*Yes Bank: Buy * **
** ** ** ** * ------------------------------ ** With credit growth picking up, Yes Bank may record more than double the banking system's credit growth over the next couple of years. * ------------------------------ The bank plans to expand to 250 branches by June 2011 from the present 171. M. V. S. Santosh Kumar Investors with a two-three year horizon can consider fresh exposure to the stock of Yes Bank. With a gain of 23.2 per cent, the bank has underperformed BSE Bankex over the last one year. However, the scenario may change, given the improved growth of corporate credit (which picks up during the second half of the year) and maintenance of net interest margins at 3 per cent. After underperforming the Bankex by a good margin, the stock also declined on concerns about its exposure to micro finance and telecom industries. However, the bank enjoys one of the top quality asset books with a net non-performing asset ratio of 0.06 per cent, as of September 2010. The provision coverage is also high as the bank had provided for around three times its gross NPAs. These provisions can help combat slippages, if any, in the loan book. Even the proportion of restructured assets is very low at 0.23 per cent; this has fallen sequentially. Credit growth With credit growth picking up over the last two quarters, Yes Bank may record more than double the banking system's credit growth over the next couple of years. In addition, the Bank has strong capitalisation to support this credit growth with capital adequacy ratio of 19.4 per cent as of September 2010. At the current price of Rs 330, the stock discounts its estimated FY-12 adjusted book by 2.5 times, which places it at a slight discount to Axis Bank and a steep discount to HDFC Bank. Given the high rate of growth and the smaller base compared to its peers, Yes Bank may deserve a better valuation. The stock price also discounts its estimated FY-12 earnings by 12 times. The underperformance of the stock in last six months coupled with strong growth in its book value have trimmed the stock's valuation compared to its historic trends. Business The advances book and net profit of Yes Bank grew by a compounded annual growth rate of 52 per cent and 71 per cent over the period FY07-FY10. For the half year ended September 2010, the advances growth was 86.3 per cent while net profit growth was 57.8 per cent. The bank's good net interest income growth (72.8 per cent) did not translate into equivalent profit growth, owing to a steep decline in treasury income. With a 171-branch network and 200 ATMs in operation today, the bank plans to expand to 250 branches by June 2011. It also targets a 40 per cent CASA ratio by 2015 compared with the current 10.1 per cent, mainly through branch expansion. Expansion of retail franchise will also boost the fee income opportunities, even as Yes Bank is improving its foot print in core areas such as transaction banking, loan underwriting and financial advice. The bank is also reviving its plans for higher retail lending and increased financing to SME sector, predominantly in the sunrise industries. This may help the yield on advances of the bank. Currently, around 90 per cent of the loans are to companies, with a focus on large and mid companies. Managing rate risks Superior return on assets at 1.3 per cent and high operating efficiency (despite branch and employee additions) are also the bank's advantages. The bank's return on equity for the half year ended September 2010 stood at 19 per cent, lower than peers due to low leverage. Yes Bank's cost-income ratio continues to be among the lowest for banks at 36.6 per cent for the quarter ended September 2010 helped by high fee income growth. Core non-interest income (which excludes treasury) covers almost 91 per cent of the operating costs which means majority of net interest income directly flows into the pre-provisioning profits. The credit-deposit ratio of the bank, as of September 2010, was a relatively healthy 75.8 per cent. Net interest margin was at 3 per cent for the September quarter, a 10 basis points fall quarter-on-quarter due to rising cost of funds, while the yields continue to fall. As of June 2010, around 95 per cent of the loans were either short-term (less than one year) or floating. This would make the bank well placed to manage interest rate risk as borrowing costs climb. The recent credit rating upgrade would mean less pressure on the costs, while any significant improvement in CASA balances would also support the bank's margins. http://www.thehindubusinessline.com/iw/2010/12/05/stories/2010120551711500.htm adbuth -- You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/globalspeculators?hl=en.
