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Jammu & Kashmir Bank 3QFY2014 performance highlights and results update

February 18, 2014, Tuesday, 05:38 GMT | 00:38 EST | 10:08 IST | 12:38 SGT
Contributed by Angel Broking

Jammu & Kashmir Bank (J&K Bank) reported a healthy operating performance for the quarter, while asset quality remained largely stable. NII growth was moderate at 8.8% yoy. Operating profit remained largely flat yoy at Rs.441cr. PCR for the bank dropped by 182bp qoq (on back of Rs.5cr write back of provisions as against Rs.22cr in 2QFY2014), but even then at 90.2%, it remains one of the highest in the industry.

NIM decreased 36bp qoq; Asset quality remains largely stable: During 3QFY2014, the bank registered a healthy loan book growth of 21.5% yoy, while deposit growth was moderate at 10.7% yoy. The growth in CASA deposits was moderate at 8.8% yoy; hence, the CASA ratio for the bank increased 28bp qoq to 38.8% (yoy decrease by 66bp). The overall reported NIM for the bank decreased by 36bp qoq on back of 35bp qoq increase in Cost of deposits. During the quarter, the non-interest income (excluding treasury) for the bank grew weak by 2.5% yoy to Rs.74cr. Overall other income de-grew by 3.4% yoy to Rs.87cr. On the asset quality front, the Gross NPA ratio decreased marginally by 4bp qoq to 1.7%, while the net NPA ratio increased by 3bp qoq to 0.22%, which appears to be a moderate increase, given the prevailing weak macro environment and low base of NPLs for the bank. Slippage for the bank came in higher sequentially at Rs.146cr, (annualized slippage ratio of 1.5%), as compared to annualized slippage ratio of 1.0% during 1HFY2014. During the quarter there was one chunky account of Rs.94cr (oil exploration A/C) which slipped from restructured book to NPA, thereby increasing slippages qoq. PCR dropped by 182bp qoq, but even then at 90.2%, it remains one of the highest in the industry. Going ahead, the Management expects asset quality to improve on back of lower slippages and healthy recoveries and upgrades. During 3QFY2014, the bank witnessed fresh restructuring worth Rs.137cr, however aided by repayments/reclassification of Rs.217cr, there was a net decrease in outstanding restructured book by Rs.80cr to Rs.1,415cr.

Outlook and valuation: Higher loan growth outlook with CD ratio improvement and shift in loan mix towards higher yielding advances are likely to provide nearterm higher momentum to NII growth for the bank relative to other mid-sized banks. The bank also has a higher CASA ratio, strong capital adequacy and robust provision coverage, much higher than most other mid-sized banks. At CMP, the stock is trading at 1.0x FY2015E ABV, much higher compared to peers, factoring in its better asset quality performance vis-à-vis peers even in a challenging macro environment. We recommend an Accumulate recommendation on the stock.