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Short-term pain; long term story intact…
Jammu & Kashmir Bank functions as a universal bank (60% market share)
in Jammu and Kashmir (J&K), which is currently battling the worst ever
floods in decades. The flood has affected more than 300 of the bank’s
branches. Owing to the natural calamity, credit growth and deposit
growth within J&K state may get scaled down and restructured accounts
(RA) may increase in the next few quarters. However, the bank expects a
special dispensation package since it is a natural calamity.
Our sensitivity analysis indicates a decline in growth and surge in NPA,
RA can impact profit by ~ | 27 crore (2.3%) in FY15E. However, we have
not altered our estimates to factor in the flood impact.
Impact on business growth
The bank has 683 branches in J&K, among total 818 branches. About 43%
of credit exposure is within J&K wherein it earns yield of ~13% compared
to sub-12% outside. Overall credit growth for FY15E may scale down to
17.6% from expected 18% while the bank may lose incremental deposit
of over | 100 crore (50 lakh/month/branch within J&K), thereby reducing
deposit growth to 15.1% from 15.2% in FY15E. FY15E PAT may be
affected by ~2-3% owing to higher operational and credit cost.
Pressure on asset quality to increase
As on Q1FY15, the bank’s advances within J&K stood at | 20,404 crore of
which majority are personal (30%) and agriculture loans (20%). As per RBI
guidelines, banks are allowed to restructure loans of borrowers affected
by natural calamities as their ability to repay gets severely impacted. RA
of the bank, as on Q1FY14, stands at 3.1% of the credit at | 1390 crore.
The RA may increase by another ~| 200-500 crore on account of the
calamity. Hence, incremental provision may impact profit by ~2-3%,
which has not yet been factored in our model.
Our view
While this calamity does have a business impact, at present, we have
maintained our growth estimates till further clarity emerges and will
revisit our estimates post the Q2FY15 results. We reiterate our BUY rating
on the stock considering its strong above average return ratios (FY14:
RoE of 22%+ and RoA of 1.6%+) and maintain our target price at | 170.
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
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Short-term pain; long term story intact…
Jammu & Kashmir Bank functions as a universal bank (60% market share)
in Jammu and Kashmir (J&K), which is currently battling the worst ever
floods in decades. The flood has affected more than 300 of the bank’s
branches. Owing to the natural calamity, credit growth and deposit
growth within J&K state may get scaled down and restructured accounts
(RA) may increase in the next few quarters. However, the bank expects a
special dispensation package since it is a natural calamity.
Our sensitivity analysis indicates a decline in growth and surge in NPA,
RA can impact profit by ~ | 27 crore (2.3%) in FY15E. However, we have
not altered our estimates to factor in the flood impact.
Impact on business growth
The bank has 683 branches in J&K, among total 818 branches. About 43%
of credit exposure is within J&K wherein it earns yield of ~13% compared
to sub-12% outside. Overall credit growth for FY15E may scale down to
17.6% from expected 18% while the bank may lose incremental deposit
of over | 100 crore (50 lakh/month/branch within J&K), thereby reducing
deposit growth to 15.1% from 15.2% in FY15E. FY15E PAT may be
affected by ~2-3% owing to higher operational and credit cost.
Pressure on asset quality to increase
As on Q1FY15, the bank’s advances within J&K stood at | 20,404 crore of
which majority are personal (30%) and agriculture loans (20%). As per RBI
guidelines, banks are allowed to restructure loans of borrowers affected
by natural calamities as their ability to repay gets severely impacted. RA
of the bank, as on Q1FY14, stands at 3.1% of the credit at | 1390 crore.
The RA may increase by another ~| 200-500 crore on account of the
calamity. Hence, incremental provision may impact profit by ~2-3%,
which has not yet been factored in our model.
Our view
While this calamity does have a business impact, at present, we have
maintained our growth estimates till further clarity emerges and will
revisit our estimates post the Q2FY15 results. We reiterate our BUY rating
on the stock considering its strong above average return ratios (FY14:
RoE of 22%+ and RoA of 1.6%+) and maintain our target price at | 170.
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
LINK
http://content.icicidirect.com/mailimages/IDirect_JammuKashmirBank_QC_Sept14.pdf
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