Dec 30, 2015 03:42 PM IST | Source:

Buy JK Bank; target of Rs 125:Prabhudas Lilladher

Prabhudas Lilladher is bullish on JK Bank and has recommended buy rating on the stock with a target price of Rs 125 in its research report dated December 30, 2015.

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Prabhudas Lilladher's c report on JK Bank

We hosted the management of J&K bank recently. We believe that the bank is now getting back on track with focus returning to home state where in the franchise still remain undisputable despite rising competition, while it lends to only top‐notch PSUs/corporates outside J&K. Asset quality should thus show a gradual improvement as bulky delinquent accounts have already been provided for and the bank has minimal exposure to accounts included in the RBI’s newly constructed list. JKBK aims to improve upon its RoA to >1.5% over the medium term led by stable margins at ~4%, moderation in credit cost and higher share of more profitable home state business. We remain positive on JKBK with PT of Rs125 and maintain BUY rating. We also add JKBK to our sectoral top‐picks given the reasonable valuations – in line with PSU banks, despite significantly better RoA, capital position and high dividend yield at ~5% (FY17 basis).

JKBK stock has corrected sharply over past few months due to both adverse market and selling by one of the large investor. We believe that current valuations at 0.7x FY17E ABV appear cheap, and is akin to the typical valuation of a PSU bank, despite JKBK currently delivering twice as much in RoA terms and with better visibility on delivering much better return ratios. JKBK has also maintained a dividend payout of ~20% over past many years and on a improving earning base and is currently offering attractive dividend yield of ~5%. We add JKBK to our sectoral top‐picks and maintain BUY with PT of Rs125.

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