Jammu and Kashmir Bank - 2QFY2013 Result Update - Angel Broking

Jammu and Kashmir Bank (J&K Bank) reported a healthy set of numbers with net profit growing by 35.0% yoy. The results were above our estimates because of higher operating income and lower provisioning expenses than estimated by us. We recommend a Neutral rating on the stock.

Slippages under control: For 2QFY2013, the loan growth for the bank was healthy at 21.4% yoy, while deposit growth was reasonably healthy at 15.8% yoy. The CD ratio of the bank remained on the lower end at 62.4% as of 2QFY2013. On the liabilities front, the growth in current account deposits was muted, however savings bank deposits continued to see traction growing by a healthy 21.4% yoy. The cost of deposits for the bank was higher by 8bp sequentially at 6.9%, however yield on advances increased by 30bp to 12.7%, leading to a 14bp expansion in the reported NIMs. The bank's commissions, exchange and brokerage (CEB) income grew by a strong 35.9% yoy to Rs.46cr, however the miscellaneous income was lower by 35.1% yoy, leading to a muted 3.3% yoy growth in fee income. Income from treasury more than tripled on a yoy basis during the quarter at Rs.26cr. The bank's asset quality remained stable sequentially, with gross NPA ratio at 1.6% and net NPA ratio at 0.16%. The bank's PCR which is highest in the industry, stood strong at 93.3%.

Outlook and valuation: At the current market price, the stock is trading at 1.1x 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 62.4% 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 other mid-sized banks. However, post the recent rally in the stock price, the stock is trading at the upper end (1.1x) of the FY2014 P/ABV range for PSU banks (0.5-0.9x). Also, in our view, the bank may face headwinds from any increasing competition in its home state and also from asset quality pressures in its large corporate book outside J&K. Hence, we recommend a Neutral rating on the stock.

Source : Equity Bulls

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