Accumulate JK Bank; target of Rs 885: Angel Broking

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Accumulate JK Bank; target of Rs 885: Angel Broking

Angel Broking is bullish on JK Bank and has recommended accumulate rating on the stock with a target of Rs 885 in its May 19, 2011 research report.

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Angel Broking is bullish on JK Bank and has recommended accumulate rating on the stock with a target of Rs 885 in its May 19, 2011 research report.

"For 4QFY2011, J&K Bank registered healthy net profit growth of 15.4% yoy (down 17.5% qoq) to Rs139cr, in line with our estimates. Healthy credit growth (after adjusting for repayment of Rs2,300cr by the state government) and marginal improvement in reported NIM were the key highlights of the result."

"For 4QFY2011, deposit growth was strong at 9.3% qoq, while advances growth was slower at 3.3% qoq. However, the bank closed down the overdraft facility to the J&K government worth Rs2,300cr during the quarter. Adjusted for this change, qoq growth in advances would have been significantly higher at 12.3% (23.6% yoy instead of 13.6% yoy). The bank also managed to grow its CASA deposits by 11.8% qoq (19.4% yoy), leading to a 91bp improvement in CASA ratio to 40.5%. For 4QFY2011, the cost of deposits increased by 24bp to 5.4%. Due to change in asset mix, the yield on investments dipped by 24bp to 6.3%, while yield on advances witnessed an increase of 44bp to 11.2%, leading to reported NIM remaining flat at 3.7%. The bank managed to maintain its asset quality in 4QFY2011 with gross NPAs rising marginally by 3.0% qoq to Rs519cr. Net NPAs, however, jumped five times on a low base from Rs11cr in 3QFY2011 to Rs53cr in 4QFY2011 due to lower NPA coverage ratio of 92.7% for 4QFY2011 compared to 98.4% for 3QFY2011. Operating expenses grew by 28.2% qoq as the bank provided fully for pension and gratuity expenses amounting to Rs91cr during the quarter."

"The stock is trading at 0.9x FY2013E ABV vis-à-vis its historic range of 0.8-1.4x and five-year median of 1.04x. We maintain a positive view on the stock, considering the bank's strong deposit mix, dominant regional market share and healthy track record in asset quality. We believe this provides sufficient margin of safety from the risks of political disturbances in J&K, especially in light of the bank's steady performance even during past crises. Even taking into account the inherently lower-than-national average growth (in GDP, deposits and credit) in J&K, at just 0.9x FY2013E P/ABV and with sustainable RoEs of at least 16%, the stock is inexpensive. Hence, we recommend Accumulate on the stock with a target price of Rs885, implying an upside of 10.7% from current levels," says Angel Broking research report. 

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