Maintain BUY on Jammu & Kashmir Bank - Improving Fundamentals - Case for Rerating - Karvy

Jammu & Kashmir Bank (J&K Bank) is currently trading at 10% premium to +1SD, while the stock has outperformed the Bankex by 40% over last one year on account of improvement in business growth, improving margins and superior asset quality.

Monopolistic Provincial Dominance: With 65% & 70% market share of state's total deposits and advances, respectively, J&K Bank continues to be a dominant player in Jammu & Kashmir. Along with its monopolistic positioning coupled with upward trajectory trend in GDP growth of the state, the Bank is well-placed to take the fullest advantage of the growth.

Business Momentum Keeps Growing: In the aftermath of new management taking charge, the Bank's business momentum has picked up considerably, which is getting reflected in its credit growth and branch expansion. Its NIMs is one of the highest amongst its peers, which is expected to rise further.

Best-in-Class Asset Quality: The Bank's asset quality has shown sharp improvement contrary to sharp deterioration reported by its peers owing to its superior domain expertise along with improving economic environment within the region.

Superior Return Ratios: J&K Bank enjoys one of the best RoE & RoA profile compared to its peers, which has consistently improved over past few years on the back of higher NIMs, operational efficiency and lower slippages resulting in lower credit cost.

Outlook & Valuation

At the CMP, the stock trades at 6.2x & 5.3x FY14E & FY15E earnings, and at 1.2x & 1.0x P/ABV FY14E & FY15E, respectively. Based on 20% premium to its historical mean valuation implying 1.1x P/ABV FY15E and 84 for its stake in MetLife (based on revised deal), we reiterate our "BUY" recommendation on J&K Bank with upwardly revised target price of Rs. 1,560 per share (from Rs. 1,500 earlier).

Source : Equity Bulls

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