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JAMMU & KASHMIR BANK
PRICE: RS.823 RECOMMENDATION: BUY
TARGET PRICE: RS.1060 FY13E P/E: 4.7X, P/ABV: 0.9X
Q2FY12 Results: Largely in line quarter
q NII came at Rs.4.34 bn (16.5% YoY), in line with our expectations, on
back of healthy loan growth (21.8% YoY) and marginal NIM improvement
(3bps YoY) to 3.69% during Q2FY12. Net income grew 22.3% during
Q2FY12 mainly aided by lower provisions and contingencies (decline
of 42.5%).
q Muted non-interest income (decline of 4.4% YoY) at Rs.712 mn during
Q2FY12 came on the back of lower trading profit (decline of 53.3%)
which fell from Rs.1.82 bn during Q2FY11 to Rs.0.85 bn during Q2FY12.
q J&K bank has witnessed healthy balance sheet growth - loan book and
deposits grew at 21.8% and 19.5%, respectively during Q2FY12. Its liability
franchise (CASA mix has come at 38.2% at the end of Q2FY12) has
remained healthy, despite ~220bps contraction QoQ, vis-à-vis its peers.
q Its asset quality continues to remain amongst the best in class - gross
NPA and net NPA remained stable at 1.89% and 0.22%, respectively, at
the end of Q2FY12. Its coverage ratio is also one of the best and now
stands at 88.4% (92.0% including technical W/O) at the end of Q2FY12.
q At the current market price of Rs.823, stock is trading at 4.7x its FY13E
earnings and 0.9x its FY13E ABV. We retain BUY rating on the stock with
unchanged TP of Rs.1060 based on 1.1x of its FY13E adjusted book value.
NII came at Rs.4.34 bn (16.5% YoY), in line with our expectations;
NIM improved marginally (3bps YoY).
J&K bank's core earnings grew at healthy pace - NII grew 16.5% to Rs.4.34 bn during
Q2FY12 on back of strong loan growth (21.8% YoY) and marginal NIM improvement
(3bps YoY) to 3.69% during Q2FY12.
Net income grew 22.3% during Q2FY12 on account of lower NPA provisions which
came down to Rs.223.3 mn in Q2FY12 from Rs.390 mn in Q2FY11
Although its NIM contracted QoQ from 3.82% in Q1FY12 to 3.69% in Q2FY12, it
was up YoY by 3 bps. J&K bank has robust liability franchise (CASA mix has remained
healthy at 38.2% at the end of Q2FY12) which has helped over the years to
deliver strong margin numbers.
We have been of the view that its margin would witness some compression during
FY12 as bank might go for higher loan growth outside J&K state, where spread is
likely to be lower. During Q2FY12, cost of deposits rose by 96 bps while yield on
advances improved by 80bps; however, strong up tick in yield on investment (112
bps) during the same period led to marginal improvement in NIM (YoY).
We are modelling NIM at 3.56% and 3.48% for FY12E and FY13E, respectively.
Healthy balance sheet growth; Liability franchise remained
healthy despite ~220bps contraction QoQ.
J&K bank has witnessed healthy balance sheet growth - loan book and deposits
grew at 21.8% and 19.5%, respectively during Q2FY12. Its liability franchise (CASA
mix has come at 38.2% at the end of Q2FY12) has remained healthy, despite
~220bps contraction QoQ, vis-à-vis its peers.
In our view, bank enjoys enough balance sheet liquidity as its C/D ratio has remained
at ~60%, far below its peers. We believe, bank is comfortably placed in
terms of C/D ratio as compared to its peers and this implies it can easily grow its
loan book without mobilizing much of high interest rate bearing bulk deposits.
Muted non-interest income on back of lower trading profit
Muted non-interest income (decline of 4.4% YoY) at Rs.712 mn during Q2FY12
came on the back of lower trading profit (decline of 53.3%) which fell from Rs.1.82
bn during Q2FY11 to Rs.0.85 bn during Q2FY12.
Asset quality continues to remain amongst the best in class; coverage
ratio at 92.0% (including technical W/O), one of the best in
the industry.
Its asset quality continues to remain amongst the best in class - gross NPA and net
NPA remained stable at 1.89% and 0.22%, respectively, at the end of Q2FY12. Its
coverage ratio is also one of the best and now stands at 88.4% (92.0% including
technical W/O) at the end of Q2FY12
We have modeled slippage at ~1.2% during FY12 & FY13E as compared to 1.3%
witnessed by the bank during FY11.
Valuation & recommendation
At the current market price of Rs.823, stock is trading at 4.7x its FY13E earnings and
0.9x its FY13E ABV. We are modeling earnings to grow 17.4% CAGR during FY11-
13E, while return profile is also expected to remain healthy (FY13E - RoA: 1.3%,
RoE: 19.3%) during next two years.
As stock is available at reasonable valuation, we retain BUY rating on the stock with
unchanged TP of Rs.1060 based on 1.1x of its FY13E adjusted book value.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
JAMMU & KASHMIR BANK
PRICE: RS.823 RECOMMENDATION: BUY
TARGET PRICE: RS.1060 FY13E P/E: 4.7X, P/ABV: 0.9X
Q2FY12 Results: Largely in line quarter
q NII came at Rs.4.34 bn (16.5% YoY), in line with our expectations, on
back of healthy loan growth (21.8% YoY) and marginal NIM improvement
(3bps YoY) to 3.69% during Q2FY12. Net income grew 22.3% during
Q2FY12 mainly aided by lower provisions and contingencies (decline
of 42.5%).
q Muted non-interest income (decline of 4.4% YoY) at Rs.712 mn during
Q2FY12 came on the back of lower trading profit (decline of 53.3%)
which fell from Rs.1.82 bn during Q2FY11 to Rs.0.85 bn during Q2FY12.
q J&K bank has witnessed healthy balance sheet growth - loan book and
deposits grew at 21.8% and 19.5%, respectively during Q2FY12. Its liability
franchise (CASA mix has come at 38.2% at the end of Q2FY12) has
remained healthy, despite ~220bps contraction QoQ, vis-à-vis its peers.
q Its asset quality continues to remain amongst the best in class - gross
NPA and net NPA remained stable at 1.89% and 0.22%, respectively, at
the end of Q2FY12. Its coverage ratio is also one of the best and now
stands at 88.4% (92.0% including technical W/O) at the end of Q2FY12.
q At the current market price of Rs.823, stock is trading at 4.7x its FY13E
earnings and 0.9x its FY13E ABV. We retain BUY rating on the stock with
unchanged TP of Rs.1060 based on 1.1x of its FY13E adjusted book value.
NII came at Rs.4.34 bn (16.5% YoY), in line with our expectations;
NIM improved marginally (3bps YoY).
J&K bank's core earnings grew at healthy pace - NII grew 16.5% to Rs.4.34 bn during
Q2FY12 on back of strong loan growth (21.8% YoY) and marginal NIM improvement
(3bps YoY) to 3.69% during Q2FY12.
Net income grew 22.3% during Q2FY12 on account of lower NPA provisions which
came down to Rs.223.3 mn in Q2FY12 from Rs.390 mn in Q2FY11
Although its NIM contracted QoQ from 3.82% in Q1FY12 to 3.69% in Q2FY12, it
was up YoY by 3 bps. J&K bank has robust liability franchise (CASA mix has remained
healthy at 38.2% at the end of Q2FY12) which has helped over the years to
deliver strong margin numbers.
We have been of the view that its margin would witness some compression during
FY12 as bank might go for higher loan growth outside J&K state, where spread is
likely to be lower. During Q2FY12, cost of deposits rose by 96 bps while yield on
advances improved by 80bps; however, strong up tick in yield on investment (112
bps) during the same period led to marginal improvement in NIM (YoY).
We are modelling NIM at 3.56% and 3.48% for FY12E and FY13E, respectively.
Healthy balance sheet growth; Liability franchise remained
healthy despite ~220bps contraction QoQ.
J&K bank has witnessed healthy balance sheet growth - loan book and deposits
grew at 21.8% and 19.5%, respectively during Q2FY12. Its liability franchise (CASA
mix has come at 38.2% at the end of Q2FY12) has remained healthy, despite
~220bps contraction QoQ, vis-à-vis its peers.
In our view, bank enjoys enough balance sheet liquidity as its C/D ratio has remained
at ~60%, far below its peers. We believe, bank is comfortably placed in
terms of C/D ratio as compared to its peers and this implies it can easily grow its
loan book without mobilizing much of high interest rate bearing bulk deposits.
Muted non-interest income on back of lower trading profit
Muted non-interest income (decline of 4.4% YoY) at Rs.712 mn during Q2FY12
came on the back of lower trading profit (decline of 53.3%) which fell from Rs.1.82
bn during Q2FY11 to Rs.0.85 bn during Q2FY12.
Asset quality continues to remain amongst the best in class; coverage
ratio at 92.0% (including technical W/O), one of the best in
the industry.
Its asset quality continues to remain amongst the best in class - gross NPA and net
NPA remained stable at 1.89% and 0.22%, respectively, at the end of Q2FY12. Its
coverage ratio is also one of the best and now stands at 88.4% (92.0% including
technical W/O) at the end of Q2FY12
We have modeled slippage at ~1.2% during FY12 & FY13E as compared to 1.3%
witnessed by the bank during FY11.
Valuation & recommendation
At the current market price of Rs.823, stock is trading at 4.7x its FY13E earnings and
0.9x its FY13E ABV. We are modeling earnings to grow 17.4% CAGR during FY11-
13E, while return profile is also expected to remain healthy (FY13E - RoA: 1.3%,
RoE: 19.3%) during next two years.
As stock is available at reasonable valuation, we retain BUY rating on the stock with
unchanged TP of Rs.1060 based on 1.1x of its FY13E adjusted book value.
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