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Recommendations India

ING Vysya Bank Q1FY15 results update

July 24, 2014, Thursday, 12:33 GMT | 08:33 EST | 17:03 IST | 19:33 SGT
Contributed by Nirmal Bang

ING Vysya Bank Ltd (IVBL) reported results below expectations led by significantly higher provisions. PAT declined 18.1% YoY to Rs 143 cr. Asset quality witnessed sharp deterioration and Gross NPA stood at 2.39% and Net NPA stood at 0.87%; at levels which were last seen in FY11.

- Customer assets grew by 15.8% YoY in Q1FY15 while loan growth stood at 15.5% YoY. Growth was led by business banking (22.3% YoY growth) and agri (51.4% YoY). Wholesale banking witnessed some uptick with growth of 21.3% QoQ and constituted 38.8% of total loan book vs. 34% in Q4FY14. CD ratio remained high at 90.3%. We expect loan growth to be at ~16.8% for FY15-16E driven by continued growth in business banking and corporate segment.

- Savings deposits increased 14% YoY; however its contribution in total deposits declined to 15% due to QoQ decline of 5%. Current deposits also declined 12% QoQ leading to decline in overall CASA ratio. CASA ratio stood at 30.0% for Q1FY15.

- Net interest margin witnessed substantial decline and stood at 3.37% vs 3.56% in Q1FY14 and 3.76% in Q4FY14 impacted by interest reversals of Rs 20.3 cr. Adjusting for interest reversals; margins stood at 3.52%. We expect margins to return back to 3.5% for FY15-16E.

- Cost to income ratio stood at 54.5% vs 51.2% in Q1FY14. Lower growth in income was further impacted by higher increase in opex. We expect cost to income ratio to improve to 54.2%/52.4% for FY15E/FY16E.

- Gross NPAs witnessed sharp increase of 44.2% QoQ while net NPA increased 2.25x QoQ. Slippages came in higher at Rs 542 cr (vs 86.1 cr last quarter). Slippages include one construction account of Rs 200 cr which has been sold to ARC at 30% discount to book value, one trading account worth Rs 100 cr and one CDR account worth Rs 90 cr.

- The bank restructured accounts worth Rs 30 cr taking the total restructured book at Rs 517 cr (1.4% of total advance book).

ING Vysya reported a weak performance in this quarter which was significantly impacted by stress in asset quality and higher provisions. As per the management, the stress addition is largely one off in nature and is not expected to occur at this pace going forward. Barring this quarter, ING has always been able to deliver a healthy core performance. Despite a temporary blip in the earnings; focus on improving productivity, adequate capital position and relatively higher margins (as compared to peers) acts as positives for the bank. We expect PAT to grow at 22.8% CAGR over FY14-FY16E. We expect RoE to improve to 12.2% in FY16E from 11.2% in FY14. At CMP, the stock is trading at 1.5x and 1.35x FY15E and FY16E Adj BVPS and 14.67x and 11.38x FY15E and FY16E EPS respectively. ING Vysya has remained an underperformer in the last one year with one offs impacting performance on a continuous basis. We believe that the underperformance largely factors in asset quality concerns. Consequently, we recommend investors to HOLD the stock for a target price of Rs 665 (1.5x FY16E ABV); an upside of 10.8% from current levels.