>ING VYSYA BANK: Business and margin scaling up; initiate with Buy

We initiate coverage on ING Vysya Bank with Buy and price target of `445/share. We expect the Bank’s RoE and RoA to expand to 17.3% and 1% respectively by FY13e on the back of business scaling-up as well as improvement in margins and productivity.

■ Business growth scaling up; margin expansion. We expect ING Vysya Bank to witness improved business growth and higher market share FY11 onwards. Rising CASA share is likely to aid margin expansion to 3.1% in FY13e from 2.7% in FY10.

■ Rising productivity. Core Cost-to-income (excluding trading and extraordinary gains) sharply declined to 60 % in FY10, falling 690bps over FY09. Cost-to-assets at 2.5% in FY10, though higher than peers, shows significant scope for further improvement in productivity.

■ Adequate capitalisation. With strong backing of its international parent and current CRAR of 14.5% (tier 1 capital of 9.9%), the Bank is adequately capitalised to support future growth and
protect itself from additional loan defaults.

■ Valuation and risks. At our target price of `445, the stock would trade at 1.9x FY12e and 1.7x FY13e ABV. Our target price is based on the two-stage dividend-discount model (CoE: 13.2%;
beta: 0.87; Rf: 7.5%). Risks include slower-than-expected credit growth and higher slippages on account of NPAs.

To read the full report: ING VYSYA BANK