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ING Vysya: Capital support boosts bottomline - Views on News from Equitymaster

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ING Vysya: Capital support boosts bottomline
Feb 23, 2012

ING Vysya Bank declared the results for third quarter and first nine months of financial year 2011-12 (9mFY12). The bank has reported 46% YoY growth in interest income for 9mFY12 while net profits have grown by 45% YoY. Here is our analysis of the results.

Performance summary
  • Interest income grows 46% YoY in 9mFY12 backed by 23% YoY growth in advances.
  • Net interest margin improves from 3.1% to 3.5% in 9mFY12, due to re-pricing of loans.
  • Cost to income ratio remains stable at 60%.
  • Bottomline grows 45% YoY in 9mFY12 due to write back of loan loss provisioning.
  • Capital adequacy ratio (CAR) moves up from 12.9% in FY11 to 14.0% in 9mFY12 due to capital raising through QIP to parent ING.


(Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
Interest income 6,907 9,915 43.6% 19,172 27,953 45.8%
Interest Expense 4,448 6,679 50.2% 11,789 19,061 61.7%
Net Interest Income 2,459 3,236 31.6% 7,383 8,892 20.4%
Net interest margin (%)       3.1% 3.5%  
Other Income 1,667 1,699 1.9% 4,844 4,729 -2.4%
Other Expense 2,532 2,822 11.5% 7,303 8,145 11.5%
Provisions and contingencies 336 334 -0.6% 1,473 571 -61.2%
Profit before tax 1,258 1,779 41.4% 3,451 4,905 42.2%
Tax 427 583 36.5% 1,175 1,615 37.4%
Profit after tax/ (loss) 831 1,196 43.9% 2,276 3,290 44.6%
Net profit margin (%) 12.0% 12.1%   11.9% 11.8%  
No. of shares (m)         150.0  
Book value per share (Rs)*         254.9  
P/BV (x)         1.4  
*Book value as on 30th December 2011

What has driven performance in 9mFY12?
  • With a growth in excess of 22% in its loan book in 9mFY12, ING Vysya Bank managed to cross the sector average. 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. Going forward peaking interest rates and capital headroom may offer the bank more scope for growth. The bank's proportion of CASA deposits dropped marginally to 32.5% in 9mFY12 from 33.5% in 9mFY11. As the bank grows its franchise and re-prices its assets, we expect them to bring in more stability in ING's margins.

    Steady pace of growth
    (Rs m) 9mFY11 % of total 9mFY12 % of total Change
    Advances 214,580   262,980   22.6%
    Retail 118,019 55.0% 146,330 55.6% 24.0%
    Corporate 96,561 45.0% 116,650 44.4% 20.8%
    Deposits 272,680   316,540   16.1%
    CASA 91,348 33.5% 103,192 32.6% 13.0%
    Term deposits 181,332 66.5% 213,348 67.4% 17.7%
    C/D ratio 78.7%   83.1%    

  • 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 since FY10. However, with expansion of franchise and employee base, the cost to income ratio has once again stagnated at 60% in 9mFY12. The same 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 bank's NPA coverage ratio has gone up from 76.4% to 84.9% in the past 12 months. While the net NPA level has come down to 0.3% from 0.6% in the past 12 months, the gross NPAs decreased from 2.6% of advances in 9mFY11 to 2.0% of advances in 9mFY12. The bank believes that most of the slippages that were coming from personal loans segment have now been curtailed. The writeback of excess provisioning have boosted the bank's bottomline this quarter.

  • The proportion of other income to total income has remained stagnant at 35% over the years and needs improvement to enhance the quality of earnings.

What to expect?
At the current price of Rs 352, the stock is trading at 1.2 times our estimated FY14 adjusted book value. While we are enthused by the bank's emphasis on asset quality and margin sustainability, cost reduction measures are areas of concern. Going forward 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.

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