Motilal Oswal's research report on Jammu and Kashmir Bank (J&KBANK)
JKBK’s PAT declined 67% YoY to INR1.05b, as (a) continued weakness in asset quality led to higher credit cost (1.24% in 3QFY15), and (b) growth in operating expenses (+22% YoY v/s balance sheet growth of 4%) continue to outpace revenue growth (+1% YoY in 3Q and 9M).
Gross stress additions increased to INR10.8b (annualized 10% of loans) from INR5.1b (5%) a quarter ago. Slippage increased to INR5.8b, led by (a) shipping sector account of INR1.8b, (b) detection of one fraud-related account of INR0.6b, and (c) continued pressure outside J&K state.
JKBK did flood-related restructuring of INR1.5b. In 4QFY15 so far, it has done additional restructuring of INR3.5b on this account. In the conference call, the management mentioned a pipeline of INR2b-3b.
Valuation and view: Near-term asset quality is likely to be under pressure, led by flood-related restructuring and consortium-led lending outside the J&K state. Within the J&K state growth should remain at 15%+. However, cautious outlook, high repayments (led by competitive pricing for refinancing by peer banks) would keep business growth moderate outside the state. We cut our earnings estimates by 25-30%. While we would continue to monitor performance on asset quality and growth, high business headwinds are leading us downgrade our rating to Neutral", says Motilal Oswal research report.
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