ING Vysya, 2Q FY11 results: loan growth finally picks up, fresh NPLs fall:: Daiwa,

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ING Vysya Bank (VYSB IN) Rating:1
2Q FY11 results: loan growth finally picks up, fresh NPLs fall



What has changed?
 The bank’s 41% YoY net-profit jump and 24% YoY rise in loans surprised us and
the market positively. The net interest margin (NIM) improved by 6bps QoQ to
3.34%; fresh non-performing-loans (NPL) were lower than expected.
Impact
 ING Vysya Bank’s loan-book growth improved to 24% YoY for 2Q FY11
(compared with 18% YoY for 1Q FY11), after seven consecutive sluggish
quarters. The loan growth was driven primarily by growth in corporate and
SME loans. Retail-mortgage loans also showed signs of a pick-up for 2Q FY11.
 The improvement in current and savings deposits (CASA) as a proportion of
total deposits to 36% (33% in 1Q FY11) is encouraging to us and supported the
NIM improvement compared with the prior quarter. A 33% YoY increase in
savings deposits helped drive the CASA growth.
 Fresh NPL formation fell substantially quarter-on-quarter to Rs250m from
Rs1bn for 1Q FY11, leading to an improvement in gross and net NPLs. The
bank has also provided aggressively towards NPLs, thereby improving its
coverage ratio to 73% from 59% in 1Q FY11, although it had until March 2011
(under the Reserve Bank of India’s guidelines) to reach a 70% coverage ratio.
Valuation
 We have revised up our loan-growth forecasts to a CAGR of 22% for FY10-12
(from 20%) and have adjusted down our assumption for fresh NPL formation for
FY11. As a result, we have revised up our EPS forecasts by 6.8% and 3.6% for
FY11 and FY12, respectively. We believe that improving loan growth, CASA, the
NIM and asset quality should lead to a faster-than-expected improvement in ING
Vysya Bank’s ROA and that it could potentially trade at higher valuations. We have
raised our six-month target price to Rs460 from Rs407, now based on a target PBR
of 1.9x (previously 1.7x) on our FY12 BVPS forecast.
Catalysts and action
 We maintain 1 (Buy) rating on ING Vysya Bank. A further improvement in
asset quality could drive a further re-rating of the stock, in our view.