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ING Vysya: Lagging sector average - Views on News from Equitymaster
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ING Vysya: Lagging sector average
Jun 10, 2013

ING Vysya Bank declared the results for fourth quarter and financial year 2012-13 (FY13). The bank has reported 27% YoY growth in net interest income for FY13 while net profits have grown by 34% YoY. Here is our analysis of the results.

Performance summary
  • Net interest income grows 26% YoY in FY13 backed by 11% YoY growth in advances.
  • Net interest margin improves to 3.5% in FY13 from 3.3% in FY12.
  • Cost to income ratio comes down to 56% in FY13 from 59% in FY12.
  • Bottomline grows 34% YoY in FY13 on the back of higher margins, minimal provisioning costs.
  • Net NPA to advances at 0.03%, provision coverage at 98% in FY13. The bank has, however, not divulged the restructured assets at the end of March quarter.
  • Capital adequacy ratio (CAR) at 13.2% in March 2013 as against 14.0% in March 2012.

(Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
Interest income 10,614 12,537 18.1% 38,568 48,615 26.1%
Interest Expense 7,422 8,300 11.8% 26,484 33,229 25.5%
Net Interest Income 3,192 4,237 32.7% 12,084 15,386 27.3%
Net interest margin (%)       3.3% 3.5%  
Other Income 1,968 2,004 1.8% 6,697 7,268 8.5%
Other Expense 2,957 3,398 14.9% 11,102 12,728 14.6%
Provisions and contingencies 566 335 -40.8% 1,137 912 -19.8%
Profit before tax 1,637 2,508 53.2% 6,542 9,014 37.8%
Tax 363 803 121.2% 1,978 2,885 45.9%
Profit after tax/ (loss) 1,274 1,705 33.8% 4,564 6,129 34.3%
Net profit margin (%) 12.0% 13.6%   11.8% 12.6%  
No. of shares (m)         154.8  
Book value per share (Rs)*         292.1  
P/BV (x)         2.2  
*Book value as on 31st March 2013

What has driven performance in FY13?
  • ING Vysya Bank underperformed most of its peers in private sector and lagged the sector average in terms of loan growth in FY13. However, the bank did manage to retain the proportion of retail loans and deposits. As per the management, the growth in loan book is notwithstanding the repayment in two large telecom accounts during the period amounting to over Rs 18 bn. Without these repayments the advance growth would have been significantly higher.

    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. The bank's proportion of CASA deposits dropped marginally to 32.5% in FY13 from 34.2% in FY12. 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) FY12 % of total FY13 % of total Change
    Advances 287,214   317,720   10.6%
    Retail 166,900 58.1% 209,000 65.8% 25.2%
    Corporate 120,314 41.9% 108,720 34.2% -9.6%
    Deposits 351,954   413,340   17.4%
    CASA 120,368 34.2% 134,336 32.5% 11.6%
    Term deposits 231,586 65.8% 279,005 67.5% 20.5%
    C/D ratio 81.6%   76.9%    

  • ING Vysya has made a commendable effort in improving its cost efficiency over the years. From having one of the highest cost to income ratio in the sector, ING Vysya has effectively put an effort on this front since FY10. In FY13 too, the cost to income ratio stood at 56% as against 59% in FY12. Also one needs to note the fact that ING's cost to income ratio has now come very close to most large PSU and private sector banks. Staff cost for the FY13 includes provision towards the proposed revision in scales for those employees who will be covered by the 10th Bipartite settlement between the IBA and bank unions.

  • 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 83.4% (in FY11) to 98% in FY13. While the net NPA level has come down to 0.1% from 0.3% in the past 12 months, the gross NPAs decreased from 1.9% of advances in FY12 to 1.8% of advances in FY13. Given its high provision coverage, the write back of provisioning to boost profits seems reasonable. However we are concerned about the fact that the bank has not divulged the quantum of restructured assets at the end of March 2013.

  • The proportion of other income to total income has come down from 36% to 32% over the past year and needs improvement to enhance the quality of earnings.

What to expect?
At the current price of Rs 629, the stock is trading at 1.8 times our estimated FY15 adjusted book value. While we are enthused by the bank's emphasis on cost reduction measures and margin sustainability, marginal deterioration in asset quality cannot be ruled out. Going forward, ING Vysya Bank may also have to raise capital which could result in equity dilution. Given the limited upside in valuations we reiterate our Sell view on the stock.

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