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ING Vysya Bank: Cautious undertone
May 19, 2014

ING Vysya Bank declared the results for third quarter and first nine months of financial year 2013-14 (9mFY14). The bank has reported 14% YoY growth in net interest income for FY14 while net profits have grown by 7.3% YoY. Here is our analysis of the results.

Performance summary
  • Net interest income grows 14% YoY in 9mFY14 backed by 13% YoY growth in advances.
  • Net interest margin remains stable at 3.5% in FY14.
  • Cost to income ratio comes down to 54.6% in FY14 from 56.2% in FY13. This is after adjusting the one-time payment towards VRS (exceptional item).
  • Bottomline grows 7.3% YoY in FY14 despite substantial rise in provisioning costs.
  • Net NPA to advances rise to 0.3% from 0.03% in FY13. The bank has, however, not divulged the restructured assets at the end of March quarter.
  • Capital adequacy ratio (CAR) at 16.8% in March 2014 as against 12.5% in March 2013.
  • The board has recommended dividend of Rs 6 per share (dividend yield 0.9%).

(Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
Interest income 12,537 13,060 4.2% 48,615 52,052 7.1%
Interest Expense 8,300 8,347 0.6% 33,229 34,520 3.9%
Net Interest Income 4,237 4,713 11.2% 15,386 17,532 13.9%
Net interest margin (%)       3.5% 3.5%  
Other Income 2,004 2,234 11.5% 7,268 8,671 19.3%
Other Expense 3,398 3,835 12.9% 12,728 14,316 12.5%
Provisions and contingencies 335 405 20.9% 912 1,497 64.1%
Exceptional items# - 611   - 611  
Profit before tax 2,508 2,096 -16.4% 9,014 9,779 8.5%
Tax 804 703 -12.6% 2,884 3,199 10.9%
Profit after tax/ (loss) 1,704 1,393 -18.3% 6,130 6,580 7.3%
Net profit margin (%) 13.6% 10.7%   12.6% 12.6%  
No. of shares (m)         156.7  
Book value per share (Rs)*         451.3  
P/BV (x)         1.4  
*Book value as on 31st March 2014
#Exceptional items include payments made towards VRS

What has driven performance in FY14?
  • Recording one of the slowest balance sheet growth amongst private sector banks in FY14, ING Vysya Bank maintained a cautious stance. The bank chose to keep the deposit growth flat in FY14 as it had sufficient funds after capital infusion and borrowings of US$ 385 m against concessional forex swap. Moreover the bank managed to scale up the proportion of CASA deposits as well from 32.5% to 33.4%.

    As per the management, the growth in loan book is notwithstanding the repayment in some large corporate accounts during the period. Without these repayments the advance growth would have been higher.

    While the improved accretion of low cost deposits and higher capital support, the bank managed to avert the pressure on its net interest margins despite higher interest costs. 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.

    Modest pace of growth
    (Rs m) FY13 % of total FY14 % of total Change
    Advances 317,720   358,289   12.8%
    Retail 193,809 61.0% 248,653 69.4% 28.3%
    Corporate 123,911 39.0% 109,636 30.6% -11.5%
    Deposits 413,340   412,168   -0.3%
    CASA 134,336 32.5% 137,664 33.4% 2.5%
    Term deposits 279,005 67.5% 274,504 66.6% -1.6%
    C/D ratio 76.9%   86.9%    

  • ING Vysya has in the past made a commendable effort in improving its cost efficiency. However, the improvement in cost efficiency has been muted over the past 12 months and is yet to get closer to the average of private sector banks. In FY14 too, the cost to income ratio stood at 55% as against 56% in FY13. The ratio comes down to 54.6% in FY14 from 56.2% in FY13 after adjusting the one-time payment towards VRS (exceptional item).

  • 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 went up from 83.4% (in FY11) to 98% in FY13. In FY14, however it stood at 84.2% and the bank has written back some provisions with regard to restructured assets in FY14. While the net NPA level has gone up to 0.3% from 0.03% in the past 12 months, the gross NPAs remained stable at 1.8%. The spurt in provisions during FY14 are indicative of the bank expecting additional slippage in quality. Also, we are concerned about the fact that the bank has not divulged the quantum of restructured assets at the end of March 2014.

  • The proportion of other income to total income has remained stable at around 33%.

  • ING Vysya Bank's return ratios (post QIP in 2013) have got diluted (10.2% in FY14) and will recover over a longer period of time as the bank's growth and profitability catches up.

What to expect?
At the current price of Rs 636, the stock is trading at 1.7 times our estimated FY16 adjusted book value. While we are enthused by the bank's emphasis on cost reduction measures and margin sustainability, further deterioration in asset quality cannot be ruled out. In addition, the bank will have to work on cost efficiency to achieve improved profitability like that of its peers. We had recommended Sell on the stock in April 2013. We recommend investors to not buy the stock at current levels.

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