[T.S.R:16071] Yes Bank: Raise Target, Upgrade To BUY

Raise estimates, target price. Yes Bank's earnings rose 57.8% yoy, led by better net interest income (up 77.9% yoy) and lower provisions (down 25.4% yoy). We raise FY11e/FY12e EPS estimate 17.1%/15.6% on higher business growth assumptions. Due to better RoEs, we value Yes Bank at 3.1x PBV (2.8x PBV earlier) and raise our target price to `430 from `380.   n       Strong business growth, CASA improves. Advances & deposits grew 86.3% yoy & 106.6% yoy respectively. NIMs saw a marginal decline of 10bps yoy to 3.1%, with CASA improving 54bps yoy to 10.1%. We expect CAGR of 51.6% in advances and 56% in deposits over FY10-13e, due to its robust branch expansion plans. n       Better productivity, fees aid profitability. While treasury income fell 57.9% yoy, growth in income from third-party distribution (up 43.3% yoy), financial advisory (13.1% yoy) and transaction banking (8.5% yoy) arrested the decline in non-interest income to only 3.3% yoy. Cost-to-assets fell 38bps yoy to 1.6% in 1HFY11, and is one of the lowest in the industry. n       Asset quality slips, but coverage adequate. Gross NPAs increased 13.5% qoq, but comprise a low 0.22% of loans. Yes Bank's re-structured advances declined `114m to `690m (0.2% of loans). NPA coverage is 74.7%, with capital adequacy of 19.4% (tier-1 of 11%) sufficient to support likely high business growth. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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