Buy Jammu and Kashmir Bank; target of Rs 80 Prabhudas Lilladher

Prabhudas Lilladher's research report on Jammu and Kashmir Bank

JKBK's earnings of Rs2.1bn (PLe:Rs1.5bn) were better than expectations as bank recorded higher Other Income pertaining to stake sale in PNB MetLife. Adjusting for stake sale, PPoP grew 56% despite spike in employee cost coming from wage provisions. Loan growth was driven by retail segment (34%YoY) and J&K State. Bank reported NIM of 4.05% (+14bps/+86bps QoQ/YoY) as imrpoved yields offset higher funding costs. Credit cost (calculated) was moderately high at 2.7% (2.4% in 4Q18) as a) bank recognized 3 IL&FS accounts of 4 as NPA, b) divergence in provisions cited by RBI. Bank's restructured book which had been a concern declined 12% QoQ. Valuation of 0.6x on Mar-21 ABV is reasonable given healthy loan growth & margins outlook, robust liabilty franchise (CASA:51%), controlled asset quality and waning capital concerns.

Outlook

Retain BUY with revised TP of Rs80 (from Rs76) based on 0.9x Mar-21 ABV