Core fee income growth moderated to 9% yoy from 13% yoy in the previous quarter.
Customer assets grew by 12% yoy; robust growth in SME, Agri and LAP continues
Some improvement seen in CASA momentum
Substantial uptick in NIM; multiple factors to support margin in the medium term
Fee growth moderates; opex growth remained modest but for an exceptional provisioning
Delinquencies under control; lower incremental provisioning leads to increase in Net NPLs
RoA improvement story intact; valuation inexpensive. Retain BUY
(Rs mn) | Q4 FY14 | Q3 FY14 | % qoq | Q4 FY13 | % yoy |
Total Interest Income | 13,061 | 12,733 | 2.6 | 12,537 | 4.2 |
Interest expended | (8,348) | (8,572) | (2.6) | (8,301) | 0.6 |
Net Interest Income | 4,713 | 4,161 | 13.3 | 4,237 | 11.2 |
Other income | 2,234 | 2,146 | 4.1 | 2,004 | 11.5 |
Total Income | 6,947 | 6,307 | 10.1 | 6,241 | 11.3 |
Operating expenses | (3,836) | (3,564) | 7.6 | (3,398) | 12.9 |
Provisions | (406) | (230) | 76.4 | (336) | 20.8 |
PBT | 2,705 | 2,513 | 7.7 | 2,507 | 7.9 |
Tax | (703) | (839) | (16.2) | (804) | (12.5) |
Reported PAT | 2,002 | 1,674 | 19.6 | 1,703 | 17.5 |
EPS | 29.6 | 35.6 | (16.9) | 44.0 | (32.8) |
Key Ratios | Q4 FY14 | Q3 FY14 | chg qoq | Q4 FY13 | chg yoy |
NIM (%) | 3.7 | 3.4 | 0.4 | 3.7 | 0.0 |
Yield on Advances (%) | 11.7 | 11.5 | 0.2 | 11.9 | (0.2) |
Cost of Deposits (%) | 7.2 | 7.3 | (0.1) | 7.1 | 0.1 |
CASA (%) | 33.4 | 34.7 | (1.3) | 32.5 | 0.9 |
C/D (x) | 0.87 | 0.87 | (0.00) | 0.77 | 0.10 |
Non-interest income (%) | 32.2 | 34.0 | (1.9) | 32.1 | 0.0 |
Cost to Income (%) | 55.2 | 56.5 | (1.3) | 54.5 | 0.8 |
Provisions/Income (%) | 2.7 | 1.5 | 1.1 | 2.3 | 0.3 |
BV (Rs) | 369.5 | 369.3 | 0.2 | 292.1 | 77.4 |
RoE (%) | 7.9 | 9.5 | (1.6) | 15.0 | (7.1) |
RoA (%) | 1.0 | 1.2 | (0.2) | 1.3 | (0.4) |
CAR (%) | 16.8 | 16.9 | (0.1) | 13.2 | 3.5 |
Gross NPA (%) | 1.8 | 1.7 | 0.1 | 1.8 | 0.0 |
Net NPA (%) | 0.3 | 0.2 | 0.1 | 0.0 | 0.3 |
Customer assets grow by 12% yoy; robust growth in SME, Agri and LAP continues
ING Vysya Bank’s (IVB) customer assets grew by 12% yoy driven by strong growth in segments of Agri (48% yoy) and Business Banking (24% yoy) and in retail products of personal loans (29% yoy) and LAP. Wholesale banking book de-grew by 3% yoy impacted by repayment of a large loan worth Rs21.5bn from a Telecom client during Q FY14 and bank’s cautious growth approach in the emerging corporate space. Within mortgages, shift towards LAP accelerated with its contribution in disbursements jumping to 70% in FY14 as compared to 40% in FY13. LAP disbursements grew by robust 80% yoy during the year albeit on a small base. Bank targets to grow customer assets ahead of the system in FY15.
Some improvement in CASA momentum
Total deposits were flat yoy as customer assets expansion was funded through borrowings, investments and equity capital (raised Rs18.4bn in June 2013). Savings deposits continued to grow at improved pace of 10% yoy thereby increasing its share by 70bps qoq to 16.4%. A 6% de-growth in current deposits drove reduction in CASA ratio by 130bps. However, the CASA momentum seems to be improving as the bank added Rs3.7bn as New-to-Bank CASA, highest in the past four quarters. Robust traction in corporate salary account addition continued with the bank adding 81000 new accounts during the quarter. There was a significant 23% jump in CDs on account of seasonality, however its share is deposits was slightly lower yoy.
Substantial uptick in NIM; multiple factors to support margin in the medium term
As expected, NIM significantly improved by 40bps qoq to 3.74%. The improvement was driven by 20bps improvement in the lending yield and 10bps fall in funding. The yield on advances reverted to normalized level after being hit by income reversal on restructured account during Q3 FY14. Further, higher customer assets/deposits ratio on account of utilization of equity proceeds also supported margin. Going ahead, NIM is expected to stay firm around current level due to loan mix shift towards better-yielding SME/Retail loans, further strengthening of CASA mobilization and benign wholesale rates.
Fee growth moderates; opex growth remained modest but for an exceptional provisioning
Core fee income growth moderated to 9% yoy from 13% yoy in the previous quarter. This was solely driven by a steep de-growth in Wealth Management & Advisory fees while other fee streams posted healthy growth. Opex growth remained modest at 13% yoy supported by calibrated branch expansion (just 11 branches added during FY14) and bank’s sustained focus on improving branch productivity. During the quarter, bank has to make a one-time provisioning of Rs610mn to comply with the IBA circular regarding superannuation provision for retirals. The core cost/income ratio (excluding the exceptional provision and treasury income) improved to 56% as compared to 58.7% in the previous quarter and the decline was caused by NIM expansion.
Delinquencies under control; lower incremental provisioning leads to increase in Net NPLs
Asset quality performance was impressive with slippages being contained within 1% for the third straight quarter. Gross NPLs increased 11% qoq due to lower recoveries and upgrades. With incremental provisioning on the fresh NPL accruals being at a lower rate (but higher than regulatory requirements), the Net NPLs jumped 40% qoq on a smaller base and PCR declined from 88% to 84%. Restructuring during the quarter was at Rs450m and the outstanding stock stood at 1.6% of advances. Apart from the emerging corporate segment (~30-35% of total corporate book), asset quality of the bank remains solid.
RoA improvement story intact; valuation inexpensive. Retain BUY
IVB’s Q4 FY14 operational performance was strong barring the exceptional provisioning which depressed RoA. We estimate RoA improving to 1.3% in FY16 from 1.14% in FY14 supported by firm NIMs, gradual improvement in cost/income ratio and moderation in credit cost. The bank is likely to deliver a strong 22% earnings CAGR over FY14-16. Current valuation at 1.3x FY16 P/BV is inexpensive and does not fully discount the potential improvement in profitability metric. Retain BUY rating and 9-12 month target price of Rs712.
Y/e 31 Mar (Rs m) | FY13 | FY14 | FY15E | FY16E |
Total operating income | 22,655 | 26,203 | 29,663 | 35,147 |
yoy growth (%) | 20.6 | 15.7 | 13.2 | 18.5 |
Operating profit (pre-prov) | 9,927 | 11,886 | 13,557 | 16,625 |
Net profit | 6,130 | 6,581 | 7,845 | 9,833 |
yoy growth (%) | 34.3 | 7.4 | 19.2 | 25.4 |
EPS (Rs) | 39.6 | 34.9 | 41.6 | 52.1 |
Adj.BVPS (Rs) | 291.6 | 364.1 | 395.7 | 435.4 |
P/E (x) | 14.4 | 16.3 | 13.7 | 10.9 |
P/BV (x) | 2.0 | 1.6 | 1.4 | 1.3 |
ROE (%) | 14.6 | 11.5 | 10.8 | 12.3 |
ROA (%) | 1.21 | 1.14 | 1.21 | 1.29 |
Dividend yield (%) | 1.0 | 1.1 | 1.2 | 1.6 |
CAR (%) | 13.2 | 16.8 | 16.1 | 14.9 |
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