ING Vysya Bank (IVB) has been implementing its strategy of opening new branches in the northern and western parts of India especially in the metro/urban areas. Since March 2008, 93 branches out of the 95 new incremental branches were opened outside the southern region of India. However, IVB predominantly has had a good ~68% (out of the total branch network) presence in southern parts of India as on December 2011.
Diversified loan book
Loan growth will be driven by strong tie-ups with small and medium enterprise (SME) traders and businessmen (Vysya community) coupled with large corporate lending (leveraging the global ING group association). Further, new branches & product launches would also enable consumer (retail) banking to grow at a healthy rate, which comprised ~21% out of the total portfolio as on December 2011.
Better CASA profile with modest NIM
IVB’s CASA ratio stood at ~33% as on December 2011 and is better compared to most of the other south based old private banks. Maintaining and growing the current CASA deposit base will be a key aspect for healthy NIMs and the overall development of the bank’s franchise business. NIMs have improved consistently, currently at ~3.3% (YTD December 2011) from 2.4% in FY2008.
Improving asset quality with superior provisioning
Asset quality has been improving constantly with no loans to SEBs, 2G, Airlines and Textile sectors. Despite the entire Banking sector witnessing a deteriorating asset quality and restructuring scenario, IVB stands at a much better platform in terms of GNPA which have improved to ~2.0% as on December 2011 from 2.3% (March 2011) & 3.0% (March 2010). The provision coverage ratio is comfortable at 85% as on
Outlook and Valuation
Reliance Securities expects IVB’s profitability to scale up on the back of improving operating efficiency, due to the expanding branch franchise in the metro/urban areas of northern and western parts of India. We have seen pick up in advances, which grew at 22% yoy against industry average of ~16% in 9MFY2012. Given the bank’s adequate capital base, we believe that IVB would continue to grow its loan book above the industry average. It would also be able to leverage its ING group alliance to get large corporate lending along with its legacy SME relationship base with Vysya community for business banking. Overall, we believe that with improving profitability, high CASA base, stable asset quality and easing interest rate scenario, the bank is poised for re-rating.
At CMP of Rs355, the stock is trading at an undemanding 1.2x ABV FY2013E. They initiate coverage on ING Vysya Bank with a Buy recommendation, valuing the stock at 1.5x FY2013 ABV, arriving at a target price of Rs433 with an upside of ~22%.
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Reliance Securities comes from the house of Reliance Capital, one of India’s leading & prominent financial houses. Founded in 1986, Reliance Capital has come a long way from being into steady annuity yielding businesses such as leasing, bill discounting, and inter-corporate deposits to diversifying its activities in the areas of asset management and mutual fund; life and general insurance; consumer finance and industrial finance; stock broking; depository services; private equity and proprietary investments; exchanges, asset reconstruction; distribution of financial products and other activities in financial services.
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