We maintain ‘buy’ on ING Vysya Bank Ltdand revise our target price to Rs 680, assigning 1.5x FY16e adjusted book value. We expect the bank to report steady earnings CAGR of 20% over FY14-16e to drive RoA to 1.4% by FY16e. However, RoE will remain subdued in the interim due to the recent capital raising. The stock is trading at 1.1x FY16E adjusted book value.
ING Vysya Bank reported PAT of Rs 1,670 crore for Q3 (up 3% y-o-y, but down 5% q-o-q), which was broadly in line with our estimate. Interest income reversal of Rs 25.7 crore on few restructured accounts (of Rs 200 crore) under CDR pulled down net interest income (down 6% y-o-y). While reported NIMs declined 10 bps q-o-q to 3.35%, adjusting for income reversals, NIMs would have risen 10 bps. Headline asset quality continues to be impressive as slippages were capped at mere 30 bps feeding into lower credit cost. Loan growth continues to moderate (8% y-o-y and 4% q-o-q) with steady traction in retail and business banking offset by muted wholesale banking. Despite uncertainties clouding macros, the bank’s well-capitalised position (Tier I: 14.5%) coupled with high provision coverage (PCR) of 87% and marginal exposure to stressed segments lends comfort.
The bank restructured Rs 200-crore worth loans spread across four corporates (including South-based construction company), taking total restructured pool to Rs 560 crore (1.6% of advances). Twin effect has been: interest income reversal of Rs 25.7 crore and provisions towards restructured pool of Rs 15 crore. However, headline NPLs continued to impress with slippages being capped at 30 bps feeding into lower credit cost. Provision coverage is still high at 87.5% against 49% in FY08, an effective shield.