Yes Bank (YES IN; Mkt Cap USD2.7b, CMP Rs352, Buy)
- Loans grew 86% YoY and 16% QoQ to Rs303b, led by strong growth in infrastructure, agriculture and large corporate segments.
- NIM declined 10bp QoQ to 3%, as cost of funds increased to 6.7% in 2QFY11 from 6.3% in 1QFY11. Higher yield on investments and elevated CD ratio at 80%+ helped to arrest margin declines despite stable yield on loans.
- CASA deposits grew 119% YoY (27.6% QoQ) to Rs40.5b; however, strong growth in overall deposits led to 40bp QoQ decline in CASA ratio to 10.1%.
- Non-interest income declined 9% QoQ. Fees from transaction banking picked up 12% QoQ but grew only 8% YoY.
- Despite adding 18 branches during the quarter, C/I ratio improved sequentially to 36.6% in 2QFY11 from 38.7% on the back of strong NII growth.
Valuation and view: We have upgraded our earnings estimates by 13% for FY11 and 10% for FY12 to factor in strong loan growth and lower credit cost. We expect the bank to report EPS of Rs22 in FY11 and Rs28 in FY12. BV will be Rs110 and Rs135, respectively. The stock trades at 12.7x FY12E EPS and 2.6x FY12E BV. Buy.