Aditya Birla Money recommends 'buy' on ING Vysya Bank

We have valued VYSB on a one year average forward multiple of 1.6x (~20.0% premium over its historical mean) which we believe is justified given the bank's improving return ratios, strong asset quality and liability profile, and above industry busine

ING Vysya Bank (VYSB) has a well diversified loan book with 40.6% & 59.4% exposure to the wholesale & retail segment (SME 33.3%, consumer finance 18.2% & agri 7.1%) respectively. Going forward, the consumer financing book is expected to drive the loan growth as it remains the key focus area of the management for future advance book growth, Aditya Birla Money said in a research report.

With the bank expanding its footprint to CASA rich Northern and Western region and continued buoyancy in current account accretion, the brokerage firm expects the share of CASA deposits to increase from 31.7% currently (as of Q3FY13) to 33.8% by FY15E, growing at a CAGR growth of 26.5% as against CAGR growth of 23.1% in deposits.

Going forward, we expect the bank’s Net Interest Margin to remain in the range of 3.2-.3.3% over the next two years, with the bank planning to further increase its exposure towards high yielding retail products, the report said.

The brokerage firm expects the bank to go for capital raising in H2FY14 to support its growth plans. We have factored in 15% dilution of capital (~12.6 bn) in our estimates which we believe is adequate for next two years.

The stock currently trades at 1.5x FY14E ABV and 1.3x FY15E ABV. The brokerage has valued VYSB on a one year average forward multiple of 1.6x (~20.0% premium over its historical mean) which we believe is justified given the bank’s improving return ratios, strong asset quality and liability profile, and above industry business growth.

The brokerage has initiated coverage on ING Vysya Bank with a 'Buy' rating and March’14 price target of '656.7/share, implying an upside of 23.6% from current levels.