Less Growth In Yes Bank

Yes Bank yesterday posted its March quarter and full year financial numbers. The net profit of the bank increased approximately by 34 per cent for both the March quarter as well as for the full financial year 2011-12. The profit for the quarter was Rs 271.8 crore while for FY12 it was Rs 977 crore. On the back of this the stock yesterday gained by almost 2 per cent to Rs 366.40 but the scrip has lost all its yesterday’s gains and is trading lower by 2.43 per cent at Rs 357.5. This is due to the bank having posted muted to subdued business growth for the quarter.

As on March 31, 2012, the advances of the bank grew by a mere 10.5 per cent to Rs 37,988 crore while the deposits grew by a mere 7 per cent to Rs 49,151 crore. The figures reveal that the bank has not been able to grow at a good pace given the fact that it has low base. The growth was well below the RBI projections of 15.5 per cent deposit and 16 per cent credit growth for FY12.

In terms of asset quality, Yes Bank had the best asset quality in the past and also holds the same status as of now. But looking from the bank’s point of view, it has seen deterioration in its asset quality. The net NPAs increased by 2 basis points to 0.05 per cent on a YoY basis. Further, the provision coverage ratio (PCR) decreased by 940 basis to 79.2 per cent, which further indicates that there might be some risk which will result in the bank’s NPA to rise going ahead.

It was good to see the bank maintaining its net interest margin (NIM). For the March quarter of 2012, the bank’s NIM remained stable at 2.8 per cent on a YoY basis. As on March 31, 2012, the capital adequacy ratio (CAR) of the bank improved by 144 basis points to 17.94 per cent while the Tier 1 CAR stood at 9.9 per cent which is at a very good level.

The bank focuses more on the retail segment, which has provided good revenue growth. The revenue from the retail segment increased by 72 per cent to Rs 112 crore while it posted a loss of Rs 33 crore against Rs 6 crore in a similar period last year. This was on the back of high expansion done in the segment. For the quarter it added 25 new branches across the country, taking the total branch network to 356. Other segments like treasury and corporate banking saw good growth during the quarter.

Let us also glance at the figures for the full financial year 2011-12. The net interest income (NII) of the bank increased by 30 per cent to Rs 1,615 crore. The other income of the bank also saw good growth of 38 per cent to Rs 857 crore. There was a decline in the provisions by 8 per cent to Rs 90 crore. During the entire FY12, it added 142 branches - higher by 66 per cent when compared to last year and 359 ATMs, thus taking the total ATM network to 606.

Overall, the bank is in a decent shape. With the interest rate reversing, we may see the bank’s NIM improve going ahead. However, the bank is facing issues when it comes to business growth. The uncertain current environment will impact business growth going ahead. Also, the bank was the first one to deregulate its saving interest rate and with the interest rate reversing going ahead one might see the bank’s saving rate coming down. If this happens there could be some customer dissatisfaction which could further impact the bank. On the valuation front, it is currently trading at a price to book value of 2.69 times which is slightly on the higher side. We believe one could invest in the scrip in a staggering manner keeping in mind a longer term horizon as there could be some downside for the scrip.