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ING Vysya: Prov. writeback boosts profits
Jan 29, 2013

ING Vysya Bank declared the results for third quarter and first nine months of financial year 2012-13 (9mFY13). The bank has reported 25% YoY growth in net interest income for 9mFY13 while net profits have grown by 35% YoY. Here is our analysis of the results.

Performance summary
  • Net interest income grows 25% YoY in 9mFY13 backed by 20% YoY growth in advances.
  • Net interest margin improves to 3.5% in 9mFY13 from 3.3% in 9mFY12.
  • Cost to income ratio comes down to 57% in 9mFY13 from 60% in 9mFY12.
  • Bottomline grows 35% YoY in 9mFY13 on the back of higher margins, minimal provisioning costs.
  • Net NPA to advances at 0.1%, provision coverage at 97% in 9mFY13. The bank has, however, not divulged the restructured assets at the end of the second quarter.
  • Capital adequacy ratio (CAR) at 12.5% in December 2012 as against 14.0% in December 2011.

(Rs m) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
Interest income 9,915 12,388 24.9% 27,953 36,078 29.1%
Interest Expense 6,679 8,359 25.2% 19,061 24,928 30.8%
Net Interest Income 3,236 4,029 24.5% 8,892 11,150 25.4%
Net interest margin (%)       3.3% 3.5%  
Other Income 1,699 1,866 9.8% 4,729 5,265 11.3%
Other Expense 2,822 3,262 15.6% 8,145 9,330 14.5%
Provisions and contingencies 334 246 -26.3% 571 576 0.9%
Profit before tax 1,779 2,387 34.2% 4,905 6,509 32.7%
Tax 583 763 30.9% 1,615 2,081 28.9%
Profit after tax/ (loss) 1,196 1,624 35.8% 3,290 4,428 34.6%
Net profit margin (%) 12.1% 13.1%   11.8% 12.3%  
No. of shares (m)         153.2  
Book value per share (Rs)*         282.1  
P/BV (x)         2.1  
* Book value as on 31st December 2012

What has driven the performance in 9mFY13?
  • At 20% YoY growth in advances in 9mFY13, ING Vysya Bank may have not outperformed its peers in private sector. However, the bank did manage to retain the proportion of retail loans and deposits. As per the management, the growth in loan book is notwithstanding the repayment in two large telecom accounts during the period amounting to over Rs 18 bn. Without these repayments the advance growth would have been significantly higher.

    While the accretion of low cost deposits slowed down, the bank managed to avert the pressure on its net interest margins due to capital support (CAR) despite higher interest costs. The bank's proportion of CASA deposits dropped marginally to 31.7% in 9mFY13 from 32.6% in 9mFY12. As the bank grows its franchise and re-prices its assets, we expect them to bring in more long term stability in ING's margins.

    Steady pace of growth
    (Rs m) 9mFY12 % of total 9mFY13 % of total Change
    Advances 267,518   321,530   20.2%
    Retail 74,905 28.0% 86,813 27.0% 15.9%
    Corporate 192,613 72.0% 234,717 73.0% 21.9%
    Deposits 316,545   376,909   19.1%
    CASA 103,147 32.6% 119,336 31.7% 15.7%
    Term deposits 213,398 67.4% 257,573 68.3% 20.7%
    C/D ratio 84.5%   85.3%    

  • ING Vysya has made a commendable effort in improving its cost efficiency over the years. From having one of the highest cost to income ratio in the sector, ING Vysya has effectively put an effort on this front since FY10. In 3QFY13 too, the cost to income ratio stood at 56.8% as against 59.8% in 3QFY12. Also one needs to note the fact that ING's cost to income ratio has now come very close to most large PSU and private sector banks. Staff cost for the 3QFY13 includes provision towards the proposed revision in scales for those employees who will be covered by the 10th Bipartite settlement between the IBA and bank unions.

  • ING Vysya has in the past few quarters also addressed its concerns with regard to its lower provision coverage. The bank's NPA coverage ratio has gone up from 83.4% (in FY11) to 97.2% in 3QFY13 (85% in 3QFY12). While the net NPA level has come down to 0.1% from 0.3% in the past 12 months, the gross NPAs decreased from 2.0% of advances in 3QFY12 to 1.8% of advances in 3QFY13. Given its high provision coverage, the write back of provisioning to boost profits seems reasonable. However we are concerned about the fact that the bank has not divulged the quantum of restructured assets at the end of the third quarter.

  • The proportion of other income to total income has remained stagnant at 36% over the years and needs improvement to enhance the quality of earnings.

What to expect?
At the current price of Rs 585, the stock is trading at 1.7 times our estimated FY15 adjusted book value. While we are enthused by the bank's emphasis on cost reduction measures and margin sustainability, marginal deterioration in asset quality cannot be ruled out. Going forward, ING Vysya Bank may also have to raise capital which could result in equity dilution. Given the limited upside in valuations we recommend investors not to buy any more of the stock at current levels.

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