ING VYSYA Bank - CMP Rs.457 - 2012 Diwali Pick - Aditya Birla Money

ING is focusing on three broad strategies to drive its future growth- above industry credit growth (with a positive bias towards retail segment), improving operational efficiency & productivity and finally maintaining robust asset quality.

The bank (with negligible exposure to ailing sectors like aviation, SEBs, etc) has seen significant improvement in its asset quality (from ~4.1% in FY06 to 1.9% currently with one of the highest provision coverage in the industry at 93.1%). The restructured book of the bank stood at 1.3% with no additional restructuring done in the last two quarters. Though the bank has exposure to the telecom sector (most of which is related to 2G spectrum), it is backed by adequate guarantees.

ING is also currently focusing on leveraging its existing branches to increase their business and productivity which will drive return ratios going forward. The bank intends to bring down the cost / income ratio to below 50% over the next 3 years (from current ~58%).

NIMs for the bank at ~3.5% is the highest amongst the regional private sector banks on the back of a robust deposit franchise (CASA at ~33%) and a well diversified advance book (Corporate 43%, SME 32% & Retail 25%).

The stock currently trades at 1.4x FY14E ABV and 9.7x FY14E EPS which is attractive, considering the bank's strong prospects to grow above industry rate with better asset quality & adequate capitalization (no capital raising in the next two years). ING has undergone a significant transformation in its quality of earnings over the past few years under the new management team led by Mr. Bhandari. However, the bank trades at a discount to its peers owing to lower return ratios. Going forward, with all levers to improve return ratios in place, we believe the gap in terms of valuation should narrow down and thus presents a strong case for re-rating.

Source : Equity Bulls

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