ING Vyasa acquition- Kotak Mahindra Bank: Buy ::Business Line

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J.P. Morgan -ING Vysya Bank

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ING Vysya Bank (VYSB IN) 4Q FY14: Positive surprise on margins		Overweight Price: Rs550.60 29 Apr 2014 Price Target: Rs620.00 PT End Date: 31 Mar 2015

ING Vysya Bank reported PAT of Rs1.39B (down 18% y/y, 19%< JPMe) mainly on account of one-off retirement benefit provisions. Margin improvement surprised us positively. Asset quality deteriorated during the quarter, in line with our expectation. Customer asset growth remained subdued given the weak macro. We maintain our OW on the stock given what we believe to be conservative management and strong deposit profile.

Table 1: 4Q FY14 result s

Rs MM, YE Mar.	4Q 13	3Q 14	4Q 14	YoY	QoQ
NII	4,237	4,161	4,713	11.2%	13.3%
Other income	2,004	2,146	2,234	11.5%	4.1%
Opex	3,398	3,564	3,836	12.9%	7.6%
PPOP	2,843	2,743	3,111	9.4%	13.4%
Provisions	336	230	406	20.8%	76.4%
PBT	2,507	2,513	2,705	7.9%	7.7%
Tax rate	804	839	703	-12.5%	-16.2%
PAT	1,703	1,673	2,002	17.6%	19.6%
NIM	3.73%	3.55%	3.74%	0.01%	0.19%
Cost-Income	54.5%	56.5%	55.2%	0.77%	-1.29%
Tax rate	32.1%	33.4%	26.0%	-6.08%	-7.41%
Balance sheet data
Loans	317,720	340,484	358,289	12.8%	5.2%
Deposits	413,340	389,560	412,168	-0.3%	5.8%
CASA Ratio	32.5%	34.7%	33.4%	0.9%	-1.3%
Asset Quality
Gross NPA	5,702	5,827	6,442	13.0%	10.6%
Net NPA	91	731	1,020	-	39.5%
Gross NPA (%)	1.76%	1.68%	1.77%	0.0%	0.1%
Net NPA(%)	0.03%	0.21%	0.28%	0.3%	0.1%
Credit cost	0.42%	0.28%	0.46%	0.0%	0.2%

Source: J.P. Morgan estimates, Company data.

· Margins. Margin improved by 19bp q/q and stood at 3.74% in 4Q FY14, mainly on account of lower COD which declined by 13bp q/q to 7.21%. This was, however, offset by lower YOA which declined by 8bp q/q due to higher growth in low-yielding agri loans. SA balance growth remained strong at 10% q/q; however CA balance declined by 6% q/q which led to a decline in CASA ratio by 130bp to 33.4%.

· Asset quality. Asset quality deteriorated with incremental slippages at 1% v/s 0.3% in the previous quarter; this resulted in higher credit costs of 0.46% v/s 0.28% in 3Q14. Mid corporate segment contributed to the higher slippages during the quarter. Given the weak macro environment we expect credit costs to remain elevated in the medium term. We maintain our credit cost expectation of 64bp for FY14.

· Customer asset growth. Customer assets growth remained subdued at 12% y/y and 6% q/q. Growth was mainly driven by SME and Agri loans. Corporate loan growth was subdued at 3% y/y given the weak macro. Deposit growth was flat y/y due to equity-raising during the year and lower reliance on wholesale deposits.

· One-off provisions. The bank provided Rs611MM towards retirement benefits for certain employees covered under the defined benefit scheme as mandated by RBI on a retroactive basis. This resulted in a sharp decline in profits; adjusting for this, profit growth was 18% y/y.

Table 2: DuPont analysis

	3Q 12	4Q 12	1Q 13	2Q 13	3Q 13	4Q 13	1Q 14	2Q 14	3Q 14	4Q 14
NIM	3.06%	2.89%	2.53%	3.09%	3.23%	3.33%	3.23%	3.12%	3.03%	3.01%
Fees/Assets	1.56%	1.77%	1.22%	1.38%	1.38%	1.46%	1.65%	1.34%	1.39%	1.43%
Operating Expense/Assets	-2.67%	-2.68%	-2.19%	-2.60%	-2.61%	-2.67%	-2.60%	-2.47%	-2.60%	-2.45%
Provisions/Assets	-0.32%	-0.51%	-0.05%	-0.05%	-0.20%	-0.26%	-0.52%	-0.13%	-0.17%	-0.26%
ROA	1.13%	1.15%	1.11%	1.26%	1.30%	1.34%	1.33%	1.25%	1.22%	1.28%

Source: J.P. Morgan estimates, Company data.

Figure 1: Lower funding costs led to improvement in margins

Source: Company data.

Figure 2: Strong growth in SA balance during the quarter

Source: Company data.

Figure 3: Loan growth remained below industry average

Source: Company data.

 

Investment Thesis

We are OW on the stock, as:

1. VYSB is countercyclical to peers as it operates in a low-yield space with a focus on deposit quality; this entails sacrificing growth rates relative to its size. This is, however, compensated by improving operating efficiency and greater asset quality resilience.
2. VYSB’s strong deposit profile (lower cost than that of many midsize peers such as IIB and Yes) is likely to get stronger with moderate growth and an existing branch network already in place.

Valuation

Our Mar-15 PT for VYSB of Rs620 is based on a 2-stage Gordon growth model implying 1.5x Mar15E book. Our valuation factors in a cost of equity of 15.7%, normalized ROE of ~19%, and terminal growth of 5%.

Risks to Rating and Price Target

(1) Execution issues with deposit-gathering, causing the need to push up opex. (2) A spike in interest rates throwing NIMs off balance.

ING Vysya Bank - BUY :: Business Line

ING Vysya Bank: Proven competitive advantages:: Ambit

Proven competitive advantages
ING Vysya Bank (IVB) has proven its competitive advantages over
other regional banks through better geographical diversification, lowcost deposits franchise, better fee income generation capability and
better asset quality. These advantages have led to a stock rerating. We
expect its valuation gap with private sector banks to narrow further
over the next two years. Moderation in the cost-to-asset ratio and
containment of credit costs would lead to an RoA improvement of
10bps by FY15, at a time when most of IVB’s peers would face RoA
declines. Moreover, IVB is well placed to face any adverse asset quality
shocks in the near term, owing to its less risky loan book, high
provision coverage ratio and high capital ratio. We initiate coverage
with a BUY stance.
Competitive position: MODERATE Changes to this position: STABLE
Continued RoA improvement over the last four years: After a muted RoA
performance until FY09, IVB has improved its RoAs by 55bps in FY09-13 and
has delivered a 29% EPS CAGR during this period. The company de-risked its
loan book by: (1) increasing the proportion of collateralised SME loans, (2)
realigning its balance sheet towards higher interest earning assets, and (3)
improving its operational efficiency in terms of bringing down the cost-toincome ratio by ~830bps. Thus, its RoAs have improved in FY09-13.
Narrowing the valuation gap to new private sector banks: A favourable
loan mix change towards higher-yielding assets, a pick up in low-cost CASA
deposits and improving productivity of urban and metro branches that were
opened in recent years would lead to an RoA improvement of 10bps by FY15.
This improvement will take place at a time when most peer banks would see
RoA compression. This, we believe, would further narrow down the valuation
gap to new private sector banks (currently at 35% vs 52% in August 2011).
Strong buffer to protect from any asset quality shocks: Negligible
exposure to stressed sectors in the corporate book and a well-performing SME
book, provision coverage and capital ratio mean that IVB is relatively better
placed vs its peers to absorb system-wide asset quality shocks vs its peers.
Initiate with BUY stance and a target price of `626: We initiate coverage
with a BUY stance and a target price of `626 (implied one-year forward P/B of
1.6x and one-year forward P/E of 14.0x) based on the EVA approach. Our EVA
model assumes sustainable steady-state RoAs of 1.4% beyond the next three
years and a cost of equity of 14%. The main catalysts for IVB are stable asset
quality and pick up in branch expansion with contained cost ratios. The key
risk to our BUY stance is the higher-than-expected weakness in the macroeconomic environment which would affect the credit quality of SME borrowers.

ING Vysya Bank : 1Q14 results: in line, asset quality normalizing :: JPMorgan

ING Vysya Bank reported 1Q14 PAT of Rs1.75B, up 16% y/y and in line
with our estimate. Revenue and PPOP growth were strong, led by higher
fee and treasury income and lower opex growth. Credit costs inched
upwards – against the backdrop of a weak economy, this was in line with
our expectations. Overall the customer asset growth was higher than the
industry average with more focus on large corporates and mortgages. We
maintain our OW on the better long-term growth outlook for the stock.
 Credit cost inched upwards. Credit costs doubled in 1Q FY14 and
stood at 84bp. This was mainly on account of two accounts which
slipped into the NPL category amounting to Rs1.15B in the mid-sized
segment. Management expects some stress in the mid-market segment
and is consciously reducing its exposure to this segment. Given the weak
macro environment we expect credit costs to remain elevated in the
medium term. We maintain our credit cost estimate of 78bp for FY14.
 Strong customer asset growth. Customer asset growth was strong at
18% YoY, although overall loan growth was 13% YoY. Loan growth
was driven by low-risk mortgages and the wholesale segment, which is a
good strategy in the current weak macro environment. Management
expects loan growth to be higher than the system average, in line with
our expectations.
 Decline in NIMs on expected lines. NIMs stood at 3.56%, down 17bp
QoQ, mainly due to lower YOA, which was down 18bp QoQ.
Management had earlier guided that the 3.7% NIM reported in 4Q FY13
was not sustainable, so the decline was along expected lines. Given the
focus on good-quality low-risk loans, management is likely to trade off
lower margins for asset quality in the current weak environment. CASA
ratio declined 230bp QoQ as overall CASA decreased 8% QoQ, partly
due to seasonality in 1Q FY14.

Technicals: Indian Hotels, IOB, Zylog Systems, Lloyd Electric, Mangalam Cement, ING Vysya, DLF :: Business Line

ING Vysya Bank::TP: INR670 Buy :: Motilal oswal

ING VYSYA Bank's 3QFY13 PAT grew 36% YoY to INR1.6b (12% above est. of
INR1.45b). Strong margin performance (+16bp QoQ to 3.6%) and decline in NPAs
(GNPA at 1.8% and NNPA at 0.05%) led to highest ever quarterly RoA of ~1.3%.
Key highlights:
 NII came in at INR4b (+9% QoQ and 25% YoY), 7% above estimate led by 16bp
QoQ (3.61%) improvement in NIM - a positive surprise. While yield on loans
declined 10bp QoQ cost of deposits declined 21bp QoQ to 7.1% and led to
margin expansion.
 Non-interest income was 8% below estimate at INR1.9b. This was led by
muted fee income (ex-forex) performance (declined 6% YoY).
 Slippages for 3QFY13 were contained (annualized slippage ratio of 0.25%)
and GNPA in absolute terms declined marginally QoQ. NNPA is now at just
0.05% as bank increased its PCR to 97% v/s 93% in 2QFY13.
 Other highlight: (1) Reported loan growth stood at 5% QoQ and 20% YoY,
(2) SA deposit declined 1.6% QoQ and was up just 4% YoY and (3) Core CASA
ratio declined ~110bp QoQ to 31.7%.
Valuation and view: Continuous positive surprise on asset quality and margin is
leading to earnings upgrade. In 9MFY13 while PPP estimates have remained
largely unchanged, lower credit cost has led to earnings upgrade of 16% for FY13
and 9% for FY14. VYSB's RoAs improved from -0.3% in FY05 to 0.9% in FY11 and
expected to improve further to 1.2% in FY13. Continued higher than industry
growth, impeccable asset quality performance, demonstration of operating
leverage and improvement in fee income will drive valuations. Maintain Buy.

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.

ING VYSYA Bank - Credit Profile & Asset Quality to Boost Growth: Karvy

ING Vysya Bank – the only Indian bank with an MNC setup – is likely to sustain
earnings growth of 27% on the back of higher‐than‐industry growth in credit,
stable NIMs, ushering in of operational leverage, and while enjoying one of the
best asset qualities in domestic banking space. We initiate coverage on the Bank
with “BUY” recommendation with a target price Rs. 465 per share.

ING Global Real Estate Fund: SELL ::Business Line

Investors can consider exiting fund-of-fund scheme ING Global Real Estate fund.

With the rupee depreciating 24 per cent against the dollar in the last one year, international funds have seen a sharp increase in their short-term returns.

Underperformers such as ING Real Estate Securities Fund, too, have gained in the process, thus bringing their return scorecard since inception to the positive territory. With an annual return of 5.7 per cent since starting out in December 2007, the fund outperformed local benchmark indices.

ING Global Real Estate is an open-end fund-of-fund which invests in ING Global Real Estate Securities Fund. The parent fund invests in stocks of property developers across the globe.

ING VYSYA Bank - Asset quality stable even in testing times; visit note; Buy:: Edelweiss PDF link

ING VYSYA Bank (VYSB IN, INR 366, Buy)

We recently met the top management of ING VYSYA Bank (VYSB). Management sounded confident of maintaining benign asset quality metrics; however it expects the current macro challenges to limit the cost-to-income improvement. Maintain BUY.

ING Vysya Bank: Buy :Business Line

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The bank also has a diversified lending book with little exposure to troubled sectors.

ING Vysya Bank- Improvement in fundamentals continues : Sunidhi

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ING Vysya Bank reported a PAT of `1273.9 mn up 40% yoy and 7% qoq. Bottom-line stood in line with our expectations. NII came off by 1.4% qoq due to a 20 bps sequential deterioration in the NIM which was largely seasonal in nature. Provisions increased sequentially despite asset quality improvement as the bank used one off tax deductions to shore up its coverage ratio.
NIM compresses by 20 bps sequentially
ING Vysya Bank reported a NIM of 3.3% for Q4FY12, which was a sequential NIM compression of 20 bps. The NIM deterioration was largely seasonal in nature on account of priority sector lending and subscription to RIDF bonds which led to a 9 bps qoq decline in the yield on advances. In FY13, the NIM is likely to be in line with that of the previous year.
Strong loan book growth led by PSL lending
Advances grew by 22% yoy and 9.3% qoq. Sequential loan book growth was led by the agricultural and rural banking business which grew by 18% yoy on account of priority sector lending. On a yoy basis loan book growth was led by the business banking division. Going ahead the loan book will continue to grow ahead of the industry.
Non-interest grows on the back of growth in forex and core fee income growth
Non-interest income increased by 15.4% yoy and 15.8% qoq. The increase in other income was on account of a strong growth in forex and core fee income.
Asset quality improves sequentially
The asset quality of the bank improved sequentially with %GNPAs coming off by 8 bps qoq though up 4.6% qoq on an absolute basis. Slippages came of sequentially and stood at `600 mn or a slippage rate of 0.9%. The bank used the onetime tax benefits that accrued to it during the quarter to shore up its provision coverage ratio. Hence provisions increased by 69% qoq which led to a 569 bps improvement in the PCR to 90.7%. Due to higher provisions, NNPAs came off by 35% qoq and %NNPAs came off by 12 bps sequentially to 0.2%. The bank has managed to maintain its asset quality despite strong growth in its SME portfolio.
Restructured book at 1.4% of advances
The banks restructured book stood at 1.4% of advances which stood largely in line with that of the previous quarter.
Valuation and view
At the CMP of `355 the bank trades at 1.3x its FY13E ABV and 1.1x its FY14E ABV. At these valuations the bank trades below its long term one year forward P/ABV multiple. The bank is a strong re-rating candidate given its sound asset quality and improving cost to income ratios which will lead to an improvement in return ratios going ahead.