Jammu and Kashmir Bank - 4QFY2012 Result Update - Angel Broking

J&K Bank reported strong 50.2% yoy growth in its net profit to Rs.208cr, in-line with our expectations, as impact of better-than-estimated growth in operating income was offset by higher-than-anticipated provisioning. Stable gross and net NPAs, pickup in loan growth and 23bp sequential improvement in margins were the key positive from the results. We recommend Accumulate on the stock.

NIMs and Asset quality, both improve: Business growth for the bank accelerated during 4QFY2012, with advances witnessing a growth of 26.3% yoy and deposits registering a growth of 19.4% yoy. On the liabilities front, saving deposits grew at impressive 25.6% yoy, while growth in current deposits was moderate at 7.0% yoy, and consequently the overall CASA deposits grew by healthy 20.1% yoy, better than most of the peers. Cost of deposits fell by 22bp qoq to 6.4%, aided partly by slight improvement in CASA ratio (53bp qoq), which coupled with sequentially flattish yield on advances at 12.2%, lead to a 23bp sequential improvement in NIMs to 3.86%. On the asset-quality front, gross and net NPA ratios improved on a sequential basis from 1.80% to 1.54% and from 0.16% to 0.15%, respectively. PCR (including technical write-offs) though declined by 31bp sequentially, still stood at healthy 93.8%, one of the best in the industry. The bank's outstanding restructured book as of 4QFY2012 stood reduced at ~Rs.1,365cr from ~Rs.1,700cr in 3QFY2012 (in-line with management guidance). Management expects no major restructuring to be in pipeline and also sounded confident of further reducing its restructured book.

Outlook and valuation: At the CMP, the stock is trading at 0.8x FY2014E ABV visà-vis its historic range of 0.7–1.4x and five-year median of 0.9x. Immediate levers in the form of increased CD ratio from the current low of 62.0% to higher yielding advances are likely to provide near-term higher momentum to NII growth for the bank relative to other mid-size banks. However, in our view, the bank's increasing non-J&K exposure on the asset side poses concerns on incremental NIMs and asset quality in the medium term. Also being amongst the highest outperformers since December 2010, we believe, in relative terms, the stock is now closer to its fair value. Hence, we recommend Accumulate on the stock with a target price of Rs.952.

Source : Equity Bulls

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