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  • May 4, 2011 - ING Vysya Bank: Good show on asset quality, margins

ING Vysya Bank: Good show on asset quality, margins

May 4, 2011

ING Vysya Bank declared the results for fourth quarter and financial year 2010-11 (FY11). The bank has reported 21% YoY growth in interest income for FY11 while net profits have grown by 32% YoY. Here is our analysis of the results.

Performance summary
  • Interest income grows 21% YoY in FY11 backed by 28% YoY growth in advances.
  • Net interest margin improves to 3.3% from 3.2% in FY10, due to higher proportion of CASA.
  • Cost to income ratio moves up from 57% to 62% in the last 12 months.
  • Bottomline grows 32% YoY in FY11 due to write back of provisioning costs.
  • Capital adequacy ratio at 12.9% at the end of FY11.
  • Declared dividend of Rs 3 per share (dividend yield 0.9%).

(Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
Interest income 5,679 7,769 36.8%  22,329 26,940 20.7%
Interest Expense 3,207 5,085 58.6%  14,030 16,875 20.3%
Net Interest Income 2,472 2,684 8.6% 8,299 10,065 21.3%
Net interest margin (%)       3.2% 3.3%  
Other Income 1,479 1,705 15.3% 5,895 6,547 11.1%
Other Expense 2,153 2,955 37.3% 8,080 10,258 27.0%
Provisions and contingencies 757 43 -94.3% 2,400 1,516 -36.8%
Profit before tax 1,041 1,391 33.6% 3,714 4,838 30.3%
Tax 362 476 31.5% 1,292 1,652 27.9%
Profit after tax/ (loss) 679 915 34.8% 2,422 3,186 31.5%
Net profit margin (%) 12.0% 11.8%   10.8% 11.8%  
No. of shares (m)       102.6 120.0  
Book value per share (Rs)*         208.3  
P/BV (x)         1.5  
*Book value as on 31st March 2011

What has driven performance in FY11?
  • While its growth may have been slower than most of its peers in private sector banking space, ING Vysya Bank has put up an appreciable performance during this fiscal. On the back of higher accretion of low cost deposits, ING Vysya Bank managed to grow its advance book by 28% in FY11. This was one of the fastest growth in the past 2 to 3 years. 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 33% in FY10 to 35% in FY11, which helped improve its net interest margin (NIMs) to 3.3% (3.2% in FY10). As the bank grows its franchise and re-prices its assets, we expect them to bring in more stability in ING's margins.

    Focusing on cost
    (Rs m) FY10 % of total FY11 % of total Change
    Advances 185,070   236,020   27.5%
    Deposits 258,650   301,940   16.7%
    CASA 84,270 32.6% 104,590 34.6% 24.1%
    Term deposits 174,380 67.4% 197,350 65.4% 13.2%
    C/D ratio 71.6%   78.2%    

  • Having the blemish of bearing one of the highest cost to income ratio in the sector, ING Vysya had effectively put an effort on this front in FY10. However, with expansion of franchise and employee base, the cost to income ratio has once again gone up from 57% in FY10 to 62% in FY11. 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 36% to 83% in the past 12 months. While the net NPA level has come down to 0.4% from 1.2% in the past 12 months, the gross NPAs decreased from 3% of advances in FY10 to 2.3% of advances in FY11. 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 concerns with regard to the shortage of capital for the bank were addressed in FY10. The same has however resurfaced and unless the bank raises capital in the medium term it will be unable to catch up on its balance sheet growth

What to expect?
At the current price of Rs 325, the stock is trading at 1.3 times our estimated FY13 adjusted book value (Research Pro subscribers can view latest updates here. While we are enthused by the bank's enhanced margins and higher emphasis on asset quality, inadequate capital and cost reduction measures are areas 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.

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