Q2FY13 results surprised on profitability led by a beat in credit costs and margins.
Operating performance was driven by improving margins and asset quality was
stable despite migration to system‐driven NPA recognition. We increase our FY13
estimates by ~6‐9% driven by higher NIMs, increase our PT to Rs1,400/share (1.2x
FY14 book) and maintain our positive view despite ~35% run up. Details of J&K’s
top‐10 corporate exposures indicate much lower risk than expected by the street.
Also, with our earnings upgrade, J&K Bank will deliver 21‐22% ROEs over FY13‐14
and thus, we believe benchmarking to PSU bank multiples is unwarranted, given a
much superior ROA/ROE profile and lower asset quality risks.
Strong show on NIMs; non‐interest income aided by treasury: NIMs improved
by ~10bps QoQ as loan yields surprised by ~20bps QoQ up move possibly due to
higher proportion of J&K advances/some write-back. Management expects
margins to further inch up as funding environment has improved and share of
J&K state is expected to improve materially over the next 12-18 months. Noninterest
income was higher-than-expected but the beat was largely driven by
Rs260m of treasury gains adjusted for which core fee growth was muted.
Continues to build on the growth momentum: Advances book inched up by
~3.5% QoQ and J&K Bank continues to sustain the growth momentum exceeding
20% YoY growth for the last 3-4 quarters. We do not have details on the
J&K/non J&K mix but management in our recent road show guided to significant
accretion in share of J&K advances, which will be margin accretive.
Asset quality robust; Top‐10 non‐J&K exposures relatively safe: Asset quality
continues to remain robust with lower Gross NPA ratio QoQ. Gross slippages of
~Rs1bn (1.2% annualised) included impact of transition to system-driven NPA
recognition for
on the bank’s non-J&K corporate exposure but details on J&K bank’s top-10
corporate exposures indicates a relatively safe asset book.
No comments:
Post a Comment