ING Vysya Bank : BUY

Impressive Performance With Strong Set of Nos

ING Vysya Bank’s (ING) PAT grew 91% YoY to Rs 91.3 cr, which was above our estimates. Improvement in NIMs (3.3% in Q4FY11, up 20 bps QoQ); strong growth in CASA balances (34.6% in Q4FY11, up 116 bps QoQ) along with improved asset quality (Gross NPA at 2.3%  in  Q4FY11,  down  36  bps  QoQ)  drove  this  robust  operating performance. Decline in provision expenses (down 96% YoY) provided traction to PAT growth.

Key highlights

• NIMs grew 20 bps to 3.3% in Q4FY11 led by yield on advances improving to 10.69% (up 56 bps QoQ) along with an improvement in CASA ratio. Cost of deposits rose to 6% (up 56 bps QoQ).
• Advances grew 28% YoY to Rs 23,600 cr buoyed by a 43% YoY rise in biz banking. CASA ratio improved to 34.6% (up 120 bps QoQ) with current a/c balance up 25% YoY & savings a/c balance up 23% YoY.
• High staff expenses (up 54% YoY) led to 13% QoQ increase in cost-to-income (C-I) ratio to 67%. ING has fully provided for: (a) the entire Gratuity liability (of Rs 20.74 cr), (b) Additional liability of pension for retired employees (of Rs 28.73 cr), and (c) 1/5th of Pension costs for existing employees (of Rs 18.6 cr). Only Pension cost on existing employees will be repeated going forward.
• Asset Quality improved as gross NPAs and Net NPAs declined by 5% QoQ and 33% QoQ to Rs 550 cr and Rs 90 cr respectively. Provision coverage improved further to 83%.

Maintain BUY, with TP of Rs 434 (24% upside)

ING is expected to witness substantial improvement in C-I ratio as some of the one-off items will not be repeated, which will help ING achieve over 1% RoA in FY12E (vs. 0.9% in FY11). Higher-thanmandated PCR will help in normalizing earnings in bad qtrs. With asset quality issues behind & with opening of new branches, ING’s focus will be on growth which will augur well for return ratios. We have revised our earnings upwards by 7% to factor in improved operational performance. At CMP of Rs 350, ING is trading at 11.5xFY12E EPS of Rs 30 & 1.38xFY12E ABV of Rs 253. BUY rating with an TP at Rs 434.