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Strong results
For 1QFY12, J&K Bank reported net profit of Rs1.8bn, up 25% YoY, led by
a healthy growth in topline. While loan growth at 15% is slower than the
sector, CASA growth of 22% YoY was encouraging. Margin expansion of
10bps QoQ to 3.8% is almost unique to the bank and largely driven by (1)
high CASA ratio and (2) rise in yields even as cost of funds were stable.
Asset quality trends were also stable and bank is well placed with net
NPA ratio of just 0.2% of loans. We raise estimates by ~4% and expect
16% Cagr in profit over FY11-14. While profitability is high, valuations
may remain at discount due to higher concentration of operations. Target
price of Rs1,000 is based on 1.2x FY13 adjusted PB. Maintain BUY.
Margins surprise positively
For 1Q, J&K Bank reported 20% YoY growth in NII driven by 13% YoY growth
in assets and 12bps expansion in margins. Margin expansion of 10bps QoQ
was a positive surprise- supported by high CASA ratio of 40% and (2)
expansion in yields even as cost of funds was almost stable sequentially. Fee
growth of 17% YoY also boosted topline growth. Sale of part of the stake in
MetLife Insurance could result in investment gains during FY12.
Management targeting +20% growth and margin expansion
Over next 2-3 years, management is targeting loan growth of +20% 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. While bank’s high CASA ratio of 40% of
deposits will cushion margin pressures, we see limited triggers to margin
expansion as (1) loan growth will be driven by low-yielding loans outside J&K
and (2) reserve ratios (SLR and CRR) are near the minimum requirements.
Stable asset quality
Bank’s NPLs grew faster than loans and during 1Q, bank reported 17% YoY
growth in gross NPLs to 2% of loans. However, it has created adequate
provisioning (coverage ratio of 89%) and hence the net NPA ratio of 0.2% is
among the lowest in the sector. A healthy asset quality will be the key driver
of profitability and valuations for J&K Bank.
Healthy earnings growth
Over FY11-14CL, we expect bank to see 16% Cagr in loans and 16% Cagr in
profit. While profitability is higher than peers (RoA of 1.3%), but valuations
are at a discount due to higher concentration of business. Our target price of
Rs1,000 is based on 1.2x FY13 adjusted PB. BUY.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strong results
For 1QFY12, J&K Bank reported net profit of Rs1.8bn, up 25% YoY, led by
a healthy growth in topline. While loan growth at 15% is slower than the
sector, CASA growth of 22% YoY was encouraging. Margin expansion of
10bps QoQ to 3.8% is almost unique to the bank and largely driven by (1)
high CASA ratio and (2) rise in yields even as cost of funds were stable.
Asset quality trends were also stable and bank is well placed with net
NPA ratio of just 0.2% of loans. We raise estimates by ~4% and expect
16% Cagr in profit over FY11-14. While profitability is high, valuations
may remain at discount due to higher concentration of operations. Target
price of Rs1,000 is based on 1.2x FY13 adjusted PB. Maintain BUY.
Margins surprise positively
For 1Q, J&K Bank reported 20% YoY growth in NII driven by 13% YoY growth
in assets and 12bps expansion in margins. Margin expansion of 10bps QoQ
was a positive surprise- supported by high CASA ratio of 40% and (2)
expansion in yields even as cost of funds was almost stable sequentially. Fee
growth of 17% YoY also boosted topline growth. Sale of part of the stake in
MetLife Insurance could result in investment gains during FY12.
Management targeting +20% growth and margin expansion
Over next 2-3 years, management is targeting loan growth of +20% 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. While bank’s high CASA ratio of 40% of
deposits will cushion margin pressures, we see limited triggers to margin
expansion as (1) loan growth will be driven by low-yielding loans outside J&K
and (2) reserve ratios (SLR and CRR) are near the minimum requirements.
Stable asset quality
Bank’s NPLs grew faster than loans and during 1Q, bank reported 17% YoY
growth in gross NPLs to 2% of loans. However, it has created adequate
provisioning (coverage ratio of 89%) and hence the net NPA ratio of 0.2% is
among the lowest in the sector. A healthy asset quality will be the key driver
of profitability and valuations for J&K Bank.
Healthy earnings growth
Over FY11-14CL, we expect bank to see 16% Cagr in loans and 16% Cagr in
profit. While profitability is higher than peers (RoA of 1.3%), but valuations
are at a discount due to higher concentration of business. Our target price of
Rs1,000 is based on 1.2x FY13 adjusted PB. BUY.
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