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ING Vysya Bank Q3FY14 results update

February 4, 2014, Tuesday, 11:13 GMT | 07:13 EST | 16:43 IST | 19:13 SGT
Contributed by Nirmal Bang


Stable performance
 
- ING Vysya Bank Ltd (IVBL) reported results below expectations on operational front. However, asset quality was broadly stable.
 
- Customer assets grew by 10.1% YoY during the quarter. Loan growth stood at 7.8% YoY. Growth was led by business banking and retail loans. Within retail, LAP and gold loan witnessed growth. We believe that loan growth will continue to remain subdued and more tilted in favor of retail banking.
 
- Deposits increased mere 3.4% YoY and declined QoQ as the bank availed foreign currency loan facility of USD 385 mn during the quarter. CASA ratio saw an improvement both QoQ and YoY led by growth in current account deposits; bulk of which came at the end of the quarter. Adjusting for the large inflows, ING’s core CASA stood at 32.7%.
 
- Net interest margin stood at 3.35%; lower both QoQ and YoY resulting from interest reversal of Rs 25.7 cr on restructured loans during the quarter. Adjusting for interest reversal, margin stood at 3.55% for the quarter.
 
- Going forward, margins are expected to remain broadly stable with increasing share of CASA, access to swap facilities at lower borrowing cost which is expected to be partially offset by ramping up of priority sector lending.
 
- The bank opened only 2 branches during the quarter, keeping the opex under check. However, slower growth in total income led to higher cost to income ratio on QoQ basis. Going forward, improved productivity is expected to yield results in the form of lower cost to income ratio.
 
- Asset quality was broadly stable with fresh slippages at Rs 23 cr (vs Rs 86 cr last quarter). However, restructuring stood higher as the bank restructured 4 accounts in wholesale banking worth Rs 200 cr taking the total restructured book at Rs 560 cr (1.6% of total advance book).
 
- Provision coverage ratio stood at 87.5%.
 
-CAR stood at 16.93% as on 31st December 2013 with Tier I ratio at 14.5%.
 
- The tax expense for Q3FY14 included proportionate 9M deferred tax charge of Rs. 4.08 cr on Special Reserve at that date. The bank has also created a Deferred Tax Liability Reserve of Rs. 25.39 cr.
 
ING Vysya Bank has been able to deliver a healthy performance on most of the parameters be it margins, loan growth or asset quality in a challenging environment which is commendable. Stable margins, 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 13.8% CAGR over FY13-FY15E. At CMP, the stock is trading at 1.35x and 1.24x FY14E and FY15E Adj BVPS and 13.63x and 11.86x FY14E and FY15E EPS respectively. Considering the challenging macro economic conditions, we maintain our HOLD rating on the stock with a target price of Rs 565 (1.4x FY15E ABV); an upside of 13.0% 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.

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