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ING Vysya Bank: Closing in on its peers
Jul 26, 2012

ING Vysya Bank declared the results for first quarter of financial year 2012-13 (1QFY13). The bank has reported 31% YoY growth in net interest income for 1QFY13 while net profits have grown by 38% YoY. Here is our analysis of the results.

Performance summary
  • Interest income grows 35% YoY in 1QFY13 backed by 23% YoY growth in advances.
  • Net interest margin improves to 3.3% in 1QFY13 from 3% in 1QFY12.
  • Cost to income ratio comes down to 58% in 1QFY13 from 64% in 1QFY12.
  • Bottomline grows 38% YoY in 1QFY13 despite higher loan loss provisioning.
  • Net NPA to advances at 0.2%, provision coverage at 90.4% in 1QFY13.
  • Capital adequacy ratio (CAR) at 13.4% in June 2012 as against 15.9% in June 2011.

(Rs m) 1QFY12 1QFY13 Change
Interest income 8,707 11,714 34.5%
Interest Expense 6,088 8,281 36.0%
Net Interest Income 2,619 3,433 31.1%
Net interest margin (%) 3.0% 3.3%  
Other Income 1,405 1,709 21.6%
Other Expense 2,556 2,967 16.1%
Provisions and contingencies 62 267 330.6%
Profit before tax 1,406 1,908 35.7%
Tax 466 607 30.3%
Profit after tax/ (loss) 940 1,301 38.4%
Net profit margin (%) 10.8% 11.1%  
No. of shares (m)   65.7  
Book value per share (Rs)*   266.8  
P/BV (x)   1.4  
*Book value as on 30th July 2012

What has driven performance in 1QFY13?
  • Despite a cut down in exposure to retail loans, the growth in loan book and deposits for ING Vysya Bank in 1QFY13, have been well in line with expectations. With the additional capital headroom we expect the loan growth to pick up in the subsequent quarters of this fiscal. At 23% YoY growth in advances, the bank managed to outdo the sector average, albeit marginally. Also 81% of the retail loan book at the end of June 2012 was concentrated in mortgages. 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 33.2% in 1QFY13 from 33.8% in 1QFY12. 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.

    Steady pace of growth
    (Rs m) 1QFY12 % of total 1QFY13 % of total Change
    Advances 238,225   292,695   22.9%
    Retail 66,703 28.0% 58,539 20.0% -12.2%
    Corporate 171,522 72.0% 213,667 73.0% 24.6%
    Deposits 313,125   358,782   14.6%
    CASA 105,836 33.8% 119,116 33.2% 12.5%
    Term deposits 207,289 66.2% 239,666 66.8% 15.6%
    C/D ratio 76.1%   81.6%    

  • 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 1QFY13 too, the cost to income ratio stood at 58% as against 64% in 1QFY12. There was however no addition to branches in the first quarter of this fiscal. The cost efficiency though did boost profits in the quarter. 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.

  • 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 90.4% in 1QFY13. While the net NPA level has come down to 0.2% from 0.4% in the past 12 months, the gross NPAs decreased from 2.3% of advances in 1QFY12 to 1.9% of advances in 1QFY13. The bank believes that most of the slippages that were coming from personal loans segment have now been curtailed. Although the write-backs have helped full year profits, the bank has been conservative in terms of provisioning during the 1QFY13.

  • The proportion of other income to total income has remained stagnant at 36% over the years and needs improvement to enhance the quality of earnings.

What to expect?
At the current price of Rs 384, the stock is trading at 1.4 times our estimated FY14 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 however, ING Vysya Bank is expected to have a streamlined approach for the future growth of the bank. The stock has moved up almost 22% since we last recommended a Buy on it in 2011. We reiterate our view on the stock.

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