Buy Jammu & Kashmir Bank - Motilal Oswal

Jammu & Kashmir Bank (JKBK IN; Mkt Cap USD0.9b, CMP Rs738, Buy)

Post 14 quarters of moderate growth, loan growth has picked up strongly in 3QFY11, with 9.4% QoQ growth and 22% YoY growth to Rs253b.

Deposits grew 3% QoQ and 21.4% YoY to Rs409b. CASA deposits grew 17% YoY (flat QoQ) - SA deposits grew +7% QoQ and +29% YoY.

CD ratio remains low at 62% v/s 58.4% a quarter ago. Lower CD ratio provides room for margin stability. Management has guided for 65%+ CD ratio in FY11.

NIM improved 42bp YoY to 3.7%, as cost of deposits declined 9bp QoQ to 5.12% and yield on investments improved 43bp QoQ (+146bp YoY) to 6.53%.

In absolute terms, GNPA declined 2% QoQ and NNPA declined from Rs309m in 2QFY11 to Rs106m. PCR (calculated) remains strong at ~98%.

The stock trades at of 0.9x FY12E BV of Rs832 and 0.8x FY13E BV of Rs960. We have not considered the value of Metlife in our valuations. Maintain Buy with a target price of Rs960 (1x FY13E BV).

Source : Equity Bulls

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