Moneycontrol
Feb 13, 2015 01:42 PM IST | Source: Moneycontrol.com

Motilal Oswal neutral on Jammu and Kashmir Bank

Motilal Oswal has maintained a 'Neutral' rating on Jammu and Kashmir Bank (J&KBANK) with a target price of Rs 120, in its research report dated February 11, 2015.

Motilal Oswal neutral on Jammu and Kashmir Bank

Motilal Oswal's research report on Jammu and Kashmir Bank (J&KBANK)


JKBK’s PAT declined 67% YoY to INR1.05b, as (a) continued weakness in asset quality led to higher credit cost (1.24% in 3QFY15), and (b) growth in operating expenses (+22% YoY v/s balance sheet growth of 4%) continue to outpace revenue growth (+1% YoY in 3Q and 9M).


Gross stress additions increased to INR10.8b (annualized 10% of loans) from INR5.1b (5%) a quarter ago. Slippage increased to INR5.8b, led by (a) shipping sector account of INR1.8b, (b) detection of one fraud-related account of INR0.6b, and (c) continued pressure outside J&K state.


JKBK did flood-related restructuring of INR1.5b. In 4QFY15 so far, it has done additional restructuring of INR3.5b on this account. In the conference call, the management mentioned a pipeline of INR2b-3b.


Valuation and view: Near-term asset quality is likely to be under pressure, led by flood-related restructuring and consortium-led lending outside the J&K state. Within the J&K state growth should remain at 15%+. However, cautious outlook, high repayments (led by competitive pricing for refinancing by peer banks) would keep business growth moderate outside the state. We cut our earnings estimates by 25-30%. While we would continue to monitor performance on asset quality and growth, high business headwinds are leading us downgrade our rating to Neutral", says Motilal Oswal research report.


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