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ING Vysya: Better asset quality show in profits

Feb 10, 2011

ING Vysya Bank declared its 3QFY11 results. The institution has reported 12% YoY growth in net interest income while net profits have grown by 37% YoY. Here is our analysis of the results.

Performance summary
  • Interest income grows 15% YoY in 9mFY11 on the back of 24% YoY growth in advances.
  • Net interest margin improves to 3.2% in 3QFY11, due to higher proportion of CASA.
  • Cost to income ratio moves up from 58% in 3QFY10 to 61% in 3QFY11.
  • Bottomline grows 30% YoY in 3QFY11 supported by lower provisioning costs.
  • Capital adequacy ratio at 12.7% from 14.5% at the end of 9mFY10.
  • Net NPA to advances at 0.6% the end of December 2010.

(Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Interest income 5,429 †6,907 27.2% †16,649 †19,171 15.1%
Interest Expense 3,235 4,448 37.5% †10,822 11,789 8.9%
Net Interest Income 2,194 2,459 12.1% 5,827 7,382 26.7%
Net interest margin (%)       3.1% 3.2%  
Other Income 1,302 1,667 28.0% 4,416 4,844 9.7%
Other Expense 2,039 2,532 24.2% 5,927 7,307 23.3%
Provisions and contingencies †528 336 -36.4% 1,641 1,473 -10.2%
Profit before tax †929 1,258 35.4% 2,675 3,446 28.8%
Tax †323 427 32.2% 930 1,175 26.3%
Profit after tax/ (loss) †606 †831 37.1% 1,745 2,271 30.1%
Net profit margin (%) 11.2% 12.0%   10.5% 11.8%  
No. of shares (m)         120.8  
Book value per share (Rs)*         204.3  
P/BV (x)         ††1.5  
*Book value as on 31st December 2010

What has driven performance in 9mFY11?
  • Managing to record growth almost in line with its peers in private sector banking space, ING Vysya Bank has put up an appreciable performance during the nine month period. On the back of higher accretion of low cost deposits, ING Vysya Bank managed to grow its advance book by 24% YoY in 9mFY11. While the bank has not divulged the breakup of advances into corporate and retail, large shares of its advances continue to remain concentrated in corporate and SME assets. The bank also managed to marginally improve the proportion of CASA deposits from 26% in 9mFY10 to 34% in 9mFY11, which helped improve its net interest margin (NIMs) to 3.2% (3.1% in 9mFY10). As the bank grows its franchise and re-prices its assets, we expect them to bring in more stability in INGís margins. Having said that, the management believes that the current NIMs are likely to have a downward bias going forward.

    Focusing on cost
    (Rs m) 9mFY10 % of total 9mFY11 % of total Change
    Advances †176,950   † 218,930   23.7%
    Large corporate ††† 69,011 39% ††† 89,761 41% 30.1%
    SMEs ††† 46,007 26% ††† 61,300 28% 33.2%
    Retail ††† 44,238 25% ††† 50,354 23% 13.8%
    Deposits †234,620   † 272,680 16.2%
    CASA ††† 61,001 26.0% ††† 91,348 33.5% 49.7%
    Term deposits †173,619 74.0% † 181,332 66.5% 4.4%
    C/D ratio 75.4%   80.3%    

  • Having the blemish of bearing one of the highest cost to income ratio in the sector, ING Vysya has effectively put an effort on this front and pared the ratio from 65% in FY09 to 58% in 9mFY10. The same, however, has gone up to 61% in 9mFY11 and continues to stay well above that of private sector banks and some PSU banks.

  • ING Vysya has in the past few quarters also addressed its concerns with regard to its lower provision coverage. The bankís NPA coverage ratio has gone up from 45% to 76% in the past 12 months. While the net NPA level has reduced to 0.6% from 1.7% in the past 12 months, the gross NPAs decreased from 3% of advances in 9mFY10 to 2.7% of advances in 9mFY11. The bank believes that most of the slippages that were coming from personal loans segment have now been curtailed. Also, the bank has complied with the RBIís mandate of 70% provision coverage.

What to expect?
At the current price of Rs 302, the stock is trading at 1.2 times our estimated FY13 adjusted book value. While we are enthused by the bankís enhanced margins and improved asset quality, cost reduction measures, remain an area of concern. Under the new leadership, however, ING Vysya Bank is expected to have a streamlined approach for the future growth of the bank. We retain our long term positive view on the stock. ResearchPro subscribers can view latest updates here.

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