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ING Vysya: Capital provides more room for growth
Nov 10, 2011

ING Vysya Bank declared the results for second quarter and first half of financial year 2011-12 (1HFY12). The bank has reported 47% YoY growth in interest income for 1HFY12 while net profits have grown by 45% YoY. Here is our analysis of the results.

Performance summary
  • Interest income grows 47% YoY in 1HFY12 backed by 22% YoY growth in advances.
  • Net interest margin drops to 3.2% from 3.3% in 1HFY11, due to marginally lower proportion of CASA.
  • Cost to income ratio moves up from 59% to 61% in the last 12 months.
  • Bottomline grows 45% YoY in 1HFY12 due to write back of loan loss provisioning.
  • Capital adequacy ratio (CAR) moves up from 12.9% in FY11 to 15.0% in 1HFY12 due to capital raising through QIP to parent ING.

(Rs m) 2QFY11 2QFY12 Change 1HFY11 1HFY12 Change
Interest income 6,387 9,330 46.1% 12,264 18,038 47.1%
Interest Expense 3,845 6,295 63.7% 7,342 12,382 68.6%
Net Interest Income 2,542 3,035 19.4% 4,922 5,656 14.9%
Net interest margin (%)       3.3% 3.2%  
Other Income 1,932 1,624 -15.9% 3,176 3,029 -4.6%
Other Expense 2,632 2,766 5.1% 4,771 5,323 11.6%
Provisions and contingencies 697 175 -74.9% 1,136 237 -79.1%
Profit before tax 1,145 1,718 50.0% 2,191 3,125 42.6%
Tax 392 566 44.4% 748 1,032 38.0%
Profit after tax/ (loss) 753 1,152 53.0% 1,443 2,093 45.0%
Net profit margin (%) 11.8% 12.3%   11.8% 11.6%  
No. of shares (m)       120.5 149.8  
Book value per share (Rs)*         247.1  
P/BV (x)         1.3  
*Book value as on 30th September 2011

What has driven performance in 1HFY12?
  • ING Vysya managed a reasonable growth in asset book (22% YoY growth) in 1HFY12. While the accretion of low cost deposits slowed down, the bank failed to maintain its net interest margins due to pressure on 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% in 1HFY12 from 36% in 1HFY11. As the bank grows its franchise and re-prices its assets, we expect them to bring in more stability in ING's margins.

    Steady pace of growth
    (Rs m) 1HFY11 % of total 1HFY12 % of total Change
    Advances 206,699   252,890   22.3%
    Retail 113,684 55.0% 146,330 57.9% 28.7%
    Corporate 93,015 45.0% 106,560 42.1% 14.6%
    Deposits 260,690   307,120   17.8%
    CASA 93,588 35.9% 100,121 32.6% 7.0%
    Term deposits 167,102 64.1% 206,999 67.4% 23.9%
    C/D ratio 79.3%   82.3%    

  • 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 59% in 1HFY11 to 61% in 1HFY12. 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 72.7% to 84.8% in the past 12 months. While the net NPA level has come down to 0.3% from 0.8% in the past 12 months, the gross NPAs decreased from 3.3% of advances in 1HFY11 to 2.0% of advances in 1HFY12. 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 proportion of other income to total income has remained stagnant at 35% over the years and needs improvement to enhance the quality of earnings.

What to expect?
At the current price of Rs 323, the stock is trading at 1.1 times our estimated FY14 adjusted book value. While we are enthused by the bank's enhanced capital base and higher emphasis on asset quality, margin sustainability and cost reduction measures are areas of concern. Going forward however, ING Vysya Bank is expected to have a streamlined approach for the future growth of the bank. Although we have been conservative in our profitability estimates going forward given the risk of NPAs from the MFI segment, at the current valuations we retain our long term positive view on the stock.

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