ING Vysya Bank (Q1 FY15)

India Infoline News Service | Mumbai |

IVB witnessed significant deterioration in its asset quality as gross NPLs rose substantially by 44% to stand at 2.4% of advances.

CMP Rs600, Target Rs700, Upside 16.7%

 

  • Customer assets growth accelerates to 16% yoy; broad-based momentum to continue 

  • C/D ratio improves materially; CASA declines sharply on account of seasonal factors

  • NIM dips due to interest reversal on substantial slippages and increase in funding cost 

  •  Fee growth moderates; opex growth remained modest  

  • Asset quality deteriorates significantly on huge delinquencies; however, outlook seems better  

    RoA to improve FY16 onwards; valuation reasonable. Retain BUY

Resulttable

(Rs mn)

Q1 FY15

Q4 FY14

% qoq

Q1 FY14

% yoy

Total Interest Income

13,997

13,061

7.2

13,086

7.0

Interest expended

(9,366)

(8,348)

12.2

(8,832)

6.0

Net Interest Income

4,631

4,713

(1.7)

4,254

8.8

Other income

2,276

2,234

1.9

2,445

(6.9)

Total Income

6,907

6,947

(0.6)

6,699

3.1

Operating expenses

(3,767)

(3,836)

(1.8)

(3,430)

9.8

Provisions

(1,008)

(406)

148.3

(681)

48.0

PBT

2,132

2,705

(21.2)

2,588

(17.6)

Tax

(698)

(703)

(0.7)

(837)

(16.6)

Reported PAT

1,434

2,002

(28.4)

1,751

(18.1)

EPS

30.2

29.6

2.3

44.7

(32.4)

 

Key  Ratios

Q1 FY15

Q4 FY14

chg qoq

Q1 FY14

chg yoy

NIM (%)

3.4

3.7

(0.4)

3.6

(0.2)

Yield on Advances (%)

11.5

11.7

(0.2)

11.7

(0.2)

Cost of Deposits (%)

7.4

7.2

0.2

7.2

0.2

CASA (%)

29.9

33.4

(3.5)

30.2

(0.3)

C/D (x)

0.90

0.87

0.03

0.81

0.10

Non-interest income (%)

33.0

32.2

0.8

36.5

(3.5)

Cost to Income (%)

54.5

55.2

(0.7)

51.2

3.3

Provisions/Income (%)

6.2

2.7

3.5

4.4

1.8

BV (Rs)

376.8

369.5

7.3

303.6

73.2

RoE (%)

8.0

7.9

0.1

14.9

(6.8)

RoA (%)

1.0

1.0

(0.0)

1.3

(0.4)

CAR (%)

15.2

16.8

(1.6)

12.8

2.4

Gross NPA (%)

2.4

1.8

0.6

1.8

0.6

Net NPA (%)

0.9

0.3

0.6

0.2

0.7

Source: Company, India Infoline Research

Customer assets growth accelerates to 16% yoy; broad-basedmomentum to continue 

INGVysya Bank’s (IVB) customer assets growth improved to 16% yoy. Moreimportantly, it grew by brisk 5-6% qoq for the third straight quarter furtherfirming our belief that bank could grow at better-than-industry rate in thecurrent fiscal. Sequential growth momentum was particularly strong in thewholesale segment which expanded by 21% qoq; annual growth revived sharply to10%. A comparison of sequential rating profile of the book suggests thatincremental growth during the quarter was mainly driven by higher-rated (A andabove) large corporate loans. Over the past many quarters, the bank has beengrowth averse in relatively risky mid and emerging corporate segments. Goldloan portfolio grew by strong 6.5% qoq after having witnessed contractionduring FY14 due to regulatory headwinds. Robust momentum in personal loans continuedas portfolio grew by 10% qoq and 75% yoy. On annual basis, Agri (51% yoy), BusinessBanking (22% yoy) and LAP were large contributors to banks’ customer assetsgrowth.

C/Dratio improves materially; CASA declines sharply on account of seasonal factors

Deposits growth was low at 3% yoy (qoq grew by 2%) asexcess liquidity on the balance sheet was utilized to drive asset growth.Consequently, the loan/deposits ratio improved materially from 87% in Q4 FY14to 90%.  Savings deposits growthaccelerated to 14% yoy from 10% in the previous quarter; its contribution intotal deposits however came-off to 15% due to sequential de-growth of 5% (alsoseen in Q1 FY14). With current deposits also shrinking by 12% qoq, the CASAratio declined by substantial 350bps qoq to 30%. Robust traction in corporatesalary account addition continued with the bank adding 77,000 new accountsduring the quarter. Overall, the deposits growth was solely driven by expansionof term deposits which grew by 4.3% qoq. The contribution of CDs declined to13% with the portfolio contracting by 12% qoq.

NIMdips due to interest reversal on substantial slippages and increase in fundingcost 

Against our expectation of stable margin, IVB’s NIMcontracted by sharp 37bps qoq to stand at 3.4%. The key drivers of NIM declinewere interest reversal to the tune of Rs205mn on higher slippages (Rs5.4bn) and20bps uptick in the cost of funds. The latter was a function of decline in CASAcontribution, slight uptick in CD cost and probably marginal increase in theblended cost of term deposits (renewals at higher rates). Adjusted for interestreversals, the NIM stood at 3.52% (still representing a 22bps qoq decline) andblended yield on advances was at 11.7% (stable qoq, despite the impact oflower-yielding PSL and large corporate lending). Going ahead, NIM is expectedto stay firm in the range of 3.5-3.7% supported by improvement in CASA ratioand decline in funding cost.

Feegrowth moderates; opex growth remained modest  

Core fee income growth moderated sharply for fourthstraight quarter to tepid 6% yoy. This was driven by weakness in WealthManagement & Advisory fees (-22% yoy), Trade Finance & CMS fees (-7%yoy) and lower FX & Derivatives income (-21% yoy). There was a sharp jumpin Asset Related fees (40% qoq and 80% yoy) on the back of revival in corporateloan growth. Opex growth remained well contained at 10% yoy supported bycalibrated branch expansion (just 11 branches added during FY14) and bank’ssustained focus on improving branch productivity. With the bank targetingaccelerated pace of network expansion (added 10 branches in Q1 FY15), the costgrowth is expected to gradually inch-up. The core cost/income ratio adjustedfor interest reversals stood lower sequentially at 54.6% as compared to 56% inthe previous quarter. Improvement in credit growth and revival in fees remainskey drivers of any incremental decline in cost/income ratio. 

Assetquality deteriorates significantly on huge delinquencies; however, outlookseems better   

IVB witnessedsignificant deterioration in its asset quality as gross NPLs rose substantiallyby 44% to stand at 2.4% of advances. Delinquencies were at Rs5.4bn (annualizedratio at 5.8%) comprising of few large accounts in the wholesale lendingsegment. As per the bank, exposure of above Rs2bn to Hyderabad basedconstruction company was recognized as NPA, a Rs1bn+ account in emergingcorporate sub-segment (rice trading company) turned bad and ~Rs0.9bnrestructured account (a seed company) slipped during the quarter. Whilerecoveries and upgradations were muted, bank sold off the Rs2bn+ NPL account toARCs after providing for the hair cut. With incremental provisioning on the slippagesbeing at a lower rate (but higher than regulatory requirements), the Net NPLsjumped 225% qoq on a smaller base and PCR declined sharply from 84% to 64%. Freshrestructuring during the quarter was at modest Rs300m and the outstanding stockstood at 1.4% of advances. With the bank having booked substantial amount ofvisible stress during Q1 FY15, it expects delinquencies to revert to normalrun-rate from Q2 FY15. 

RoAto improve FY16 onwards; valuation reasonable. Retain BUY

While we expect IVB’s valuation to remain stable(at 1.4x FY16 P/ABV) in the near term (as street awaits better asset qualityperformance in Q2 FY15), it is likely to re-rate in the longer term asprospects of RoA improvement in FY16/17 become stronger. We estimate bank’s RoAto improve by 10bps each in FY16/17 on moderation in cost/income ratio andcredit cost. Retain BUY ratingon ING Vysya Bank with 9-12 month target price of Rs700.

Financial Summary

Y/e 31 Mar (Rs m)

FY13

FY14

FY15E

FY16E

Total operating income

22,655

26,203

29,488

35,080

yoy growth (%)

20.6

15.7

12.5

19.0

Operating profit (pre-prov)

9,927

11,886

13,453

16,480

Net profit

6,130

6,581

7,499

9,705

yoy growth (%)

34.3

7.4

14.0

29.4

 

 

 

 

 

EPS (Rs)

39.6

34.9

39.8

51.4

Adj.BVPS (Rs)

291.6

364.1

383.7

423.8

P/E (x)

15.2

17.2

15.1

11.7

P/BV (x)

2.1

1.6

1.6

1.4

ROE (%)

14.6

11.5

10.3

12.2

ROA (%)

1.21

1.14

1.15

1.25

Dividend yield (%)

0.9

1.0

1.2

1.5

CAR (%)

13.2

16.8

15.7

14.4

Source: Company, IndiaInfoline Research




***Note: This is a BSE Chart

 

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