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ING Vysya Bank -------------------------------------------------------------- Maintain OUTPERFORM
Loading up for growth
● ING Vysya has initiated a capital raising. It is raising ~Rs9 bn
equity capital, or a 35% increase on its current tier I capital base,
taking its tier I ratio to 12.8% (Mar-11 pro forma).
● We view this as a positive. It reaffirms management’s commitment
to faster growth. If, as the management says, the bank has raised
capital to cover approximately two-year needs, it implies
management is targeting advances of 30%+ CAGR. Further, the
capital raise should also improve the liquidity in the stock market.
● Faster growth is a key driver in ING Vysya’s turnaround strategy,
providing it with the operating leverage to bring down its cost-toincome.
We raise our estimates for asset CAGR over the next two
years from 24% to 27%. Greater operating leverage implies that
our FY13 cost-to-income estimate improves from 55% to 53%.
● At 1.3x FY12E book value, ING Vysya is one of the cheapest
stocks under our coverage. We expect steady profitability
improvement (ROE improves 266 bp in two years) and maintain
our OUTPERFORM rating with a Rs460 target price.
Capital raising signals commitment to growth
ING is raising Rs9 bn in equity capital, a clear reaffirmation of
management’s commitment to growth. The Rs9 bn capital raised
represents a 35% increase on its Mar-11 tier I capital of Rs24.6 bn.
Given that net of dividends the bank is expected to organically
generate Rs10 bn of tier I capital, this implies that the bank’s tier I
capital base will witness over 30% CAGR over the next two years.
Faster growth key to turnaround story
Historically, slow growth has implied that ING Vysya has been unable
to achieve the operating leverage required to bring down its cost-toincome
ratio. The bank is now in a position to change this. In
particular, the bank has substantially improved its underwriting and
credit risk management process—gross slippages in FY 11 were only
1.3% ( a five-year low). Further, its network expansion is addressing
its legacy skew towards semi-urban and rural regions in South India
(which are deposit poor).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ING Vysya Bank -------------------------------------------------------------- Maintain OUTPERFORM
Loading up for growth
● ING Vysya has initiated a capital raising. It is raising ~Rs9 bn
equity capital, or a 35% increase on its current tier I capital base,
taking its tier I ratio to 12.8% (Mar-11 pro forma).
● We view this as a positive. It reaffirms management’s commitment
to faster growth. If, as the management says, the bank has raised
capital to cover approximately two-year needs, it implies
management is targeting advances of 30%+ CAGR. Further, the
capital raise should also improve the liquidity in the stock market.
● Faster growth is a key driver in ING Vysya’s turnaround strategy,
providing it with the operating leverage to bring down its cost-toincome.
We raise our estimates for asset CAGR over the next two
years from 24% to 27%. Greater operating leverage implies that
our FY13 cost-to-income estimate improves from 55% to 53%.
● At 1.3x FY12E book value, ING Vysya is one of the cheapest
stocks under our coverage. We expect steady profitability
improvement (ROE improves 266 bp in two years) and maintain
our OUTPERFORM rating with a Rs460 target price.
Capital raising signals commitment to growth
ING is raising Rs9 bn in equity capital, a clear reaffirmation of
management’s commitment to growth. The Rs9 bn capital raised
represents a 35% increase on its Mar-11 tier I capital of Rs24.6 bn.
Given that net of dividends the bank is expected to organically
generate Rs10 bn of tier I capital, this implies that the bank’s tier I
capital base will witness over 30% CAGR over the next two years.
Faster growth key to turnaround story
Historically, slow growth has implied that ING Vysya has been unable
to achieve the operating leverage required to bring down its cost-toincome
ratio. The bank is now in a position to change this. In
particular, the bank has substantially improved its underwriting and
credit risk management process—gross slippages in FY 11 were only
1.3% ( a five-year low). Further, its network expansion is addressing
its legacy skew towards semi-urban and rural regions in South India
(which are deposit poor).
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