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Research
Jammu & Kashmir Bank - Numbers well above expectations - Karvy
Posted On : 2012-11-02 19:16:07( TIMEZONE : IST )
J&K Bank numbers are well above our expectations. Despite system based recognition of NPA of balance loans, slippages were contained at 1.1% during the quarter. GNPA are flat sequentially at 1.6%. NII grew by 27% driven by credit growth of 21% and sequential NIMs expansion of 10bps to 3.9%. PAT grew by 35% to Rs2.7bn. It made treasury gains of Rs261mn during the quarter, even after excluding treasury gains impact bottom-line grew by 27%.
- Asset Quality un-impacted by system based recognition: In line with management guidance, asset quality remained healthy even after completion of sytem based recognition of loans with ticket size < Rs1 mn. Slippages were contained at 1.1% and GNPA were flat sequentially at 1.6%. Provision coverage continues to remain healthy at 93.3%. Restructuring increased by 50bps sequentially to 4.6% of loan book.
- Healthy Balance Sheet Growth along with NIMs expansion: Advances as well as deposits have grown at a decent pace of 21% and 16% respectively. CD ratio improved by 290bps YoY to 62.4%. NIMs have improved by 10bps sequentially to 3.9%. Further improvement in CD ratio would help in providing support to NIMs. CASA has dipped slightly by 50bps sequentially to 38.2%.
- Excellent operational and return ratio's: Operational matrix for the bank is best in class. Cost-to-income ratio has improved by 380bps YoY to 34.3%. Return ratio's are best among PSU peers with ROA of 1.7% and ROE of 24.1% for the quarter.
Outlook & Valuation
At the CMP the stock is trading at 6.1x and 5.7x FY13E and FY14E earnings, and at 1.3x and 1.1x P/ABV FY13E and FY14E respectively, which we feel to be attractive considering the potential business growth, regional dominance, superior quality of assets and sustainable ROE of +20%. We continue to maintain our BUY rating on the stock revising our target price upwards from Rs1370 to Rs1500 valuing the stock at 1.3x P/ABV FY14E and Rs. 28 for its stake in MetLife (based on recent deal).
