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ING Vysya: Staid and slippery growth - Views on News from Equitymaster

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ING Vysya: Staid and slippery growth
May 4, 2009

Performance summary
  • Interest income grows 33% YoY in FY09 on the back of 14% YoY growth in advances.
  • Net interest margin improves marginally from 2.8% in FY08 to 2.9% in FY09 due to higher proportion of CASA.
  • Cost to income ratio declines from 68% to 65% in the last 12 months.
  • Bottomline grows 20% YoY in FY09 despite higher provisioning costs. Excluding the extraordinary item (sale of investment in non banking subsidiary), the bottomline has grown by 38% YoY.
  • Despite parent ING Bank N.V's infusion of capital by way of perpetual bonds in FY09, ING Vysya continued to have one of the lowest capital adequacy ratios of 11.7% at the end of FY09.


Rs (m) 4QFY08 4QFY09 Change FY08 FY09 Change
Interest income 4,505 6,096 35.3% 16,804 22,398 33.3%
Interest Expense 3,100 4,473 44.3% 11,821 15,903 34.5%
Net Interest Income 1,405 1,623 15.5% 4,983 6,495 30.3%
NIM (%)       2.8% 2.9%  
Other Income 1,186 1,471 24.0% 3,982 5,476 37.5%
Other Expense 1,715 1,874 9.3% 6,095 7,725 26.7%
Provisions and contingencies 221 455 105.9% 560 1,302 132.5%
Profit before tax 655 765 16.8% 2,310 2,944 27.4%
Extraordinary item - -   204 -  
Tax 226 274 21.2% 945 1,059 12.1%
Profit after tax / (loss) 429 491 14.5% 1,569 1,885 20.1%
Net profit margin (%) 9.5% 8.1%   9.3% 8.4%  
No. of shares (m)     102.6  
Book value per share (Rs)*         155.4  
P/BV (x)         0.9  
* (Book value as on 31st March 2009)

What has driven performance in 4QFY09?
  • With some additional headroom in terms of capital (healthier capital adequacy ratio) in the second half of FY09, ING Vysya Bank managed to grow its advances by 14% YoY in the fiscal. The slower accretion of low cost deposits, however, forced the bank to largely rely on growth of term deposits. The bank has divulged that at the end of FY09, 57% of its advances were towards retail loans (of which 65% to 70% were home loans), while large corporate and SME assets together comprised 43%. The bank also managed to marginally improve the proportion of CASA deposits from 32% in FY08 to 35% in FY09. Nevertheless, poor pricing power has led to its net interest margins (NIMs) improving very marginally from 2.8% in FY08 to 2.9% in FY09.

    Focus on cost containment
    FY08 % of total FY09 % of total Change
    Advances 146,495 167,509 14.3%
    Deposits 204,575 248,900 21.7%
    CASA 64,524 31.5% 67,130 34.9% 4.0%
    Term deposits 140,051 68.5% 181,770 73.0% 29.8%
    C/D ratio 72% 67%

  • 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 68% in FY08 to 65% in FY09. The same, however, continues to stay well above that of private sector banks and some PSU banks. ING Vysya expects this ratio to stabilize at mid-50ís in the next few years. Employee costs comprised 49% of the bankís operating costs in FY09. The bank has also started providing for AS-15 on a pro-rata basis. ING Vysya has recently got RBI licences to open 56 new branches and 100 ATMs.

  • ING Vysya, however, failed to contain additional slippages in its asset book over the last few quarters as the NPAs, both at gross and net levels increased marginally. While the gross NPAs increased from 1.4% of advances in FY08 to 1.9% of advances in FY09, net NPAs increased from 0.7% to 1.2%. Even sequentially the delinquency levels have increased.

  • The concerns with regard to the shortage of capital for the bank were partially addressed in 2HFY09. In October 2008, the bank increased its capital through the issue of Tier 1 Perpetual debt amounting to Rs 950 m. Subsequent to that, ING raised an additional Rs 2 bn of Upper Tier 2 capital which was subscribed entirely by ING Group. However, the bank may have to dilute equity in the medium term to sustain its growth rates.

What to expect?
At the current price of Rs 146, the stock is trading at 0.8 times our estimated FY11 adjusted book value. The bank continues to have the highest cost to income ratio, which is a drag on its bottomline. Despite higher provisioning, the bank seems to have been inept at containing incremental slippages in the past few quarters. Despite relatively improved visibility into the future of ING Vysya and fair valuations, we remain concerned about the long term prospects of the bank.

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