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ING Vysya Bank Ltd Q4FY14 results update

May 2, 2014, Friday, 11:15 GMT | 06:15 EST | 14:45 IST | 17:15 SGT
Contributed by Nirmal Bang

ING Vysya Bank Ltd (IVBL) reported good results on operational front with higher NII and non interest income. One time pension provisions of Rs 61.09 cr impacted bottom line performance. Asset quality remained broadly stable. The bank declared dividend of Rs 6 per share.

- Customer assets grew by 12.1% YoY during the quarter. Loan growth stood at 12.8% YoY. Growth was led by business banking (24.2% YoY growth) and agri (48.1% YoY). However, cautious approach towards wholesale banking continued as the segment de grew 2.7% YoY. Wholesale banking now constitutes 34% of loans vs. 40% in FY13. CD ratio remained high at 87%.

- We expect loan growth to be at ~16.2% for FY15-15E driven by continued growth in business banking and some uptick in corporate segment which has been on declining spree in FY14.

- In FY14, the bank relied more on funding via borrowings which kept deposit growth flat on YoY basis. However, on QoQ basis deposits grew 5.8%.

- CASA deposits grew 2.4% YoY led by 10.3% YoY growth in SA while CA declined 4.2% YoY. CASA ratio stood at 33.4% for FY14.

- Net interest margin surprised positively at 3.74%; up both QoQ and YoY. Higher dependence on lower cost borrowings (foreign currency) resulted in lower cost of funds and thereby yielded in margin improvement. We expect margins to be stable at 3.5% for FY15-16E.

- Cost to income ratio for FY14 stood at 54.6% vs 56.2% in FY13. Improved productivity is expected to yield results in the form of lower cost to income ratio. We expect cost to improve further to 53.4%/51.2% for FY15E/FY16E.

- Non interest income grew 11.4% YoY driven by trade finance, derivates and asset related incomes.

- Gross NPAs increased 11% QoQ while net NPA increased 39% QoQ. Slippages came in higher at Rs 86.1 cr (vs 23 cr last quarter). The bank restructured accounts worth Rs 45 cr taking the total restructured book at Rs 580 cr (1.6% of total advance book). Provision coverage ratio stood at 84.17%.

- CAR stood at 16.76% as on 31st March 2014 with Tier I ratio at 14.63%.

ING Vysya Bank has been able to deliver a healthy core performance in a challenging environment. Stable margins and asset quality, improving productivity, adequate capital position and relatively higher provision coverage ratio (as compared to peers) acts as positives for the bank. We expect PAT to grow at 24.3% CAGR over FY14-FY16E. We expect RoE to improve to 12.4% in FY16E from 11.2% in FY14. At CMP, the stock is trading at 1.4x and 1.26x FY15E and FY16E Adj BVPS and 12.98x and 10.55x FY15E and FY16E EPS respectively. ING Vysya has remained an underperformer in the last one quarter and we believe that the strong performance delivered will lead to re-rating of the stock. Consequently, we have upgraded our rating from HOLD to BUY with a target price of Rs 686; an upside of 20.4% from current levels. We believe that once macro environment turns favorable, ING will be in a position to reap significant benefit as the bank has been able to consolidate its position.