CMP Rs447, Target Rs535, Upside 19.7%
Source: Company, India Infoline Research
- ING Vysya Bankâ€™s (IVB) advances growth was healthy at 21% yoy driven by Agri (17% qoq/41% yoy) and Business Banking segments (6% qoq/25% yoy). Growth in retail segment was subdued due to muted growth in mortgages (80% of the book) especially in the home loan piece (increasing competition and lower profitability has been impacting bankâ€™s inclination to grow here). However, smaller retail products viz personal loans, CV loans and Gold loans registered robust growth. During the quarter, bank received a large repayment of ~Rs11bn (3.8% of Q1 FY13 advances) from one of its telecom clients. This led to a marginal sequential decline in the wholesale book which otherwise would have grown by 8% qoq. Excluding this, even the overall advances would have grown by stronger 6% qoq/25% yoy. We estimate a higher-than-system loan growth for IVB at 19% in the current year.
- Deposits grew behind advances at 0.8% qoq/18% yoy. Terminal CASA ratio declined by 60bps qoq to 32.8% impacted by 3.5% qoq dip in current account balance. Average retail CASA was stable on sequential basis at Rs86bn; new-to-bank CASA was also healthy at Rs3.9bn. The pace of salary accounts addition further strengthened with the bank adding highest ever 67,000 accounts during the quarter. While savings balance grew by 3% qoq, annual growth remained muted at 6%. This was the fifth consecutive quarter of sluggish savings balance growth (notwithstanding robust salary account additions) on account of migration to retail term deposits having high rate differential. With rates softening on term deposits, INGâ€™s savings balance mobilization should see material improvement in coming quarters. We estimate CASA ratio to improve to 34% by the end of the year.
- IVBâ€™s NIM improved by material 15bps qoq to 3.45%. The margin expansion was solely driven by a sharp decline of 25bps qoq in cost of deposits. With the bank being significantly wholesale funded (11-13% CDs and 20-22% bulk deposits), it benefited from substantial easing of system liquidity. Blended loan yield was stable at around 12% with the bank not having taken any Base Rate cut in the past six months. While the bank has guided for NIM of 3.2-3.3% for the year, we expect margin to be slightly higher supported by improving retail loan mix, structural CASA improvement and benign wholesale rates.
- Core fee income growth was flat both on qoq and yoy basis impacted by weakness in liability related, trade finance & cash management and wealth management & advisory fees and also a reversal of Rs220mn of forex income (a derivative loss receivable from a client). With no branch expansion over the past 4-5 quarters, opex continued to grow behind revenues at 12% yoy. If not for the conservative treatment (alternatively could have been taken in provisioning line) of the derivative receivable, the cost/income ratio would have been at 55.5% instead of reported of 57.7%. The bank remains confident of reducing cost/income ratio to 50-52% over the next few years. Bank plans to start adding branches from the current quarter; recently received approval from RBI for 50 branches. Majority of the new branches would be in rural and semi-urban areas with focus on low-cost branch model that generates priority assets, liabilities and achieves break-even quickly.
- IVBâ€™s asset quality continues to remain strong underpinned by robust loan profile (largely a working capital bank in corporate/SME segments and marginal exposure to ailing sectors). Aided by negligible slippages (Rs 350mn, delinquency ratio at 0.5%), Gross NPLs of the bank declined sequentially both in absolute and percentage terms. Conservative LLP of Rs120mn improved PCR to 93% and consequently lowered Net NPL ratio to 0.1%, probably the lowest in the industry. Restructuring was absent for the second consecutive quarter and the outstanding book remains at marginal 1.3-1.4% of advances. IVB does not foresee material asset quality stress in near term. Lower stock of restructured assets reduces the risk of any negative surprise on slippages.
- Driven by strong operating performance and asset quality, RoA/RoE expanded to a multi-quarter high of 1.26%/14%. With Tier-1 capital at 10.6% (without considering H1 PAT), the bank has no plans to raise capital in the near term.
- On the back of robust Q2 FY13 performance, we raise IVBâ€™s FY13/14 earnings estimates by 4%/9% with key cause of upgrade being positive surprise on NIM and provisioning. Our RoA expectation stands elevated to 1.2% for both the years. We expect a stronger valuation re-rating now and therefore assign a higher multiple (1.65x) to the raised FY14 adj.BV arriving at our new 9-month target price of Rs535. IVB remains our top mid-cap banking pick.
|(Rs mn)||Q2 FY13||Q1 FY13||% qoq||Q2 FY12||% yoy|
|Total Interest Income||11,976||11,714||2.2||9,331||28.3|
|Net Interest Income||3,688||3,433||7.4||3,036||21.5|
|Key Ratios||Q2 FY13||Q1 FY13||chg qoq||Q2 FY12||chg yoy|
|Yield on Advances (%)||11.9||12.0||(0.1)||11.4||0.5|
|Cost of Deposits (%)||7.3||7.5||(0.3)||6.9||0.4|
|Non-interest income (%)||31.4||33.2||(1.8)||34.9||(3.4)|
|Cost to Income (%)||57.7||57.7||(0.0)||59.4||(1.7)|
|Gross NPA (%)||1.9||2.0||(0.1)||2.0||(0.1)|
|Net NPA (%)||0.1||0.2||(0.1)||0.3||(0.2)|
|Y/e 31 Mar (Rs m)||FY11||FY12||FY13E||FY14E|
***Note: This is a BSE Chart