Visit http://indiaer.blogspot.com/ for complete details ING Vysya Bank (IVB, earlier known as Vysya Bank) is one of India's oldest private sector
banks with operating history of 80 years. As of June 2010, it had branch network of 495
and customer base of 2 million.
Key Investment Arguments:
ING Vysya Bank (IVB) is turning around rapidly with RoA improving from -0.3% in FY05 to
0.7% in FY10 and further to 1% by FY12E. As legacy issues subside, we believe IVB is all set
to accelerate loan growth and improve market share.
Operating leverage to boost RoA:
IVB's focus on raising branch and employee productivity is leading to improvement in cost
to core income (C/I) ratio and RoA. Productivity has improved in the last 3-4 years, but
remains lower than peers
Fall in credit cost to drive earnings growth:
In FY10, credit cost rose to 1.3% (vs FY04-09 average of 0.6%), led by
1. Higher slippages from unsecured personal loans,
2. Conservative restructuring policy, and
3. Improving coverage ratio. We expect credit cost to fall to 1% in FY11 and 0.8% in FY12
on the back of lower unsecured personal loans and improved economic scenario.
Valuation & View:
Over FY10-13, we expect core operating profits CAGR of 26% and EPS CAGR of 33% on the
back of (1) strong loan growth, (2) stable margins, (3) operating leverage, and (4) lower
credit cost. RoA is expected to improve from 0.7% in FY10 to ~1% by FY13 and RoE from
11.6% in FY10 to ~17% by FY13. High growth coupled with improving return ratios will
lead to re-rating. We initiate coverage with a Buy rating and a target price of Rs475
(2x P/BV FY12).
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