Jammu & Kashmir Bank Ltd - Q1 FY14 Result Update - Relatively better placed - Asit C. Mehta

J&K Bank reported strong set of numbers for Q1FY14. NII grew 22% YoY to Rs. 654.89 crores and net profit grew ~25% to Rs. 307.92 crores. The bank reported sequential improvement of 8bps in NIM at 4.15%. In the wake of deteriorating asset quality that even the private banks have seen this quarter, the bank reported stable NPAs. The GNPA increased by Rs. 22 crore to Rs. 665 crore (1.67% of credit) while NNPA remained flat QoQ at Rs. 56 crore (0.14% of credit). Provision coverage ratio stood at 94%.

Outlook

The recent RBI measure that increased the cost of funding will be offset slightly by higher proportion of lending in J&K where NIMs are at 6.32% as against 2.62% outside J&K coupled with improved CASA. The management has guided to maintain NIMs around 4%. On the asset quality front, risks of stress on the corporate portfolio outside J&K remain. However, a provision coverage ratio of 94% provides some comfort.

Valuation

J&K Bank's performance for Q1FY14 is reflective of relatively better economic growth of the state of J&K, which puts it in a better spot compared with peers. Considering the consistent healthy results, we recommend investors to 'ACCUMULATE' the stock with a long-term perspective for a target of Rs. 1,392, 1.2x the FY14E book value of Rs. 1,160.

Source : Equity Bulls

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