ING Vysya - Set for significant branch efficiency improvement - Prabhudas Lilladher

(PT of Rs480/share, ~17% upside)

- Regional bank with most urban characteristics: ~65% of ING's branches are in Urban/Metro centers and ING also benchmarks favorably on parameters like CA ratio, fee-to-assets v/s private peers, where regional private banks have struggled. We, thus, believe that right branch efficiency benchmarks for ING is larger private peers rather than regional banks, indicating significant catch-up potential.

- Robust asset quality with negligible Infra risks: ING's expertise in SME lending, low-risk retail book, low exposure to sensitive sectors and most importantly negligible Infra exposure will keep credit costs under check though we conservatively factor in credit costs to inch up.

- Addressing cost concerns: ING's high Urban-Metro branch mix still has significant scope for efficiency improvement and this, coupled with a calibrated branch expansion strategy, will aid in bringing down cost to income without compromising on growth.

- Valuation reasonable, 'BUY' with a PT of Rs480/share: Profitability improvement will continue as management drives growth from better branch efficiency. Valuations at 1.2x FY14 book is reasonable, considering improving ROEs + no Infra risks.

Source : Equity Bulls

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