Yes Bank announced its 4QFY2009 results yesterday, reporting a net profit growth of 24% y-o-y to Rs80 crore (Rs64 crore), which was largely in line with our estimates except for the better-than-expected cost controls during the quarter.
Sequentially, advances grew 13.4% and deposits by a substantial 19.4%. The Bank ended FY2009 with a CASA ratio of 8.7%.
However, a significant reduction in wholesale deposit rates during the quarter proved to be especially beneficial for the largely wholesale-funded bank, enabling the Bank to post a healthy 43% y-o-y growth in Net Interest Income (NII).
Fee Income, a critical element of the Bank’s business model in the earlier quarters, remained subdued de-growing 15% y-o-y. The Bank operationalised 8 more branches, taking its total branch network to 117.
Operating expenses reduced by a substantial 2% y-o-y and 30% sequentially on account of continued cost controls in staff expenses.
Asset quality continued to deteriorate in line with expectations, with Gross NPAs increasing to 0.68% and Net NPAs to 0.33%. A shift to Basel 2 norms resulted in a substantial improvement in the Bank’s Capital Adequacy to 16.6%, with Tier 1 CAR at 9.5%.
At Rs77, the stock is trading at 6.5x FY2010E EPS of Rs11.8 and 1.2x FY2010E adjusted book value of Rs65.2.
We believe the flush liquidity in the system following continued RBI measures, should go some way in improving the operating environment for the Bank.
While the headwinds being faced by the Bank have set back its retail expansion plans, possibly by up to a year, we believe current valuations fail to capture the Bank’s growth potential in the medium term.
We maintain a BUY on the stock, with a target price of Rs98, implying an upside of 27%.