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J&K Bank (J&KBK)
Banks/Financial Institutions
Stable quarter but revising earnings to factor loss of business from J&K state.
J&K Bank reported yet another stable quarter with margins flat qoq at 3.7% and asset
quality trends improving over 2Q levels. Loan growth has shown improvement at 9%
qoq. J&K Bank announced that it would no longer lend to the state from March 2011.
We revise earnings downwards by 5% and 9% in FY2012-13E as we expect earnings to
slow down from our earlier estimates for FY2012E on the back of this development.
Valuations at 0.9X FY2012E PBR attractive and we maintain ADD with TP of `850.
Building slower loan growth to factor business lost from J&K state
J&K Bank announced that they would no longer be lending to J&K state from FY2012E as a part of
an agreement signed by the state with the Centre and RBI. Exposure to the state by the bank was
10% of loans as of December 2010 but the bank would continue to remain as a banker to the
state—impact on fee income would be marginal. Overall impact on margins would be positive as
lending to the government was lower by 150 bps compared to lending within the state. The bank,
despite the loss of business, is targeting a growth of 25% in FY2012E, which would imply over
30% growth from current levels. We find this fairly aggressive given the performance of the bank
in the past and factor 15% in FY2012E. Also, credit absorption within J&K is relatively low making
it difficult to achieve this target in a short period but substituting credit outside the state would
imply lower margins as the bank lends mainly to top-rate companies.
NII and loan growth impressive for the quarter; margins maintained at 3.7%
Net interest income (NII) increased by 33% yoy (4% qoq) to `3.9 bn in 3QFY11 on the back of
stronger margins and higher loan growth. NIMs were maintained qoq on the back of better
investment yields, expansion in CD ratio (360 bps to 62%) and decline in cost of funds (9 bps)
which offset the decline in yield on advances (29 bps to 10.7%). Loan growth showed a sharp
improvement over 1HFY11 at 9% qoq to `254 bn (10% YTD). Deposit growth was slower at 3%
qoq to `409 bn. CASA ratio for the quarter declined to 41%, partly driven by seasonality. We see
the CD ratio to witness marginal improvement as the bank would not need to raise large deposits
in FY2012 given the near-term impact of lost business from the state.
Asset quality shows improvement; coverage ratio the best in the industry at 98% (ex write-off)
Asset quality continues to remain one of the best in the industry with coverage ratio (ex. write-off)
at 98%. Overall, gross NPLs declined by 2% qoq to `5 bn while net NPLs declined to `106 mn
from `309 mn in September 2010. Net NPL ratio stands at 0.04%, the lowest in the industry. Loan
loss provisions for the quarter were at `299 mn (0.5% of loans). While we do not expect the bank
to maintain at such levels but provides reasonable comfort against any large slippage.
Other highlights for the quarter
Non-interest income was at `776 mn (19% yoy decline) as income from treasury gains
declined 56%. Income (excluding treasury) grew by 9% yoy.
Cost-income ratio for the quarter was at 40% as against 36% in September 2010 as the
bank has made adhoc provisions for revised pension option.
Overall capital adequacy stands comfortable at 14.1% with tier-1 ratio at 11.7%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
J&K Bank (J&KBK)
Banks/Financial Institutions
Stable quarter but revising earnings to factor loss of business from J&K state.
J&K Bank reported yet another stable quarter with margins flat qoq at 3.7% and asset
quality trends improving over 2Q levels. Loan growth has shown improvement at 9%
qoq. J&K Bank announced that it would no longer lend to the state from March 2011.
We revise earnings downwards by 5% and 9% in FY2012-13E as we expect earnings to
slow down from our earlier estimates for FY2012E on the back of this development.
Valuations at 0.9X FY2012E PBR attractive and we maintain ADD with TP of `850.
Building slower loan growth to factor business lost from J&K state
J&K Bank announced that they would no longer be lending to J&K state from FY2012E as a part of
an agreement signed by the state with the Centre and RBI. Exposure to the state by the bank was
10% of loans as of December 2010 but the bank would continue to remain as a banker to the
state—impact on fee income would be marginal. Overall impact on margins would be positive as
lending to the government was lower by 150 bps compared to lending within the state. The bank,
despite the loss of business, is targeting a growth of 25% in FY2012E, which would imply over
30% growth from current levels. We find this fairly aggressive given the performance of the bank
in the past and factor 15% in FY2012E. Also, credit absorption within J&K is relatively low making
it difficult to achieve this target in a short period but substituting credit outside the state would
imply lower margins as the bank lends mainly to top-rate companies.
NII and loan growth impressive for the quarter; margins maintained at 3.7%
Net interest income (NII) increased by 33% yoy (4% qoq) to `3.9 bn in 3QFY11 on the back of
stronger margins and higher loan growth. NIMs were maintained qoq on the back of better
investment yields, expansion in CD ratio (360 bps to 62%) and decline in cost of funds (9 bps)
which offset the decline in yield on advances (29 bps to 10.7%). Loan growth showed a sharp
improvement over 1HFY11 at 9% qoq to `254 bn (10% YTD). Deposit growth was slower at 3%
qoq to `409 bn. CASA ratio for the quarter declined to 41%, partly driven by seasonality. We see
the CD ratio to witness marginal improvement as the bank would not need to raise large deposits
in FY2012 given the near-term impact of lost business from the state.
Asset quality shows improvement; coverage ratio the best in the industry at 98% (ex write-off)
Asset quality continues to remain one of the best in the industry with coverage ratio (ex. write-off)
at 98%. Overall, gross NPLs declined by 2% qoq to `5 bn while net NPLs declined to `106 mn
from `309 mn in September 2010. Net NPL ratio stands at 0.04%, the lowest in the industry. Loan
loss provisions for the quarter were at `299 mn (0.5% of loans). While we do not expect the bank
to maintain at such levels but provides reasonable comfort against any large slippage.
Other highlights for the quarter
Non-interest income was at `776 mn (19% yoy decline) as income from treasury gains
declined 56%. Income (excluding treasury) grew by 9% yoy.
Cost-income ratio for the quarter was at 40% as against 36% in September 2010 as the
bank has made adhoc provisions for revised pension option.
Overall capital adequacy stands comfortable at 14.1% with tier-1 ratio at 11.7%.
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