ING Vysya Bank

Edelweiss Securities on ING Vysya Bank

Edelweiss Securities has maintained 'BUY' call on ING Vysya Bank and rated it an 'Outperformer' on relative basis.In a report issued, the brokerage has said, VYSB has been constantly increasing contribution of fee income, while steadily improving operating leverage and delivering consistent earnings. Given the current cost structure and management's commitment under the new leadership, we continue to believe that the bank's operating leverage has potential to generate substantially higher RoE (~13% currently). The bank is currently trading (post dilution) at attractive valuations of 12x earnings and 1.6x FY11E adjusted book, which, we believe, is attractive compared with its private peers.

The improved net interest margins, strong focus on fee income and controlling cost have helped the bank deliver consistent performance in the past. The bank, under the new management, has improved RoE to ~13% and RoAs to 0.7% (from -0.3% in FY05), in FY09. In Q2FY10, the bank raised INR 4.2 bn in equity which has helped improve tier-1 capital from 7.4% in Q1FY10 to 9.7%. Given scope for improvement in the long term, especially on operating leverage, we continue to maintain our positive bias on further expansion of RoE as the bank steadily leverages its balance sheet and franchise. We expect RoAs to improve to ~0.9% by FY11E.

The bank is currently trading at valuations of 12x earnings and 1.6x FY11E adjusted book (post dilution). Given the metrics, adequate capital to fund balance sheet growth and scope for improvement, we believe it is trading at attractive valuations compared with peers.

Highlights:
• Steady, consistent performance aids turnaround

• New MD and CEO strengthen top management

• Strong support of the ING Group aids visibility

• Cost-income ratio for the bank was maintained at 58%.

• Overall capital adequacy ratio for the bank improved to 14.5% with tier-1 capitalimproving ~230 bps, to 9.7%.