Dear All,
Forwarding you the Result Update on Jammu and Kashmir Bank for 4QFY2011 with an Accumulate recommendation and a Target Price of `885 (12 months).
For 4QFY2011, J&K Bank registered healthy net profit growth of 15.4% yoy (down 17.5% qoq) to `139cr, in line with our estimates. Healthy credit growth (after adjusting for repayment of `2,300cr by the state government) and marginal improvement in reported NIM were the key highlights of the result.
We recommend an Accumulate rating on the stock.
Healthy credit growth momentum, improving NIM and robust asset quality: For 4QFY2011, deposit growth was strong at 9.3% qoq, while advances growth was slower at 3.3% qoq. However, the bank closed down the overdraft facility to the J&K government worth `2,300cr during the quarter. Adjusted for this change, qoq growth in advances would have been significantly higher at 12.3% (23.6% yoy instead of 13.6% yoy). The bank also managed to grow its CASA deposits by 11.8% qoq (19.4% yoy), leading to a 91bp improvement in CASA ratio to 40.5%. For 4QFY2011, the cost of deposits increased by 24bp to 5.4%. Due to change in asset mix, the yield on investments dipped by 24bp to 6.3%, while yield on advances witnessed an increase of 44bp to 11.2%, leading to reported NIM remaining flat at 3.7%. The bank managed to maintain its asset quality in 4QFY2011 with gross NPAs rising marginally by 3.0% qoq to `519cr. Net NPAs, however, jumped five times on a low base from `11cr in 3QFY2011 to `53cr in 4QFY2011 due to lower NPA coverage ratio of 92.7% for 4QFY2011 compared to 98.4% for 3QFY2011. Operating expenses grew by 28.2% qoq as the bank provided fully for pension and gratuity expenses amounting to `91cr during the quarter.
Outlook and valuation: The stock is trading at 0.9x FY2013E ABV vis-à-vis its historic range of 0.8–1.4x and five-year median of 1.04x. We maintain a positive view on the stock, considering the bank's strong deposit mix, dominant regional market share and healthy track record in asset quality. We believe this provides sufficient margin of safety from the risks of political disturbances in J&K, especially in light of the bank's steady performance even during past crises. Even taking into account the inherently lower-than-national average growth (in GDP, deposits and credit) in J&K, at just 0.9x FY2013E P/ABV and with sustainable RoEs of at least 16%, the stock is inexpensive. Hence, we recommend Accumulate on the stock with a target price of `885, implying an upside of 10.7% from current levels.
Kindly click on the following link to view the Report.
Jammu and Kashmir Bank - RU4QFY2011
If you have any further queries, feel free to call us on 022 39357600, Extn: 6865 or mail us at advisory@angelbroking.com
With best regards,
Fundamental Advisory Desk
Angel Broking
Akruti Star,6th Floor, Road No.7,MIDC, Andheri (E),Mumbai – 93.
Call : (91) (022) 39357600 Ext. 6865
Website : www.angelbroking.com
Disclaimer: Ours is an advisory role. The final decision and consequences based on our information is solely yours. Moreover, in keeping with regulatory guidelines, we do not guarantee any returns on investments. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice.
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