MOSL: J&K BANK (Buy)-Balance sheet growth picking up with improvement in asset quality
J&K Bank: Balance sheet growth picking up with improvement in asset quality
(JKBK IN, Mkt Cap USD0.5b, CMP INR70, TP INR100, 44% Upside, Buy)
- JKBK reported PAT of INR725m in 3QFY18 (+1.1% QoQ), exceeding our estimate by 3%, aided by 33.8% growth in NII. PPoP was up 30.6% YoY (4% beat), despite high opex (23.1% YoY), raising the CI ratio to 57%. Provisions of INR2.5b were 5% below our estimate. Tax rate for 3QFY18 was 45.4% (v/s 40.9% in 2QFY18).
- NII grew ~34% YoY (+8% QoQ), led by an improvement in margins to 4% (+24bp QoQ, +103bp YoY) and a pick-up in loan growth (INR579b, +12.8%/+28.5% QoQ/YoY). NIM improved despite 27bp/55bp QoQ/YoY decline in yield on advances, as the bank shifted its treasury portfolio for growing loans.
- Both slippages (INR3.7b, INR4.8b in 2Q) and recoveries & upgrades (INR1.2b, INR1.4b in 2Q) moderated sequentially, leading to a 4.2% sequential increase in GNPA (INR62.3b, 10.11% of advances). However, PCR stood strong at 69.5% (28bp increase from 2QFY18). NNPA stood at INR24.9b (4.29% v/s 4.76% of advances in 2Q). Std. restructured loans stood at INR56.7b (9.8% of loans). Std. SDR book stood at INR5.5b as at 3QFY18.
- Other highlights: (1) Share of J&K state loans decreased to ~48.14% v/s 51.8% in 2QFY18, (2) CASA ratio stood at 49.9% (-97bp QoQ). (3) The bank is aiming to raise INR6-7b of equity within a 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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