Buy JK Bank; target of Rs 185: PLilladher

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26 Aug, 2025 12:21

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Prabhudas Lilladher`s research report on JK Bank“The recent floods in the valley have not only affected daily life in J&K state, but also the Banking business. We through this report, try to assess the situation to Bank credit in the state, with specific attention to J&K bank which has 60% share in the overall business and is likely to be the worst affected. Although it is early to assess the quantifiable impact of the floods, we believe that there could possibly be near term headwinds to asset quality.”"As of Q1FY15, ~75% of credit disbursed are in the flood affected areas in J&K state with Srinagar and Jammu districts having the lion’s share of ~50%, while the share of credit to the worst affected areas were ~34% of loans (Exhibit 2). Jammu district is relatively less affected than Srinagar. Srinagar has mostly tourism related businesses and has exposure of short term in nature which could have a knock on effect on asset quality immediately. Although it is early to assess the impact on asset quality, Srinagar has 4.6% GNPAs (Exhibit 2), while J&K bank being the largest share in J&K state has lowest GNPAs of 2.3% among the three large banks as at Q1FY15 (Exhibit 3). J&K bank’s B/s remains highly concentrated in J&K state with ~69% deposits and ~45% loans (Exhibit 1). Immediate impact on asset quality could be limited as only ~35% of J&K Bank’s advances & deposits remain below tenure of 12 months and could be possibly recognized upfront which mostly are in Agri, Trade and Personal segments (largely unsecured). J&K Bank’s management believes flooding in the state is a national disaster and would be provided regulatory relief on loans mostly by dispensation in NPA recognition and restructuring of loans on easier terms. SBI, PNB (~19% of Biz) and other banks’ overall asset quality will not see material impact on lower concentration to J&K state compared to their B/s size.""We believe that NIMs/ROAs for J&K Bank will likely moderate on asset quality pressures and distorted normalcy of payment schedules. Though non-J&K book possess threat of additional stress to asset quality, we believe J&K bank has navigated well through economic challenges by displaying best in class ROA/ROEs of 1.5%/20%. P/ABV remains reasonably undemanding at 1x FY16E we retain Accumulate with TP of Rs185,” says Prabhudas Lilladher research report.

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