ING Vysya Bank - Steady Performer - But Positives Priced-in; Maintain "HOLD" - Karvy

Strong Credit Growth with Diversified Loan Book: Improving sharply from moderate growth, credit growth of ING Vysya Bank' has outpaced the industry by 3-5% in FY11 & FY12 especially after the appointment of new Management. The Bank's balance sheet growth witnessed a slowdown in FY13 on account of cautious approach of the Management. With recent follow-on offer, the Bank has gained strength to leverage its balance sheet, growing ahead.

Improving Asset Quality with Lowest Slippage; No Exposure to Vulnerable Sector: The Bank's asset quality has shown sharp improving trends over the past three years compared to sharp deterioration reported by its peers. It has negligible exposure in any of the ailing sectors like aviation, SEBs, realty and oil companies, etc. The Bank mainly focuses on working capital requirements of the corporates, where it has a better control on its cash-flow. The Bank's Gross NPA of only ~0.3% in SME segment is remarkable. However, given the slowdown in the economy, we have cautiously built in higher slippage in our estimates.

Operational Leverage to Boost RoA: The Bank has so far been able to successfully manage its cost by bringing down cost-to-income ratio to 57% in FY13 from 83.4% in FY06. The proportion of unionized staff has declined from 4/5th to 1/3rd of total employee base. As a long-term strategy, the Bank plans to bring down cost-to-income ratio close to 50% in next three years.

Outlook & Valuation

We reiterate our "HOLD" recommendation on ING Vysya Bank with unrevised target price of Rs. 630 per share valuing it at 1.5x P/ABV FY15E.

Source : Equity Bulls

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