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Roadshow feedback
We hosted the management of J&K Bank- Mr. Mushtaq Ahmad (Chairman
and CEO) and Mr. Parvez Ahmed (President, Head IR) for roadshow in
Hong Kong. The management reiterated bank’s strong presence in home
state that dominates it branch network and balance sheet, besides being
highly profitable. Over next 2-3 years, management plans to grow loan
book at 20-25% Cagr, led by growth in the working capital loans to high
quality borrowers outside J&K and retail loans in the home state.
Management sees limited margin pressure in the near term, but rise in
share of corporate loans and rise in deposit costs will likely impact NIM.
Asset quality is robust with net NPL ratio of just 4bps. We raise earnings
by ~5% largely on the back of upgrades to loan growth estimates.
Strong foothold in the home state
The management reiterated their strong presence in the state of Jammu and
Kashmir (J&K) that constitutes some 80% of branches, 65% of deposits, 90%
of CASA, 48% of loans and 74% of gross profit. They estimate that ~40% of
8.6m adult population of state is associated with the bank. Management
believes that the state will remain the key source of deposit mobilisation for
the bank where it also plans to scale-up its retail lending operations.
Corporate loan growth to pick-up
Management plans to grow loan book at 20-25% Cagr over next 2-3 years
and strong capital base (tier I of ~13%) will support this. Loan growth is
likely to be driven by growth in working capital loans mostly to highly rated
corporate groups and state owned entities. It also plans to leverage its skills
in lending to the horticulture segment in other states.
Near term margin resilience, but pressure likely ahead
Management expects margins to expand in 4QFY11 led by some expansion in
loan deposit ratio. We believe that scope for expansion in LDR is limited as
the G-Sec/ deposit ratio is already at 24% in Dec-10 (close to SLR norm).
Moreover, with growth in working capital loans to highly rated corporate and
rise in deposit costs, margins are likely to compress.
Strong asset quality
Asset quality continues to perform well with gross NPLs at ~2% of loans and
coverage ratio at 98% which is among the highest in the sector. We believe
that a seasoned loan book and incremental growth being driven by corporate
segment will keep slippages and provisioning pressure low.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Roadshow feedback
We hosted the management of J&K Bank- Mr. Mushtaq Ahmad (Chairman
and CEO) and Mr. Parvez Ahmed (President, Head IR) for roadshow in
Hong Kong. The management reiterated bank’s strong presence in home
state that dominates it branch network and balance sheet, besides being
highly profitable. Over next 2-3 years, management plans to grow loan
book at 20-25% Cagr, led by growth in the working capital loans to high
quality borrowers outside J&K and retail loans in the home state.
Management sees limited margin pressure in the near term, but rise in
share of corporate loans and rise in deposit costs will likely impact NIM.
Asset quality is robust with net NPL ratio of just 4bps. We raise earnings
by ~5% largely on the back of upgrades to loan growth estimates.
Strong foothold in the home state
The management reiterated their strong presence in the state of Jammu and
Kashmir (J&K) that constitutes some 80% of branches, 65% of deposits, 90%
of CASA, 48% of loans and 74% of gross profit. They estimate that ~40% of
8.6m adult population of state is associated with the bank. Management
believes that the state will remain the key source of deposit mobilisation for
the bank where it also plans to scale-up its retail lending operations.
Corporate loan growth to pick-up
Management plans to grow loan book at 20-25% Cagr over next 2-3 years
and strong capital base (tier I of ~13%) will support this. Loan growth is
likely to be driven by growth in working capital loans mostly to highly rated
corporate groups and state owned entities. It also plans to leverage its skills
in lending to the horticulture segment in other states.
Near term margin resilience, but pressure likely ahead
Management expects margins to expand in 4QFY11 led by some expansion in
loan deposit ratio. We believe that scope for expansion in LDR is limited as
the G-Sec/ deposit ratio is already at 24% in Dec-10 (close to SLR norm).
Moreover, with growth in working capital loans to highly rated corporate and
rise in deposit costs, margins are likely to compress.
Strong asset quality
Asset quality continues to perform well with gross NPLs at ~2% of loans and
coverage ratio at 98% which is among the highest in the sector. We believe
that a seasoned loan book and incremental growth being driven by corporate
segment will keep slippages and provisioning pressure low.
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