Buy ING Vysya Bank - Motilal Oswal

ING VYSYA BANK 2QFY11: Business growth accelerates; Margin and CASA improvement continues; PCR improves to 70%+

- Loan growth picks up to 24% YoY (on a lower base) and 7% QoQ to Rs202b, whereas deposits grew by 16% YoY and 8% QoQ to Rs261b.

- GNPA ratio improved QoQ to 2.81% in 2QFY11 (down 44bp QoQ). Provisions remained high at Rs700m, PCR improved to 73% in 2QFY11 v/s 59% in 1QFY11.

- Reported NIMs improved 6bp QoQ and 25bp YoY to 3.34%. Rise in Cost of Funds QoQ was offset by higher Yield on Loans, leading to improving margins.

- CD ratio remains elevated at ~77%.Core fee based income grew 15% QoQ and 17% YoY to Rs1.02b. Bank booked higher treasury gains of Rs630m.

IVB is a play on improving return ratios backed by improvement in core operating performance and improving balance sheet profile. RoA is expected to improve from 0.7% in FY10 to ~1% by FY13 and RoE from 11.6% in FY10 to ~18% by FY13. IVB trades at 11x FY12 EPS of Rs35, and 1.6x FY12 BV of Rs239. Strong growth coupled with improving return ratios can re-rate the multiple higher. We reiterate Buy with a target price of Rs475 (2x P/BV FY12).

Source : Equity Bulls

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