Jammu and Kashmir Bank - 1QFY2013 Result Update - Angel Broking

Jammu Kashmir Bank (J&K Bank) registered a strong performance on the operating front for 1QFY2013. The reported net profit grew by 35.0% yoy to Rs.246cr which was higher than our estimate on account of higher non-interest income and lower provisioning expenses than estimated by us.

Slippages under control: The business growth for the bank remained muted during 1QFY2013, with advances growing by 0.4% qoq and deposits declining by 0.4% qoq. On the liabilities front, the performance on the CASA front was moderate with current bank accounts up by 6.7% yoy and savings bank accounts growing by a healthy 21.8% yoy. However, due to higher term deposits growth, the CASA ratio of the bank declined to 38.7%. The cost of deposits for the bank was higher by 52bp sequentially at 6.9% on account of lower CASA ratio. However, higher incremental lending in the state of Jammu & Kashmir (J&K) led to yield on advances increasing by 22bp to 7.7%. Consequently the decline in reported NIMs was limited at 6bp qoq to 3.8%. The bank's fee income grew by a strong 28.7% yoy on account of healthy performance on both CEB (up 22.9% yoy) and recoveries front (up 44.6% yoy). The treasury segment also performed impressively with income from treasuries doubling on a y-o-y basis. The bank's asset quality remained stable sequentially, with a marginal increase of 6bp in gross NPA ratio to 1.6% and 1bp decline in the net NPA ratio to 0.14%. The slippage levels were under control at Rs.86cr (annualised slippage ratio of 1.0%). The bank's PCR which is the highest in the industry, improved on a sequential basis by 33bp to 94.1%.

Outlook and valuation: At the current market price, the stock is trading at 0.8x FY2014E ABV vis-à-vis its historic range of 0.8-1.4x and eight-year median of 1.0x. Immediate levers in the form of increased CD ratio from the current low of 62.6% to higher yielding advances are likely to provide near-term higher momentum to NII growth for the bank relative to other mid-size banks. The bank also has a higher CASA ratio, capital adequacy and provision coverage than most mid-sized banks. However, with the stock trading at the upper end (0.8x) of the FY2014 P/ABV range for PSU banks (0.4-0.7x), an upside in the stock price from the current levels appears limited and hence we recommend an Accumulate rating on the stock with a target price of Rs.1,026.

Source : Equity Bulls

Keywords