Dear All,
Forwarding you the Result Flash on Jammu & Kashmir Bank for 4QFY2011 with an Accumulate recommendation and a Target Price of `877 (12 months).
For 4QFY2011, J&K Bank has registered net profit growth of 15.4% yoy to Rs139cr in line with our estimates of Rs138cr. However other income growth was stronger-than-expected, which was offset by higher operating expenses. Calculated NIMs were up marginally by 3bp qoq in spite of ~350bp qoq fall CD ratio. Healthy operating performance coupled with largely stable asset quality was the key positive from the results.
· The advances growth was relatively slow at 3.3% qoq and 13.6% yoy, possibly due to reduction in loan to J&K state government. However deposits accretion showed strong traction with growth of 9.3% qoq and 20.0% yoy.
· On the NII front, the bank registered healthy growth of 6.7% qoq and 34.7% yoy on the back of sequential rise in calculated NIMs. Other income was substantially better than estimates, registering growth of 53.5% qoq and 17.0% yoy.
· Operating expenses were up a substantial 28.2% qoq and 36.0% yoy on the back of 31.1% qoq and 45.9% yoy rise in employee expenses. During FY2011, the bank has charged off Rs91cr on account of employee benefits related provisions in addition to the transitional liability of Rs30cr. Even other operating expenses rose by 22.0% qoq. Consequently, the cost-to-income ratio rose to 44.7% from 39.9% in 3QFY2011 and 42.8% in 4QFY2010.
· On the asset quality front, the bank continued to largely maintain its strong track record with gross NPA increasing just by 3.0% qoq. However net NPAs rose sharply to Rs53cr (still relatively small at 0.2% of advances) from Rs11cr in 3QFY2011. Provision coverage ratio including technical write-offs stood at a strong 92.7% (98.4% in 3QFY2011)
· The capital adequacy ratio declined from 15.5% in 3QFY2011 to 13.7%, possibly due to reduction in loan to J&K state government.
At the CMP, the stock is trading at 0.9x FY2013E ABV. We maintain our Accumulate recommendation on the stock with a Target Price of `877. We may further revise our estimates, target price post interaction with the management.
| Exhibit 1: 4QFY2011 Actual vs. Estimates | |||
| (Rs cr) | Actual | Estimates | Var (%) |
| Net interest income | 416 | 381 | 9.2 |
| Non-interest income | 119 | 79 | 51.0 |
| Operating income | 535 | 459 | 16.4 |
| Operating expenses | 239 | 189 | 26.2 |
| Pre-prov. profit | 296 | 270 | 9.6 |
| Provisions & contingencies | 76 | 64 | 18.3 |
| PBT | 220 | 206 | 6.8 |
| Prov. for taxes | 82 | 68 | 20.0 |
| PAT | 139 | 138 | 0.4 |
Source: Company, Angel Research
Exhibit 2: 4QFY2011 Performance summary
| (Rs cr) | 4QFY2011 | 3QFY2011 | % chg (qoq) | 4QFY2010 | % chg (yoy) |
| Interest earned | 1,014 | 935 | 8.5 | 773 | 31.1 |
| Interest expenses | 598 | 545 | 9.7 | 465 | 28.7 |
| Net interest income | 416 | 390 | 6.7 | 309 | 34.7 |
| Non-interest income | 119 | 78 | 53.5 | 102 | 17.0 |
| Operating income | 535 | 467 | 14.5 | 410 | 30.3 |
| Operating expenses | 239 | 186 | 28.2 | 176 | 36.0 |
| Pre-prov. profit | 296 | 281 | 5.4 | 235 | 26.1 |
| Provisions & contingencies | 76 | 31 | 146.8 | 39 | 93.8 |
| PBT | 220 | 250 | (11.9) | 196 | 12.6 |
| Prov. for taxes | 82 | 82 | (0.7) | 76 | 8.0 |
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