Buy Jammu and Kashmir Bank; target of Rs 65: ICICI Direct

ICICI Direct's research report on Jammu and Kashmir Bank

Jammu & Kashmir Bank reported strong operating profit led by strong NII growth of 42% YoY & 134% YoY growth in other income largely led by gain from stake sale in PNB MetLife worth Rs 143 crore. Credit growth came in healthy at 16.4% YoY to Rs 66272 crore, led by higher traction in retail loans in J&K state. Focus on balance sheet growth in J&K state continued with ~23% YoY growth to Rs 39015 crore driven by growth in personal & agriculture book while non J&K book grew 6.4% YoY to Rs 30357 crore. Change in asset mix with increase in proportion of retail segment has yielded 14 bps QoQ margins expansion to 3.95%.

Outlook

Healthy growth in advances with focus on retail segment is expected to augment margins & thereby operational performance. Recognition of stressed account & continuous reduction in rehabilitated advances is expected to keep asset quality under control. Accordingly, RoA is expected to improve gradually to 0.8% in FY21E. Rolling over our estimates to FY21E, we revise our target price to Rs 65 (earlier Rs 52), valuing the stock at ~0.9x FY21E ABV. We maintain our BUY recommendation on the stock.