Buy J&K Bank; target of Rs 100: Motilal Oswal

Motilal Oswal's research report on J&K Bank

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.

Outlook

While large proportion of rehabilitated loans may turn standard over the next two quarters. We cut FY19E PAT by 3% to account for a sharp pick-up in margins and maintain our TP of INR100 (upside of 44%), which corresponds to 1.1x Mar-20E ABV. For all recommendations report, click here

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