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Jammu and Kashmir Bank------------------------------------------------ Maintain OUTPERFORM
Strong 1Q results
● J&K Bank’s 1Q12 results (net profit of Rs1.8 bn, up 25% YoY;
1.5% RoA) were well above our estimates, driven by better-thanexpected
margins and lower provisions, partially offset by lower
non-interest income. Operating profit was up a healthy 26% YoY.
● Adjusted loan growth was strong at 24% YoY (J&K State’s
overdraft business ran-off in 4Q) and management maintained its
guidance of 25% loan growth in FY12. Deposit franchise
continued to be robust (27% savings deposit growth, 40% CASA)
despite the high interest environment (savings growth slowed to
15% levels for peers).
● Margins expanded 10 bp QoQ (to 3.8%), contrary to peers, aided
by a 266 bp expansion in the credit-deposit ratio and stable cost
of deposits (flat QoQ). With loan-deposit ratio at only 61%, bank
has further room to improve it. Asset quality continued to be
robust with 2.0% gross NPLs and 92% NPL coverage.
● While the stock has outperformed the market by 13% over the
past three months, with healthy 11% tier-I, high 92% NPL
coverage, strong deposit franchise (40%CASA) and at 1.05x
FY12 BV we retain OUTPERFORM.
Strong operating performance
J&K Bank reported strong 1Q12 net profit (Rs1.8 bn, up 25% YoY),
well above our estimates on better margins and lower provisions.
Reported loan growth for bank was at 15% YoY (1% QoQ) as
expected (bank’s overdraft business with 9% of loans has run down in
4Q and adjusted loan growth was at 24% YoY). Management has
maintained its FY12 loan growth guidance of 25% and 20% deposit
growth. We maintain our FY12E loan growth of 20%. NIMs surprised
positively and were up 10 bp QoQ at 3.8% versus a 20-30 bp QoQ
drop for the peers (cost of deposits was flat QoQ vs a 27 bp rise in
yields). The credit-deposit ratio improved 266 bp QoQ to 61% (still
lowest among the peers) which also aided the QoQ margin expansion.
Our forecast FY12 margins are at 3.75% (we expect the CD ratio to
improve further) versus management guidance of 4%. Deposit
franchise continued to be strong, aided by a robust 27% YoY growth
in savings deposits, and CASA share was stable at 40%. Fee income
(-5% YoY) was weaker than expected driven by low distribution
income. Tier-I was healthy at 11.3%.
Asset quality continues to be robust
Gross NPLs (%) were flat QoQ at 2.0% and NPL coverage remained
strong 92% (versus 92% in 4Q11). Credit costs during the quarter
were a low 0.4% (gross slippages in 1Q were at Rs0.9 bn—1.3% of
loans annualised). While restructured loans are higher (versus peers)
at Rs20 bn (7.6% of loans—stable QoQ), cumulative slippages were
only at 7% with high NPL coverage; seasoned loan book (due to low
growth over the past 2–3 years) provides additional cushion. Bank is
already on system NPL recognition platform. Our forecast FY12-13
credit costs are at 0.7%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Jammu and Kashmir Bank------------------------------------------------ Maintain OUTPERFORM
Strong 1Q results
● J&K Bank’s 1Q12 results (net profit of Rs1.8 bn, up 25% YoY;
1.5% RoA) were well above our estimates, driven by better-thanexpected
margins and lower provisions, partially offset by lower
non-interest income. Operating profit was up a healthy 26% YoY.
● Adjusted loan growth was strong at 24% YoY (J&K State’s
overdraft business ran-off in 4Q) and management maintained its
guidance of 25% loan growth in FY12. Deposit franchise
continued to be robust (27% savings deposit growth, 40% CASA)
despite the high interest environment (savings growth slowed to
15% levels for peers).
● Margins expanded 10 bp QoQ (to 3.8%), contrary to peers, aided
by a 266 bp expansion in the credit-deposit ratio and stable cost
of deposits (flat QoQ). With loan-deposit ratio at only 61%, bank
has further room to improve it. Asset quality continued to be
robust with 2.0% gross NPLs and 92% NPL coverage.
● While the stock has outperformed the market by 13% over the
past three months, with healthy 11% tier-I, high 92% NPL
coverage, strong deposit franchise (40%CASA) and at 1.05x
FY12 BV we retain OUTPERFORM.
Strong operating performance
J&K Bank reported strong 1Q12 net profit (Rs1.8 bn, up 25% YoY),
well above our estimates on better margins and lower provisions.
Reported loan growth for bank was at 15% YoY (1% QoQ) as
expected (bank’s overdraft business with 9% of loans has run down in
4Q and adjusted loan growth was at 24% YoY). Management has
maintained its FY12 loan growth guidance of 25% and 20% deposit
growth. We maintain our FY12E loan growth of 20%. NIMs surprised
positively and were up 10 bp QoQ at 3.8% versus a 20-30 bp QoQ
drop for the peers (cost of deposits was flat QoQ vs a 27 bp rise in
yields). The credit-deposit ratio improved 266 bp QoQ to 61% (still
lowest among the peers) which also aided the QoQ margin expansion.
Our forecast FY12 margins are at 3.75% (we expect the CD ratio to
improve further) versus management guidance of 4%. Deposit
franchise continued to be strong, aided by a robust 27% YoY growth
in savings deposits, and CASA share was stable at 40%. Fee income
(-5% YoY) was weaker than expected driven by low distribution
income. Tier-I was healthy at 11.3%.
Asset quality continues to be robust
Gross NPLs (%) were flat QoQ at 2.0% and NPL coverage remained
strong 92% (versus 92% in 4Q11). Credit costs during the quarter
were a low 0.4% (gross slippages in 1Q were at Rs0.9 bn—1.3% of
loans annualised). While restructured loans are higher (versus peers)
at Rs20 bn (7.6% of loans—stable QoQ), cumulative slippages were
only at 7% with high NPL coverage; seasoned loan book (due to low
growth over the past 2–3 years) provides additional cushion. Bank is
already on system NPL recognition platform. Our forecast FY12-13
credit costs are at 0.7%.
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