Snapshot
NSE CODE: INGVYSYABK
BSE CODE: 531807
CMP: 330.70
52 WEEK HIGH/LOW: 444.00/274.10
MCAP: 3996 Crore
FV: 10.00
BV: 183.79
P/BV: 1.80
PE: 13.53
INDUSTRY PE: 29.49
DIVIDEND (%) / FV: 25.00%
Over View
ING Vysya Bank Ltd. which was formed in 2002 with two major entity Vysya Bank (A 80 year old generation Indian private sector bank) and ING (A Dutch origin global financial major). ING acquired 43.8% stake in the bank and took over management control. In 81 year of long journey, ING Vysya Bank (IBV) completed many milestones. In 2001, IBV started its life insurance business and by 2006, Bank has networked all it’s the branches to facilitate ‘AAA’ transactions i.e. Anywhere, Anytime & Anyhow Banking. By December 2010, IVB had a branch network of over 490. It has customer base of over 2 million across India. Traditionally, Bank has more branches in South India. Currently, 75% of its branches are in south India which consists 50% of its overall business. Bank has made an impressive progress in all of its business.
Investment Thesis
Improving asset quality: ING Vysasa Bank witnessed Deterioration in their asset quality over FY08-FY10. The increase in the gross NPA in last few years was due to high proportion of SME and retail loans. In Q3FY11, Gross NPAs reduced 3.3% qoq. Current fiscal profit which stands at over 12% is more than enough to de-risk the bank against credit defaults. In FY11, Bank improved its asset quality with good numbers. On YoY basis, Net NPA declined 53% and 16% on qoq basis. Provision Coverage ratio (PCR) also improved in last few quarters. It improved to 76% in Q3FY11 from 73% of Q2FY11. On YoY basis, it improved from 38% in 3QFY10 to 76% in 3QFY11. With various conservative approaches, Bank performed well to increase the Provision Coverage ratio to over 75%. Going forward, we expect bank to post lower credit cost which will translate increase in profit in FY12.
Growth in Business: Loan book grew 23% YoY and 6% QoQ to Rs215b. Deposits grew 5% QoQ and 16% YoY to Rs273b. CASA deposits declined 2.5% QoQ but up 21% YoY to Rs 91 Billion which impacted overall deposit growth. By Q3FY11, Casa Stands @ 33.67% as compared to 32.2% in Q3FY10. Loan to deposit ratio (CD) ratio stood at 78.7% v/s 77.6% a quarter ago and 74.7% a year ago. Advances grew 25% yoy. Higher Operating Expenses translated into higher cost-to-income ratio. Bank is slow in expansion of its branches which makes profit per branch still lower than its peers Yes Bank, Indusind Bank, etc. Going forward, Bank is expected to accelerate its branches expansion and recruitment which will reduce the cost-to-income after few quarters. Bank has licenses to open another 60 branches in North and West in FY11. This will also help in cutting Cost-income. As per management, Bank will able to grow its loan growth and credit growth in line with Industry growth rate.
Valuation: Stock is trading at significant discount as per its peers Yes Bank and Indusind Bank. Going forward, Bank is expected to further improve its asset quality. as well as Advances and Casa. As per Management guideline, In Next few years, once expansion will roll-out in North and west, cost-income will reach below 50 and per branch profit will be as per its peers. Stock has underperformed in last 1 year as compare with industry growth ratio. Bank is expected to improve its balance sheet with strong performance. However, It will take time to improve its numbers. At Current Market price of 330, stock is trading at 10.5x FY12 EPS of Rs31and 8.1x FY13E EPS of Rs 40.8. Investors with medium risk appetite and two-three year horizon can BUY ING Vysya Bank @ CMP (330) and add more till 280 through Systematic Investment. Price Target is FY13E BV of around Rs270 x 2 = 540 in 2 Years.
Regards – EquityAhead Research!!
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