Jammu & Kashmir (J&K) Bank – Worth Buying!

On May 12, 2012, Jammu and Kashmir (J&K) Bank reported robust March quarter numbers. Since the bank posted its numbers on Saturday, its effect was seen after the markets opened on Monday. For the last four trading sessions i.e. this week, the broader markets have been going southwards by about 1.5 per cent while J&K Bank’s share price has been moving northwards by almost 2 per cent. This implies that investors are happy with the bank’s results. 

For the March quarter the net profit of the bank increased by 50 per cent to Rs 208.1 crore on a YoY basis. Most of the key parameters of the bank showed a good performance indicating that the bank is immune to the uncertain volatile macro-environment. First, let us look at the bank’s asset quality which is usually seen to be worsening for most of the public sector banks. However, this has not been the case with J&K Bank as its net NPAs decreased by 5 basis points to 0.15 per cent on a YoY basis and declined by 1 basis point on as sequential basis. It is at a very low level and is one of the best among the other public sector banks. Further, the bank has maintained its provision coverage ratio (PCR) very high at 93.76 per cent which further provides a sense of confidence as the risk of any asset quality deterioration decreases.

The second most important parameter, and highly commendable, is the net interest margin (NIM) which has shown a rise even during this high interest rate regime. The NIM of the bank increased by 14 basis points to 3.86 per cent. With the interest rate taking a U-turn, we believe that the bank might see some more improvement in its NIM. As on March 31, 2012, the capital adequacy ratio (CAR) of the bank stood at 13.36 per cent with Tier 1 CAR at 11.12. It is very good to see a public sector bank maintaining this kind of CAR.

The bank has not only performed well in its key parameters but also has seen robust business growth that has been above the RBI’s projections. As on March 31, the deposits of the bank increased by 19.14 per cent (RBI projection of 15.5 per cent for FY12) to Rs 53,346 crore while the advances increased by 26.28 per cent (RBI projection of 16 per cent for FY12) to Rs 33,077 crore. Further, the cost to income ratio, which reflects a bank’s efficiency in doing business, also improved. At the end of the March quarter the cost to income ratio stood at 34.58 per cent as against 44.6 per cent in the year-ago period.

The corporate or wholesale banking segment performed well during the quarter with the revenue from the segment increasing by 62 per cent to Rs 524 crore while the profit from the same increased by 118 per cent to Rs 252 crore.

Now let us also look at the full year’s financial numbers. The net interest income of the bank increased by 19 per cent to Rs 1,838 crore while the net profit of the bank increased by 30 per cent to Rs 803 crore. The operating expenses grew marginally by 5 per cent and the provisions decreased by 21 per cent to Rs 169 crore which helped the bank to post good bottomline.

Overall the bank is in a good shape and we believe that it will perform well going ahead. The bank had a business target of Rs 85,000 crore for FY12 and it has surpassed the same. The management guidance states that for FY13 it has set a business target of Rs 1,00,000 crore with net profit of Rs 1,000 crore. With the interest rate reversing further, it is expected that the bank’s NIM will become better. Further, the bank has good CAR and hence it will be less affected with the implementation of the Basel III norms. On the valuation front the bank is available at price to book value of 1.03 times, which is fairly valued. We believe one could invest in the scrip keeping in mind a long-term horizon to garner better returns.