Yes Bank’s profit climbed 95% y-o-y, led by a 100% vault in non-interest income. Pre- provisioning profit grew an impressive 82.6% y-o-y even with steady margins and deteriorating asset quality.
In a challenging environment, the Bank opted to slow down credit (27.2%) and deposits (21.2%) growth. NIM maintained at 2.8% q-o-q helped sustain NII growth at 29.4% y-o-y (56% y-o-y in 9MFY09). Credit conditions would improve from 4Q, as monetary easing aids business growth.
The share of non-interest income jumped to 61.6% (from 51% a year ago and 42.8% the previous quarter).
Growth was driven largely by treasury income, as a result of more funds being parked in investments (I/D at 51.4%). Treasury income now constitutes ~77% of non-interest income vs ~54% a year ago.
We do not expect substantial gains in future as the bank diverts funds towards credit growth.
Gross NPAs increased from 0.19% in 2Q to 0.44%. We expect asset quality to further weaken but be manageable as loan loss coverage is at 66.4%.
At our target, Yes Bank would trade at 1.6x FY10e and 1.3x FY11e ABV. We maintain a BUY on the stock and leave estimates unchanged for FY10 and FY11. For FY09, our estimates have been raised to include the significant non-interest growth in 3QFY09.