ING Vysya Bank::Takeaways Motilal Oswal Annual Global Investor Conferences

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Key Takeaways
SME loans, mortgages to be key loan-growth drivers
 With systems and processes in place and legacy issues behind, ING Vysya Bank
(VYSB) intends to grow its loan book by 1.2-1.3x the industry average.
 The bank intends to focus on high yielding SME loans and secured retail segment
for its growth. It expects to leverage its relationship with ING Global to deepen its
relationship with large corporate houses.
 On a pilot basis VYSB has begun to disburse loans in the CV segment (fleet operators)
and the unsecured personal loan segment. However it does not expect it to be a
major growth driver in the near term.
Higher fee income contribution and lower cost to income to drive profitability
 Management expects to increase its fee income contribution from 30-32% currently
to 35%, by launching new product launches and higher cross-selling.
 Bank over the past few years have invested heavily in technology and expects to
reap its benefit in coming years. Management expects cost to income ratio to decline
to low 50's over next three to four years (from 62% in FY11 and 73% in FY08) led
by increased traction in core income.
Margin guidance of 3-3.2; Asset Quality to remain healthy
 While margins declined 30bp in 1QFY12 to 3%, management expects stabilization
in cost of deposits and improvement in yield on loans will provide cushion to margins.
It has guided for margins of 3-3.2% for FY12.
 Bank has not witnessed any significant pressure on asset quality and expects it to
remain healthy. However with uncertain environment it prefers to be cautious rather
than chase growth. With lower slippages and PCR at 84% management expects
credit cost to decline from 0.8% in FY11.
Expanding horizon to cover all India
 VYSB is predominantly a south-based bank, however the management expects to
increase its branch network in the northern and western regions and consolidate its
position in the south.
 A large part of the branch increase will be in metros, urban and tier-I cities as it has
a strong presence rural and semi-urban areas. The management expects new
branches to break even in 12-18 months and the cost-to-income ratio for new
branches will converge with the bank's overall cost-to-income ratio in 3-4 years.
Valuation
 We expect EPS CAGR of ~14% over FY11-12. EPS will be INR28in FY12 and INR34
in FY13. We expect BV of INR257in FY12 and INR287 in FY13. The stock trades at
1.1x FY13E BV and 8.9x FY13E EPS. Buy.