ING Vysya Bank: RoA improvement story intact

India Infoline News Service | Mumbai |

ING Vysya Bank’s (IVB) is confident of growing its customer assets (loans + credit substitutes) ahead of the banking system in current fiscal.

CMP Rs573, Target Rs682, Upside 19.3%

Customer asset growth to beat system; retail and SME key drivers

ING Vysya Bank’s (IVB) is confident of growing its customer assets (loans + credit substitutes) ahead of the banking system in current fiscal. SME book (~33% of adv) which is diversified across sectors has been growing at strong pace. Retail portfolio (~26% of adv) is witnessing healthy growth aided by robust traction in products such as LAP, Gold Loan, Personal Loans and Vehicle Loans. Bank to pursue selective growth in the mid-corporate segment.


Multiple tailwinds for NIM to bounce 

While IVB’s NIM could dip by 20-30bps in Q2 FY14 due to higher wholesale rates, it is expected to recover sharply in H2 FY14. Key margin levers will be 1) utilization of equity proceeds (raised Rs18.4bn in June 2013) for funding asset growth 2) loan mix shift towards better-yielding SME/Retail loans and 3) 20bps Base Rate hike that will re-price large portion of corporate/SME loans. A more benign liquidity scenario in FY15 would push bank’s NIM to a multi-year high.


Improvement in cost/income ratio to continue 

Though bank has initiated calibrated branch expansion, the improvement in margin and some recovery in fee growth should drive further efficiency gains over medium term. We see cost/income ratio declining to 51.8% in FY15.


Asset quality healthy but for the mid-corporate piece

IVB’s asset quality could continue to behave resiliently due to 1) pre-dominant working capital funding and lower exposure to sensitive sectors within corporate segment 2) robust underwriting/monitoring processes in SME segment and 3) material retail asset contribution. However, with stress emerging in mid-corporate segment, some normalization in delinquency trend is expected. High PCR of ~90% would cushion credit cost in the current year.


Estimate RoA at 1.3% in FY15; retain BUY with 9m TP of Rs682

Secular improvement in cost/income ratio will provide room for absorbing higher credit costs. We estimate IVB to deliver strong 20% earnings CAGR over FY13-15. Current valuation at just above six-year mean does not fully discount accomplished and potential improvement in profitability metric.


Financial summary
Y/e 31 Mar (Rs m) FY12 FY13 FY14E FY15E
Total operating income 18,781 22,655 26,384 32,605
Yoy growth (%) 13.0 20.6 16.5 23.6
Operating profit (pre-provisions) 7,679 9,927 11,811 15,700
Net profit 4,563 6,130 6,745 8,868
yoy growth (%) 43.2 34.3 10.0 31.5
         
EPS (Rs) 30.4 39.6 36.5 48.0
Adj. BVPS (Rs) 254.6 291.6 367.2 401.3
P/E (x) 18.8 14.5 15.7 11.9
P/Adj.BV (x) 2.2 2.0 1.6 1.4
ROE (%) 14.3 14.6 11.8 12.2
ROA (%) 1.1 1.21 1.13 1.26
CAR (%) 14.0 13.2 17.0 15.6
Source: Company, India Infoline Research

***Note: This is a BSE Chart

 

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