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Highlights of Q3FY11 results
ING Vysya Bank reported a PAT of Rs830m (37% yoy growth) as against our estimate of Rs804m. Fee income exhibited
traction, credit growth was robust, one-off gains were used to make employee provisions, slippages came-off and
coverage ratio increased despite a steep decline in provisions. These cushioned the impact of qoq decline in NIMs in
Q3FY11. As a result, the bank’s RoA expanded by ~10bp yoy to 0.9% in Q3FY11 (0.7% in FY10).
• Traction in loan growth: Momentum in advances was sustained with a 6% qoq and 23% yoy rise to Rs215bn in
Q3FY11. Growth was led by traction in business banking loans (10% qoq), while retail and agriculture advances each
grew by 6% qoq. Housing loans grew by 9% qoq and 29% yoy. Going forward, mortgages and business banking loans
are expected to drive growth for the bank. We expect the bank to register 25% CAGR in advances over the next two
years
• Upswing in the fee income: Fee income increased by a robust 19% qoq and 28% yoy to Rs1.5bn in Q3FY11. The
traction was led by 18% qoq rise in forex income and 14% qoq growth in wealth management fees. The bank also
recorded a treasury profit of Rs120m in Q3FY11, which is indicated to flow from sale of some properties.
Consequently, overall other income grew by a strong 28% yoy to Rs1.7bn.
• Asset quality displays strength: Gross slippages remained under leash at Rs340m (annualized 0.7% of opening loans)
were significantly lower than Rs1.5bn witnessed in H1FY11. Consequently, Gross NPAs declined (by Rs196m) to
2.66% (from 2.91% in Q2FY11). As a result, provision expenses were low at Rs336m – a significant 52% qoq decline.
Despite lower provisions, Net NPAs declined to 0.64% (from 0.81% in Q2FY11). Subsequently, provision coverage
ratio has increased to 76.4% from 73% in Q2FY11. Attainment of regulatory coverage ratio in Q2FY11 is expected to
keep provision expenses low in the near term
• NII below expectations: NII came in at Rs2.5bn, a yoy rise of 12%, below our estimates of Rs2.7bn. Owing to steep
rise in wholesale borrowing costs, costs of deposits increased by 60bp qoq to 5.4% in Q3FY11, leading to a 24bp qoq
decline in NIMs (down to 3.10% from 3.34% in Q2FY11). However, adjusting for Rs120m of income from liquid funds
booked in other income, the NIMs stand at 3.26%. Further, the impact was cushioned by a 35bp qoq rise in yield on
advances to 10.1% as compared to 9.8% in the previous quarter. (Exhibit 1)
• CASA ratio dips: ING Vysya’s CASA deposits grew 21% yoy to Rs91.3bn – though down 2% qoq – owing to
increasing term deposit rates as also outflow of few large accounts at quarter end. CASA ratio declined by 240bp qoq
to 33.5%. Management indicated that on average daily balances, CASA deposits were up 4% qoq. (Exhibit 3)
• Higher than expected opex; employee provisions made: Operating expenses came in at Rs2.5bn (up 24% yoy), led by
31% yoy increase in employee expenses. The bank has used the one-off gains to make pension and gratuity provisions
in this quarter. As a result, cost to income ratio increased to 61% (58% in Q3FY10 and Q2FY11). We expect benefits of
scale to accrue, and see the ratio gradually declining to 57% in FY12E.
• Comfortably capitalized: With Tier I ratio of 8.8% (~9.7% including YTD profits) and overall CRAR at 12.7% as of
December 2010, the bank is comfortably capitalized to accelerate the growth momentum in the near term.
Valuations & View
ING Vysya Bank has delivered a steady core performance in Q3FY11. Credit growth was robust, one-off gains were
used to make employee provisions, slippages came-off and coverage ratio increased despite a steep decline in
provisions. These positives more than offset the sequential decline in margins. While NIMs contracted owing to a
steep rise in systemic wholesale borrowing costs in Q3, we expect increasing proportion of high yielding SME loans
and re-pricing of assets to protect margins hereon. We see the bank sustaining its high growth trajectory, which in
conjunction with steady margins, is expected to drive a 22% CAGR in NII for FY11-12. With a steady improvement
across income streams as also increasing cost efficiency, we see a marked improvement in return ratios – with RoA
estimated to expand from 0.7% to 1% by FY12. In this view, current valuation of 1.4x FY12E adjusted book appears
attractive. We see a re-rating ahead driven by compelling valuations and turnaround in core operating performance.
ING Vysya remains one of our top picks in the financials space. Maintain Outperformer with a 12-month price target
of Rs480 (2x FY12E adj book).
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Highlights of Q3FY11 results
ING Vysya Bank reported a PAT of Rs830m (37% yoy growth) as against our estimate of Rs804m. Fee income exhibited
traction, credit growth was robust, one-off gains were used to make employee provisions, slippages came-off and
coverage ratio increased despite a steep decline in provisions. These cushioned the impact of qoq decline in NIMs in
Q3FY11. As a result, the bank’s RoA expanded by ~10bp yoy to 0.9% in Q3FY11 (0.7% in FY10).
• Traction in loan growth: Momentum in advances was sustained with a 6% qoq and 23% yoy rise to Rs215bn in
Q3FY11. Growth was led by traction in business banking loans (10% qoq), while retail and agriculture advances each
grew by 6% qoq. Housing loans grew by 9% qoq and 29% yoy. Going forward, mortgages and business banking loans
are expected to drive growth for the bank. We expect the bank to register 25% CAGR in advances over the next two
years
• Upswing in the fee income: Fee income increased by a robust 19% qoq and 28% yoy to Rs1.5bn in Q3FY11. The
traction was led by 18% qoq rise in forex income and 14% qoq growth in wealth management fees. The bank also
recorded a treasury profit of Rs120m in Q3FY11, which is indicated to flow from sale of some properties.
Consequently, overall other income grew by a strong 28% yoy to Rs1.7bn.
• Asset quality displays strength: Gross slippages remained under leash at Rs340m (annualized 0.7% of opening loans)
were significantly lower than Rs1.5bn witnessed in H1FY11. Consequently, Gross NPAs declined (by Rs196m) to
2.66% (from 2.91% in Q2FY11). As a result, provision expenses were low at Rs336m – a significant 52% qoq decline.
Despite lower provisions, Net NPAs declined to 0.64% (from 0.81% in Q2FY11). Subsequently, provision coverage
ratio has increased to 76.4% from 73% in Q2FY11. Attainment of regulatory coverage ratio in Q2FY11 is expected to
keep provision expenses low in the near term
• NII below expectations: NII came in at Rs2.5bn, a yoy rise of 12%, below our estimates of Rs2.7bn. Owing to steep
rise in wholesale borrowing costs, costs of deposits increased by 60bp qoq to 5.4% in Q3FY11, leading to a 24bp qoq
decline in NIMs (down to 3.10% from 3.34% in Q2FY11). However, adjusting for Rs120m of income from liquid funds
booked in other income, the NIMs stand at 3.26%. Further, the impact was cushioned by a 35bp qoq rise in yield on
advances to 10.1% as compared to 9.8% in the previous quarter. (Exhibit 1)
• CASA ratio dips: ING Vysya’s CASA deposits grew 21% yoy to Rs91.3bn – though down 2% qoq – owing to
increasing term deposit rates as also outflow of few large accounts at quarter end. CASA ratio declined by 240bp qoq
to 33.5%. Management indicated that on average daily balances, CASA deposits were up 4% qoq. (Exhibit 3)
• Higher than expected opex; employee provisions made: Operating expenses came in at Rs2.5bn (up 24% yoy), led by
31% yoy increase in employee expenses. The bank has used the one-off gains to make pension and gratuity provisions
in this quarter. As a result, cost to income ratio increased to 61% (58% in Q3FY10 and Q2FY11). We expect benefits of
scale to accrue, and see the ratio gradually declining to 57% in FY12E.
• Comfortably capitalized: With Tier I ratio of 8.8% (~9.7% including YTD profits) and overall CRAR at 12.7% as of
December 2010, the bank is comfortably capitalized to accelerate the growth momentum in the near term.
Valuations & View
ING Vysya Bank has delivered a steady core performance in Q3FY11. Credit growth was robust, one-off gains were
used to make employee provisions, slippages came-off and coverage ratio increased despite a steep decline in
provisions. These positives more than offset the sequential decline in margins. While NIMs contracted owing to a
steep rise in systemic wholesale borrowing costs in Q3, we expect increasing proportion of high yielding SME loans
and re-pricing of assets to protect margins hereon. We see the bank sustaining its high growth trajectory, which in
conjunction with steady margins, is expected to drive a 22% CAGR in NII for FY11-12. With a steady improvement
across income streams as also increasing cost efficiency, we see a marked improvement in return ratios – with RoA
estimated to expand from 0.7% to 1% by FY12. In this view, current valuation of 1.4x FY12E adjusted book appears
attractive. We see a re-rating ahead driven by compelling valuations and turnaround in core operating performance.
ING Vysya remains one of our top picks in the financials space. Maintain Outperformer with a 12-month price target
of Rs480 (2x FY12E adj book).
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