Buy ING Vysya Bank; target of Rs 657: Aditya Birla Money

Aditya Birla Money is bullish on ING Vysya Bank and has recommended buy rating on the stock with a target of Rs 657 in its April 5, 2013 research report.
 
“ING Vysya Bank (VYSB) has a well diversified loan book with 40.6 percent & 59.4 percent exposure to the wholesale & retail segment (SME 33.3 percent, consumer finance 18.2 percent & agri 7.1 percent) respectively. Going forward, we expect the consumer financing book to drive the loan growth as it remains the key focus area of the management for future advance book growth. The bank has recently introduced three new retail products viz. gold loans, personal loans and new CV finance. Management remains confident of achieving higher-than-industry credit growth. We expect the bank’s loan book to grow at a CAGR of 22.3 percent over FY13E-15E.”
 
“VYSB’s deposit profile is one of the best among its peer group with 31.7 percent CASA. Going forward, the bank is focusing on increasing the salary accounts by offering innovative products which will help in garnering stable and reliable source of savings account balances for the bank. With the bank expanding its footprint to CASA rich Northern and Western region and continued buoyancy in current account accretion, we expect the share of CASA deposits to increase from 31.7 percent currently (as of Q3FY13) to 33.8 percent by FY15E, growing at a CAGR growth of 26.5 percent as against CAGR growth of 23.1 percent in deposits. There has been a structural shift in the bank’s NIM from ~2.7 percent before FY09 to ~3.3 percent currently. The improvement in margins was mainly driven by change in the management’s growth strategy towards high yielding SME / consumer financing segment coupled with the bank’s focus on improving its CASA franchise. Going forward, we expect the bank’s NIM to remain in the range of 3.2-.3.3 percent over the next two years, with the bank planning to further increase its exposure towards high yielding retail products.”
 
“VYSB is currently well capitalized with a CAR of 12.5 percent (Tier 1 – 9.6 percent) as of Dec 31, 2012 without considering 9MFY13 profits. However, we believe going forward the bank will need to raise capital to support its above-system-average growth targets. We expect the bank to go for capital raising in H2FY14 to support its growth plans. We have factored in 15 percent dilution of capital (~12.6 bn) in our estimates which we believe is adequate for next two years. The bank has seen significant improvement in its return ratios with ROAA increasing from 0.68 percent in FY09 to 1.06 percent in FY12. The improvement in return ratios was largely driven by its strong asset quality, profitable business growth and improving operational efficiency. Going forward, with continuous improvement in employee & branch productivity coupled with benign credit cost, we expect RoAA to improve further by 23 bps from 1.06 percent to 1.29 percent by FY15E.”
 
“The stock currently trades at 1.5x FY14E ABV and 1.3x FY15E ABV. We have valued VYSB on a one year average forward multiple of 1.6x (~20.0 percent premium over its historical mean) which we believe is justified given the bank’s improving return ratios, strong asset quality and liability profile, and above industry business growth. We initiate coverage on ING Vysya Bank with a Buy rating and March’14 price target of `656.7/share, implying an upside of 23.6 percent from current levels,” says Aditya Birla Money research report.

Read More