Jammu & Kashmir Bank Posts Robust June Results, Reiterate ‘Buy’ Call

Jammu & Kashmir (J&K) Bank has posted robust June quarter numbers which are in line with our expectations. We believe that the bank is insulated from the current uncertain environment and has good financial health. We would also like to remind investors that we had recommended J&K Bank as ‘choice scrip’ in our Dalal Street Investment Journal (DSIJ) magazine’s Volume No 27, Issue No 15, dated July 15, 2012. After our recommendation the scrip headed northward and touched a 52-week high of Rs 1,010. However, the scrip has since then slid down as the stock turned ex dividend and is trading at Rs 936 per share. The scrip is a good bet over a long-term horizon.

The point to be noted is that while most of the banks are facing issues on the asset quality front, J&K Bank in its June quarter numbers has reflected an improvement in asset quality. On a YoY basis the gross NPAs of the bank have decreased by 37 basis points to 1.6 per cent while the net NPAs have decreased by 8 basis points to 0.14 per cent. The net NPAs of the bank improved by 1 basis point even on a sequential basis and at present it is one of the best in the industry. Further, the bank’s provision coverage ratio (PCR) improved by 1.63 basis points to 94.09 per cent. The PCR is among the best in the industry.

The bank faced some headwinds on their net interest margin (NIM) front. On a YoY basis the NIM of the bank decreased by 2 basis points to 3.80 per cent while on a sequential it declined by 6 basis points. We believe that the bank will probably maintain its NIM at a good level in the coming quarters of FY13. Further, as on June 30, 2012, its capital adequacy ratio (CAR) as per Basel II stood at 13.75 per cent while the Tier 1 CAR stood at 11.50 per cent.

On the business front too the bank has displayed robust growth. As on June 30, 2012, the advances of the bank increased by 26 per cent to Rs 33,225 crore while the deposits increased by 23.30 per cent to Rs 53,117 crore. One should note that the bank is outpacing the industry growth rate as the RBI has forecasted a deposit growth of 15 per cent and credit growth of 17 per cent for FY13.

The treasury segment posted the best result this quarter as the revenue increased by 49 per cent to Rs 477 crore. The net profit for the same stood at Rs 23.9 crore as against Rs 4.11 crore in the similar quarter last year. The other segments also performed well during the quarter which helped the bank to post stupendous growth in its bottomline. The net interest income (NII) of the bank increased by 22.51 per cent to Rs 535.62 crore while the net profit of the bank grew by 35 per cent to Rs 246 crore.

In the coming quarters too the bank should be able to maintain its NIM at healthy levels. On the valuation front, J&K Bank is currently trading at an adjusted price to book value of 1.05 times, which should be considered as fairly valued. We hereby reiterate our ‘buy’ tag on the stock and investors should add it to the portfolio keeping in mind a longer time horizon to garner better returns.