ICICI Direct's research report on Jammu & Kashmir Bank
Bank reported loss at Rs 602 crore in Q2FY17 vs. our estimate of profit of Rs 110 crore, primarily led by higher provision during the quarter. Led by unrest in J&K state impacting borrowers ability to repay, asset quality deteriorated in Q2FY17, with highest net GNPA addition at Rs 968 crore. Consequently, absolute GNPA increased to Rs 5682.9 crore (GNPA: 11.33% vs. 9.31% in Q1FY 17). NNPA increased to Rs 3236 crore from Rs 3023 crore QoQ. Provision increased at Rs 992 crore; highest ever in the past, led by higher slippages. In Q2FY17, one account with exposure of Rs119.8 crore, has been restructured under S4A scheme. RA doubled QoQ at Rs 5713 crore; 12% of advance. Credit growth remained subdued at 4% YoY to Rs 47552 crore; below our estimate of 11.1% YoY growth. Led by demonetization, deposits fared better with 11.9% YoY growth to Rs 69884 crore.
Recent slowdown in J&K state, wherein it has dominant position, and corporate slippage has led to moderation in credit growth as well as increased stressed asset accretion. Going ahead, deposit growth is seen to remain healthy, while credit off-take is expected to pick up from FY18E. While stressed asset accretion need be watched for; Management’s effort and focus to clean up balance sheet remains encouraging. Though, we have halved our FY18E PAT estimates led by credit growth moderation and higher credit cost, healthy recovery is anticipated. Therefore, we revise our target price upwards at Rs 75 from Rs 68, assigning higher multiple at 1.4x FY18E P/ABV (0.74x earlier). Consequently, we revise our rating on the stock from Hold to Buy.
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