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ING Vysya Bank: Gentle disposition - Views on News from Equitymaster
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ING Vysya Bank: Gentle disposition
Nov 3, 2009

Performance summary
  • Interest income grows 11% YoY in 1HFY10 on the back of a muted 3% YoY growth in advances.
  • Net interest margin drops marginally to 2.9% in 1HFY10, despite higher proportion of CASA.
  • Cost to income ratio declines from 65% to 58% in the last 12 months.
  • Bottomline grows 30% YoY in 1HFY10 despite steep rise in provisioning costs.
  • Capital adequacy ratio moves up to 14.5% from 10.5% at the end of 1HFY09. ING Vysya raised Rs 4.2 bn capital by way of QIP and preferential allotment to promoter ING in 2QFY10.


(Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Interest income 5,316 5,389 1.4% 10,100 11,220 11.1%
Interest Expense 3,751 3,475 -7.4% 6,955 7,587 9.1%
Net Interest Income 1,565 1,914 22.3% 3,145 3,633 15.5%
Net interest margin (%)       3.0% 2.9%  
Other Income 1,235 1,519 23.0% 2,515 3,113 23.8%
Other Expense 1,885 1,994 5.8% 3,697 3,888 5.2%
Provisions and contingencies 216 625 189.4% 631 1,113 76.4%
Profit before tax 699 814 16.5% 1,332 1,745 31.0%
Tax 230 275 19.6% 456 607 33.1%
Profit after tax/ (loss) 469 539 14.9% 876 1,138 29.9%
Net profit margin (%) 8.8% 10.0%   8.7% 10.1%  
No. of shares (m)       102.5 119.4 102.8
Book value per share (Rs)*         187.0  
P/BV (x)         1.5  
What has driven performance in 2QFY10?
  • As the much needed capital came in at the fag end of 1HFY10, ING Vysya Bank had little option but to maintain a very gentle disposition during the first six months of this fiscal. On the back of higher accretion of low cost deposits, ING Vysya Bank managed to grow its advance book by 3% in 1HFY10. 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 27% in 1HFY09 to 30% in 1HFY10, which kept its net interest margin (NIMs) stable at to 2.9% (3.0% in 1HFY09).

    Focusing on cost
    (Rs m) 1HFY09 % of total 1HFY10 % of total Change
    Advances 158,660   163,840   3.3%
    Deposits 208,970   224,960   7.7%
    CASA 60,800 27.3% 73,500 29.7% 20.9%
    Term deposits 148,170 70.9% 151,460 67.3% 2.2%
    C/D ratio 75.9%   72.8%    

  • 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 65% in 2QFY09 to 58% in 2QFY10. This was despite the bank opening 27 branches and 112 ATMS in the past 12 months. The same, however, continues to stay well above that of private sector banks and some PSU banks. Employee costs comprised 49% of the bank’s operating costs in 1HFY10.

  • The bank, however, had a very disappointing performance in terms of sustenance of asset quality as its asset quality deteriorated both in absolute and percentage terms. While the net NPA level increased to 1.8% from 0.8% of advances in 1HFY09, the gross NPAs increased from 1.4% of advances in 1HFY09 to 2.6% of advances in 1HFY10.

  • The concerns with regard to the shortage of capital for the bank were addressed in the last quarter as ING Vysya raised Rs 4.2 bn capital by way of QIP and preferential allotment to promoter ING in 2QFY10. The same has shored up ING Vysya Bank CAR, and will enable the bank to catch up on its balance sheet growth in the medium term.

What to expect?
At the current price of Rs 273, the stock is trading at 0.9 times our estimated FY11 adjusted book value. While we are enthused by the bank’s enhanced capital and cost reduction measures, little emphasis on asset quality is an area of concern. Under the leadership of the bank’s new Managing Director, Mr. Shailendra Bhandari (ex-MD of the erstwhile Centurion Bank of Punjab), ING Vysya Bank is expected to have a streamlined approach for the future growth of the bank. We shall soon update our research report on the stock

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