MOSL: J&K BANK (Upgrade to Buy) - Asset quality concerns easing
​J&K Bank: Asset quality concerns easing; upgrade to Buy
(JKBK IN, Mkt Cap USD0.5b, CMP INR82, TP INR100, 23% Upside, Upgrade to Buy)
- JKBK reported PAT of INR716m in 2QFY18 (+1.37x QoQ on a low base), 14% above estimate, aided by strong revenue growth. PPoP was flat QoQ on account of slightly higher opex, raising the CI ratio to 56%. Provisions of INR2.43b were in line with our estimate.
- NII grew ~13% YoY (+1% QoQ), led by an improvement in margins to 3.78% (+8bp QoQ, +41bp YoY) and a pick-up in loan growth (INR513b, +5%/+8% QoQ/YoY). NIM improved on the back of a 9bp/44bp QoQ/YoY increase in spreads, as the bank's cost of funds declined 6bp/71bp QoQ/YoY.
- Both slippages (INR4.8b; INR5.1b in 1Q) and recoveries & upgrades (INR1.37b; INR1.9b in 1Q) moderated sequentially, leading to a 6% sequential rise in GNPA (INR59.8b, 10.87% of advances). However, PCR stood strong at 69.2% (marginal down from 70.3% in 1Q). NNPA stood at INR24.4b (4.76% v/s 4.65% of advances in 1Q). Std. restructured loans stood at INR57.5b (11% of loans). S4A book stood at INR2.47b at end-2QFY18.
- Other highlights: (1) Share of J&K state loans increased to ~51.8% v/s 51% in 1QFY18. (2) CASA ratio stood at 50.4% (-50bp QoQ). (3) The bank is aiming to raise INR6-7b of equity within total planned capital raise of INR20b, including equity, AT1 bonds and T2 bonds.
The Jammu & Kashmir Bank Limited is engaged in the banking business. The Company offers a range of products and services, such as loans, insurance, tax products/planning, savings and deposits, cards, mutual funds and non-resident banking. Its segments include Treasury Operations, Corporate/Whole sale banking, Retail Banking and Other Banking Business. It operates through over 857 branches, which include approximately 45 metro branches, over 193 urban branches, approximately 157 semi-urban branches and over 462 rural branches, which are spread over 20 states and a union territory. It operates over 1,010 automated teller machines. It provides loans, such as Educational Finance, Agriculture Finance and Automobile Finance. It provides savings and deposits, such as Salary Accounts, Current Accounts and Term Bank Deposits. The Company also provides non-resident banking services, such as Non Resident External (NRE) Rupee Deposits and Non Resident Ordinary (NRO) Rupee Deposits.
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