Accumulate ING Vysya Bank; target Rs 600: P Lilladher

Prabhudas Lilladher is bullish on ING Vysya Bank and has recommended accumulate rating on the stock with a target price of Rs 600 in its January 28,  2013 research report.

"ING Vysya Bank, asset quality is not perceived to be a significant risk for ING and the bank continues to surprise even relative to the strong expectations with lower gross NPAs QoQ. Credit costs were just ~30bps QoQ and most part of this provisioning has also gone to increase provision coverage from 93% to 97% (highest among peers).

NIM improvement of 15bps QoQ was driven by moderation in wholesale cost of funds and coupled with no base rate reduction, margins have inched up by ~30bps in the last two quarters. Apart from NIMs, other operating metrics were not as robust with core fee growth moderating to ~5% YoY and more importantly, SA growth continuing to remain muted (just 4% y/y growth) despite growth in new salary a/cs.

Cost income held up at ~55%, with opex growth of 12% YoY and ING have made provisions relating to wage revisions which is applicable for ~30-35% of ING’s workforce. Cost-income stabilizing at ~55-56% is positive but with near “0” network expansion in the last 12 months, we believe there will be some inch-up due to year end network expansion.

Asset quality has remained pristine and that we believe is reflected in ING’s current valuation (1.7x FY14 book). Apart from delivering on Opex (cost-income improvement), we believe ING will need to start delivering even on its liability franchise (SA growth) and calibrated network expansion to deliver higher structural ROAs.

ING reported PAT of Rs1.62bn, up 36% YoY, significantly better than expectations. Asset quality continues to remain pristine, with gross NPAs down QoQ and NIM surprised with ~15bps QoQ expansion. ING has delivered on low opex as well, with cost income stable at ~55%; however, slow network expansion and moderating SA growth are the areas which will need to be addresed to command a higher multiple (PT based on 1.8x FY14 book). We recently downgraded ING to ACCUMULATE with a target price of Rs 600, as we believe the stock factors in the asset quality positives at 1.7x FY14 book," says Prabhudas Lilladher research report.

Non-Institutions holding more than 90% in Indian cos

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