YES Bank Continues Strong Performance In Q3FY13

YES Bank has persisted with its good run and posted robust Q3FY13 numbers. For the Dec 2012 quarter, its Net Interest Income (NII) increased by 36% to Rs 584 crore while the Net Profit increased by 34% to Rs 342 crore despite its provisions increasing by 123% to Rs 56 crore on a YoY basis.

Despite this, however, the stock saw a dampened reaction and is trading 0.3% lower at Rs 526.55 per share. The reason for this could be that the market had expected a good set of numbers from the bank and these have already been factored into the price.

The key financial parameters of the bank are as follows:

In a scenario where most banks are facing trouble on the asset quality front, YES Bank’s asset quality has actually strengthened. It is noteworthy here that the bank has the best asset quality in the industry. For the Dec 2012 quarter, its Gross and Net NPAs decreased by 6 and 1 basis points to 0.17% and 0.04% respectively on a sequential basis. Further, its Provision Coverage Ratio also stands at 79.6% as of Dec 31, 2012.

The Net Interest Margin (NIM) of the bank improved on a YoY and sequential basis. For the quarter in question, the NIM increased by 20 basis points to 3% on a YoY basis and by 10 basis points on a sequential basis. Going ahead, with the interest rate expected to soften, we believe that the bank’s NIM would improve. In the Dec quarter, YES Bank raised Rs 444.1 crore as Tier 2 capital, which improved its overall Capital Adequacy Ratio (CAR). As on Dec 31, 2012, the CAR stood at 18% against 16% in the similar period last year, with the Tier 1 CAR at 9%.

The bank’s business growth also outpaced the overall industry, which is evident from the fact that its total deposit increased 20% to Rs 56400 crore while the advances grew by 22% to Rs 43856 crore as on Dec 2012. One of the reasons for the good growth in deposits is that the Current and Saving Account (CASA) deposit witnessed 75% growth to Rs 10340, taking the CASA ratio to 18.3% from 12.6% in the similar period last year. YES Bank was the first one to deregulate the savings account interest rate, which has attracted individuals to open accounts with the bank. Currently, it is offering a 7% rate on the savings bank accounts.

On the segmental front, Wholesale banking performed well, with the revenues growing by 27% to Rs 1577 crore while the profit from the same grew by 67% to Rs 484 crore. In the Retail segment, it reported a loss of Rs 7 crore – this was lower than the loss of Rs 32 crore in the similar period last year. The bank has been focussing more on the Retail side, and the opening of new branches and ATMs takes time to break even (As on Dec 31, 2012, it added 29 ATMs, taking the total count to 723). While the Retail segment has been witnessing losses in the past couple of quarters, it seems that it would also post good profits ahead.

We had recommended YES Bank, to investors in DSIJ (Vol. 27, Issue No. 23, dated Nov 4, 2012), when the stock was trading at Rs 381. At its current market price of Rs 526, it is yielding handsome returns of 38% in almost three months. On the valuations front, the bank is currently trading at around 3.3x, which is slightly on the higher side. Hence, we advise investors to book profits on the counter as there could be limited upside for the stock from here on.