threat from its exposure to the microfinance and 2G telecom service providers which stood at 0.94% and 7.6% of the total loans, respectively.

Yes Bank continues to grow at a healthy pace, while maintaining spreads and asset quality. In the quarter gone by, the management consciously grew its balance sheet in a restricted manner, given the uncertainty on the interest rate front. Focus on branch expansion is likely to strengthen its liability franchise and provide visibility for future growth. Margins have eroded by 40bps since Q4FY10 and are likely to have an upward bias, going forward as asset yields will improve with a lag and settle around 2.9%. We have also revised our earnings estimates for FY11 and FY12 by 6.5% and 5.0%, respectively, to factor in higher-than-expected business growth. Most of the negatives related to the stock price involving margin pressure, micro finance and telecom exposure related concerns are largely discounted in its CMP post the recent correction in its stock price. We observe it provides a good opportunity to enter the stock at 2x FY12E ABV and hence upgrade the stock to Buy.

 

Accumulate Yes Bank; target of Rs 313

For 3QFY2011, Yes Bank reported robust net profit growth of 51.8% yoy and 8.4% qoq to Rs 191 crore above our estimates of Rs 176 crore on account of better-thanestimated increase in non-interest income and stable asset quality. However, NIMs were compressed due to an increase in the cost of funds. We recommend an Accumulate on the stock.

Slower business growth with lower NIMs, asset quality stable: Advances grew by a modest 2.5% qoq (66.3% yoy) v/s industry growth of 9.2% qoq. Deposits de-grew 1.4% qoq (79.0% yoy) v/s industry growth of 4.7% qoq. NIMs were compressed by 20bp to 2.8% due to an increase in the cost of funds by 40bp, leading to a marginal 3.2% qoq growth in NII to Rs 323 crore. Non-interest income increased by a healthy 23.4% qoq and 26.5% yoy to Rs 162 crore mainly on account of strong traction in the financial market and branch banking income. During the quarter, the bank’s asset quality remained stable with Gross and Net NPA ratios at 0.23% and 0.06% (0.22% and 0.06% in 2QFY2011), respectively.

With rising interest rates, the bank’s cost of funds is expected to rise at a faster rate (as witnessed in 3QFY2011 - 40bp qoq rise) due to the bank’s wholesale-based funding mix. Post the recent sharp correction, the stock is trading at 2.1x FY2012E ABV. We recommend an Accumulate on the stock, with a revised target price of Rs 313 (Rs 353), based on a reduced target multiple of 2.4x FY2012E ABV owing to the external environment being relatively adverse for growth of wholesale-funded banks like Yes Bank.

Buy Yes Bank; target of Rs 335.3

Yes Bank has so far been able to manage its asset quality well led by bank’s stringent lending norm coupled with prudent risk management policies. For the quarter ended September 30, 2010, GNPA and NNPA stood at 0.22% and 0.06%, respectively. The company has also seen a slight decline in its restructured portfolio during Q2 FY11. Restructured advances as a percentage of loans stood at 0.23% which is amongst the lowest in the sector. The bank intends to primarily have a geographical presence in the northwestern part of the country and intends to open 250 branches pan India by June 2011 and 750 branches by 2015. With the bank’s focus to expand its geographical reach in the liability rich north-western part of the country, CASA ratio is likely to improve gradually going forward. We expect share of CASA deposits to increase from 10.5% in FY10 to 15.3% in FY13E growing at a CAGR growth of 65.3% as against CAGR growth of 46.0% in deposits.

Yes Bank has seen strong traction in its business growth in the current year with advances and deposits registering a growth of 86.3% and 106.6% YoY, respectively, as on September 30, 2010. Going forward, we expect a CAGR growth of 43.7% and 46.0% in advances and deposits for FY10-13E for the bank on the back of its growing focus towards branch banking, improving credit growth and aggressive branch expansion plans. Yes Bank is primarily funded by wholesale sources with CASA ratio of only 10.1% as on September 30, 2010, which puts it at a disadvantage. However, we believe the bank’s focus to increase its CASA deposit, ability to pass on the increased cost to the borrowers and well matched ALM will come to its rescue.

We estimate Yes Bank to report an EPS CAGR of 32.6% over FY10-FY13E driven by robust business growth, lower credit costs and stable fee income. ABV is estimated to grow at 22.9% CAGR during the same period. The bank’s strong asset quality, superior return ratios, strong asset growth and adequate capitalization bodes well for its future growth. The stock currently trades at 1.5x FY13E ABV and 7.9x FY13E EPS which we believe is attractive considering its strong growth prospects. We initiate coverage with a price target of Rs 335.3 per share, implying an upside of 28.9%.

 

Buy YES BANK; target of Rs 321

Yes Bank the short term downtrend has ended after prices surged above the falling resistance line and managed a closing above its 200 DMA. With RSI indicating a positive a crossover and as prices have managed to pullback from the long term support of 200 DMA, a sustainable up move is expected in the near term. On the upside immediate resistance is seen at Rs 332 which 100 DMA and is most likely to be tested in coming weeks. We advise buying stock in the range of Rs 306-308 with stop loss of Rs 302 for target of Rs 321.

Buy Yes Bank; target of Rs 379

Yes Bank is the only Greenfield license awarded by the RBI in the last 15 years, associated with the finest pedigree investors. Yes Bank reported a net profit of 57.78% and stood at Rs 1762.60 million for the quarter ending on Sept 30, 2010 against Rs 1117.10 million. NIM of the bank stood at 3.0% against 3.1% for Sep 30, 2009. Yes Bank has entered into MOU with Shinsei Bank to offer an higher level of information and financial services. Yes Bank inks with Israel-based investment bank -Poalim Capital Markets to offer advise on cross-border transactions to India and Israel based companies. The Netherlands-based Rabobank has sold close to 11% stake in private sector lender, Yes Bank. Yes Bank has raised planned to raise a cumulative of Rs 1171 crores in Q2 FY 11 from Banks, Insurance Companies, Provident Funds and Corporates. Net Income and PAT of the bank are expected to grow at CAGR of 39% & 36% over FY09 to FY12E.

Yes Bank reported results for the quarter ended on Sept 30. 2010. On a standalone basis, its net profit registered a growth of 57.78% and stood at Rs 1762.60 million for the quarter ending on Sept 30, 2010 against Rs 1117.10 million in the same quarter last year. Interest expended of the bank stood at Rs 3669.60 million for the quarter ending on Sept 30, 2010 against Rs 6406.30 million for the quarter ending on Sept 30, 2009. The bank’s interest earned for the quarter ending on Sept 30,2010 stood at Rs 9537.90 million as against Rs 5269.10 million for the quarter ending on Sep 30, 2009, an increase of 81.02%. Bank posted earnings of Rs 5.11 a share during the quarter, registering 36.27% growth over prior year period.

At the market price of Rs 329.90, the stock trades at 18.48 x and 14.82 x for the earnings of FY11E and FY12E respectively. Price to Book Value of the stock is expected to be at 6.15 x and 4.38 x respectively for FY11E and FY12E. Earning per share (EPS) of the bank for the earnings of FY11E and FY12E is seen at Rs.17.85 and Rs 22.27 respectively for equity share of Rs 10 each. Net Profit for the Sept quarter stood at Rs 1762.60millions with an increase of 57.78 %. Total Deposits grew by 106.6% to Rs 40013.70 crore as at Sep 30, 2010 from Rs 19365.10 crores at Sept. 30, 2009. Yes Bank inks with Israel-based investment bank -Poalim Capital Markets to offer advise on cross-border transactions to India and Israel based companies. The Netherlands-based Rabobank has sold close to 11% stake in private sector lender, Yes Bank.

Yes Bank is the Exclusive Advisor to Sadbhav Infrastructure Project Ltd to raise private equity of Rs 400 crores. Net Income and PAT of the bank are expected to grow at CAGR of 39 % & 36 % over FY09 to FY12E. So we recommend ‘BUY’ in this particular scrip with a target price of Rs 379 for medium to long term investment.

 

Buy Yes Bank; target of Rs 347

Yes Bank has bounced back strongly after testing a low of Rs 309 last week. The falling resistance line also corresponds to short term breakout levels at Rs 320 and 100-DMA, above which stock is likely to test its 50-DMA (Rs 351). Positive crossover in RSI also supports buying argument after breakout is confirmed on price chart. The other momentum oscillators also suggest strength in the counter. Based on the above observations, we recommend traders to buy the stock above Rs 332 with stop loss of Rs 325 for target of Rs 347.

Buy Yes Bank; target of Rs 430

Yes Bank’s earnings rose 57.8% Y-o-Y, led by better net interest income (up 77.9% Y-o-Y) and lower provisions (down 25.4% Y-o-Y). We raise FY11e/FY12e EPS estimate 17.1%/15.6% on higher business growth assumptions. Due to better RoEs, we value Yes Bank at 3.1x PBV (2.8x PBV earlier) and raise our target price to Rs 430 from Rs 380. Advances & deposits grew 86.3% Y-o-Y & 106.6% Y-o-Y respectively. NIMs saw a marginal decline of 10bps Y-o-Y to 3.1%, with CASA improving 54bps Y-o-Y to 10.1%. We expect CAGR of 51.6% in advances and 56% in deposits over FY10-13e, due to its robust branch expansion plans. While treasury income fell 57.9% Y-o-Y, growth in income from third-party distribution (up 43.3% Y-o-Y), financial advisory (13.1% Y-o-Y) and transaction banking (8.5% Y-o-Y) arrested the decline in non-interest income to only 3.3% Y-o-Y. Cost-to-assets fell 38bps Y-o-Y to 1.6% in 1HFY11, and is one of the lowest in the industry.

Gross NPAs increased 13.5% qoq, but comprise a low 0.22% of loans. Yes Bank’s re-structured advances declined Rs 114million to Rs 690 million (0.2% of loans). NPA coverage is 74.7%, with capital adequacy of 19.4% (tier-1 of 11%) sufficient to support likely high business growth. At our target price, Yes Bank would trade at 3.2x FY12e and 2.5x FY12e ABV. Buy with a target of Rs 430.

 

Accumulate Yes Bank; target of Rs 373

As in the past, the inherent challenges of building a retail franchise continue to be substantial despite management’s high pedigree. Moreover, with rising interest rates, the bank’s cost of funds is expected to rise at a faster rate due to the bank’s wholesale-based funding mix. That said, notwithstanding the medium-term downside risks to RoA’s vis-a-vis sectoral averages as well as execution risks with respect to its retail expansion plans, the bank’s high rate of growth within the wholesale segment is likely to drive strong earnings growth and capital consumption in the near term (potentially leading to another book-accretive dilution in the next 12 months). At the CMP, the stock is trading at 2.7x FY2012E ABV. We recommend accumulate on the stock, with a target price of Rs 373, at which level the stock would trade at 2.9x FY2012E ABV.

Accumulate Yes Bank; tgt of Rs 416

Yes Bank reported Q2FY11 PAT of Rs 1.76 billion, up 57.8% Y-o-Y and 13.5% Q-o-Q, marginally above our as well as street expectations of Rs 1.6 billion. The higher than expected performance could be attributed to better than expected Net Interest Income (NII) for the quarter at Rs 3.13 billion, up 78% Y-o-Y and 20% Q-o-Q, mainly driven by a robust 86.3% Y-o-Y advances growth. Margins contracted slightly by 10bps Q-o-Q to 3.0%, driven by 10bps decline in advances yields coupled with a 40bps Q-o-Q increase in the reported costs, however, this was partially made up by higher average CD ratio and investment yields during the quarter. Deposits grew by robust 106.6% Y-o-Y and 32.3% Q-o-Q, while CASA deposits grew at a slightly slower pace sequentially (27.6% Q-o-Q), translating into a 40bps Q-o-Q contraction in CASA ratio to 10.1%. Fee income from the financial markets continued to remain weak (down 72% Y-o-Y and 38% Q-o-Q) on account of mark - to - market loss to the tune of Rs 150 - 200 million, thereby affecting the overall non - interest income growth. However, income from third party distribution came in strong with 43% Y-o-Y and 38% Q-o-Q increase. Capital adequacy is comfortable at 19.4%, with Tier - I ratio of 11.0%. During the quarter bank cumulatively raised Rs 11.7 billion capital, of which Rs 2.25 billion was in the form of perpetual tier - I.

Asset quality in absolute terms witnessed a 13.5% Q-o-Q increase in GNPAs on a lower base. However, in relative it still remains comfortable at 0.22% of gross advances. Provision coverage reduced to 75% from 81% in Q1FY11, but is among the best in the industry. The cumulative restructured assets stood reduced to Rs 0.7 billion or 0.23% of gross advances.

Yes Bank continues to grow at a healthy pace and growth with adequate spreads augurs well for the bank going forward. Focus on branch expansion is likely to strengthen its liability franchise and provide visibility for future growth. Meanwhile, the bank has maintained excellent asset quality levels despite rapidly growing book, which is commendable. We have revised our earnings estimates for FY11 by 2.9% to factor in higher than expected growth. At CMP, the stock trades at 3.3x and 2.7x its FY11E and FY12E ABV, respectively. We maintain our ‘Accumulate’ rating on the stock, with a one - year forward revised price target of Rs 416.

 

Sell Yes bank Futures target Rs 337

Yes Bank right at the upper end of the uptrending base channel has produced a Doji candle stick pattern. A Doji right at important channel resistance signifies signifying indecision between bulls and bears. It also suggest that though Bulls continued to have upper hand in this prolonged uptrend however at current level they lack confidence and their hesitation has encouraged bears to gain momentum. As per Elliot count Yes Bank has produced a clear five leg impulse and now post termination it is like to retrace back and test its previous swing low of Rs 343. Among momentum oscillators having produced a negative divergence the scrip has given a negative crossover and also importantly has now formed a bearish hook pattern. Also RSI in overbought zone has produced a negative divergence with its derivative previously such divergences between the two set of indicators has worked well and this time too we believe it&rsquo;s likely to work well. We suggest going short on Yes bank Futures below the Doji lows of Rs 357 with the stop-loss of Doji&rsquo;s high of Rs 367 for a target of Rs 337.

Angel Broking neutral on Yes Bank

Yes Bank reported strong net profit growth of 56.3% yoy for 1QFY2011. Growth was above our expectations primarily due to lower provisions of Rs 13 crore as against our estimate of Rs 50 crore. However, branch expansion, which is important for CASA accretion, continued to remain behind schedule during the quarter. We maintain a neutral view on the stock

Accumulate Yes Bank; tgt Rs 340

Yes Bank continues to grow at a healthy pace. Rapid branch expansion is likely to strengthen its liability franchise and provide visibility for future growth. We revise our earnings estimates downwards marginally by 3.0% and 2.8% for FY11 and FY12, respectively to factor in higher operating costs and thereby, revise our price target to Rs 340. At CMP, the stock trades at 2.8x and 2.3x its FY11E and FY12E ABV, respectively. We maintain our accumulate rating on the stock

Hold Yes Bank with a target of Rs 264

Yes Bank reported strong set of numbers during the quarter with net profit increasing by a significant 75.6% yoy to Rs. 1.1 bn. The positive development was primarily driven by higher other income. In addition, the Bank reported a healthy rise in the net interest income. The Bank continues to pursue its growth strategy in the visibly improving credit environment. We have valued Yes Bank by using the three-stage Discounted Equity Cash Flow model. Our target price of Rs. 264, assumes a 16.16% cost of equity and a 14.78% terminal growth rate, indicating a marginal downside of 1% from the current market price. Further, the stock is trading at forward P/B multiple of 4.33x which is close to its historical average. Therefore, we give a Hold rating to the stock.

Angel Broking neutral on Yes Bank

The flush liquidity in the system is contributing to a significantly improved operating environment for Yes Bank. While Net Profit growth for FY2010E is expected to be a robust 44% on account of this, we believe that current valuations have gone beyond what this growth justifies. After the sharp run-up in the stock price, at the CMP, the stock is trading at expensive valuations of 2.4x FY2011E ABV (factoring equity dilution). We believe that this leaves relatively less margin of safety in light of structural asset quality / NIM sustainability risks, as well as a high execution risk involved in the kind of growth that the current valuations imply, with respect to the Banks Retail business. Hence, we downgrade the stock to Neutral.

Sell Yes Bank, target of Rs 177

We have valued Yes Bank by using the three-stage Discounted Equity Cash Flow model. Our target price of Rs 177, assuming a 16.18% cost of equity and a 12.81% terminal growth rate, indicates a downside potential of 9.9% over the current prices. Further, the stock is trading at forward P/B multiple of 3.3x. Therefore, we downgrade the stock from 'Hold' to 'Sell', with price target of Rs 177.

Buy Yes Bank, target Rs 244

Yes bank has registered a compounded growth rate of around 60% since it interception. We expect the bank to continue to grow at a high rate. We are very positive on the long term business prospects of the company and financial performance. At Current Market Price of Rs 165.05 the stock is trading at a PE of 16.15x. With expected EPS for FY10 and FY11 of Rs 17.73 and Rs 19.32 respectively, the stock is trading at a PE of 9.7x and 8.9x respectively. The price of the stock is undervalued at current level of Rs 165.05. We reiterate BUY on the stock with target price of Rs 244 with a medium term investment horizon. The Upside for the stock is Rs 79,

Buy Yes Bank, target of Rs 212

Yes Bank is capitalising on the opportunity provided by the withdrawal of foreign banks and conservative approach of larger private banks. It has gained traction with many new corporate clients and should deliver robust 28% loan growth for FY10. Going forward, the focus is clearly on building a strong retail deposit franchise, especially CASA. A proactive provisioning policy has ensured that the bank has the highest total NPL coverage in our universe. While Tier-1 CAR remains healthy at 10.3%, the bank plans to raise capital to meet its aggressive growth plans. We are raising our FY10 and FY11 net profit estimates by 4-6% on account of higher estimated loan growth. The stock is trading at 2.0x FY11ii P/B with FY11ii RoE of 22%. We maintain BUY with a revised target price of Rs 212 (previously 204), based on 2.5x FY11ii P/B

Buy Yes Bank, target of Rs 212

Yes Bank is capitalising on the opportunity provided by the withdrawal of foreign banks and conservative approach of larger private banks. It has gained traction with many new corporate clients and should deliver robust 28% loan growth for FY10. Going forward, the focus is clearly on building a strong retail deposit franchise, especially CASA. A proactive provisioning policy has ensured that the bank has the highest total NPL coverage in our universe. While Tier-1 CAR remains healthy at 10.3%, the bank plans to raise capital to meet its aggressive growth plans. We are raising our FY10 and FY11 net profit estimates by 4-6% on account of higher estimated loan growth. The stock is trading at 2.0x FY11ii P/B with FY11ii RoE of 22%. We maintain BUY with a revised target price of Rs 212 (previously 204), based on 2.5x FY11ii P/B,