Accumulate ING Vysya Bank; target Rs 650: P Lilladher

Prabhudas Lilladher's report on ING Vysya Bank

ING continues to deliver on P&L with core PPOP growth of ~33 percent. (1) NIMs came off by ~20bps QoQ but that was due to a large base impact (Q4FY13) - adjusted NIMs were in-line and are likely to improve due to the dilution impact. (2) Core fees, which has been disappointing for the last few quarters, grew ~20 percent YoY growth with strong momentum in client FX and asset related fees and a pick-up in wealth fees which has been contracting till Q4. (3) Opex growth remains calibrated (~16 percent YoY) with cost-income continuing to move favourably. There seems to be some minor cracks in the B/S on both assets and liabilities. Slippages have inched up in the large/mid corporate book after almost no slippages in FY13, leading to credit costs of 80bps despite a ~10 percent fall in NPA coverage v/s Q4FY13. Though near-term NIMs will be aided by dilution, on the liability side, the QoQ contraction in CASA, especially SA is not encouraging (just 6 percent YoY SA growth) and potentially reverses some of the positive expectations built after H2FY13 CASA trends. Valuations getting reasonable again; but ROEs to cap significant re-rating: "We have reasonable comfort on ING's underwriting but low RORWAs v/s peers will correct only gradually and the current macro environment will not allow ING to leverage up significantly. We, thus, expect ROEs to remain <14 percent for FY15 and that is likely to restrict a significant re-rating but with the recent correction, valuations are not demanding anymore at 1.4x Sep-14book and hence, we maintain 'Accumulate' with a PT of Rs 650/share," says Prabhudas Lilladher research report. Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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