ING Vysya Bank -Key takeaways from management meet :Anand Rathi

ING Vysya Bank
Key takeaways from management meet
From our recent interaction with the ING Vysya management, we
gather that it remains focused on higher-than-industry credit growth,
productivity improvement and maintaining robust asset quality. On an
enhanced RoE of ~16.9% by FY15e (14.2% in FY12), we reiterate a Buy.

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 Better-than-industry credit growth guidance. Management remains
confident of achieving higher-than-industry credit growth. We expect its
credit to grow at 22% in FY13, with a positive bias towards retail loans,
wherein the bank has recently introduced three new retail products viz.
gold loans, new CV finance and personal loans.
 Focus on productivity, leverage existing setup. Cost-income and costassets
in FY12 at 59.1% and 2.6%, respectively, are higher than peers with
significant scope for improvement. With investments towards, creation of a
pan India network and robust systems, almost over, the bank intends to
bring down its cost-income to ~50% by FY15 by leveraging its existing
infrastructure. We expect asset growth to outpace operating expenses
growth, with cost-assets improving to 2.3% by FY15.
 Stable asset quality, adequate capitalization. Asset quality has
remained largely stable despite deterioration in the macro economy. This
is attributable to better underwriting standards, conscious policy decision
of zero exposure to airlines, oil and project finance, and no bilateral
restructuring. Management is confident on its telecom exposure, completely
backed by guarantees. Additionally, best-in-class NPA coverage (91%) will
hold the bank in good stead. Capital adequacy of 13.4% (Tier-1: 10.7%) is
sufficient to sustain a 23.3% loan CAGR over FY12-15e.
 Valuation. At our Sep ’13 price target, the stock would trade at a PABV of
1.6x FY13e and 1.4x FY14e. Our target is based on the two-stage DDM
(CoE: 15.0%; beta: 0.8; Rf: 8.0%). Risk: Slower-than-expected economic
growth could impair loan growth and credit quality.