Jammu & Kashmir Bank Q2FY18: Buy for an upside of 64.6% | Jammu & Kashmir Bank Q2FY18 | IndiaNotes.com
JKBK’s 2QFY18 performance was better than expected on back of decent NII growth as loan growth improved driving up NIMs and also relatively lower provisioning cushioning earnings.Asset quality was largely stable and bank continued its stance to improve balance sheet by maintaining PCR at 60%. Much positive was the loan growth improvement led by J&K state portfolio which are also margin accretive. According to the management, overall risk to the J&K restructured book remains much limited and focus remains on driving loan growth in J&K state. We believe, better PCR, improving NIMs and recovery loan growth augurs well for improvement in earnings over the next 3 years and hence we retain BUY with revised TP of Rs135 (up from Rs110) based on 1.6x Sep-19ABV.
Continues to improve operating performance: Bank’s NII growth of 12.7% continued to improve on recovery in loan book growth at 8% YoY and recovery in margins. Margins improved by 8bps QoQ to 3.78% mainly on combination of lower cost of funds and better yield on loans. Other income was lower but adjusting to treasury, core other income was up by 22% YoY but opex was slightly on higher side mainly from other opex. Bank expects margin of 3.5%, while C/I ratio of 51% for FY18 (H1FY18 ‐ 55%).
Asset quality largely stable with stabilizing slippages: Slippages of Rs4.8bn was lower than last few quarters and was mainly from one large a/c of Rs3.0bn from south based Spices & Food sector as bank had large NFB limit which had devolved. Despite this, GNPAs/NPAs were largely stable at 10.9%/4.8% up 8/10bps QoQ respectively. Also restructured book stood at 13% of loans but bank management believes that on thorough analysis and close monitoring risk to the book is of Rs3.3bn from tourism sector (hospitality) and Rs5-6bn in related sectors and does not see risk of slippage in rest of book as yet.
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