Jammu & Kashmir Bank has been consistently posting good results for last couple of years.
The thing that is most interesting is the high return on equity the bank has been generating
Return on Equity for the year ended March 2013 is 23.50%.
It has crossed the mark of 1000 Cr in profit for this year at 1055.1 crore (31.36% growth compared to FY12) and the most interesting thing is it trades at the market cap below 6500 crore. This is what got me really interested.
So a check on good ROE and a check on cheap valuations and check on growth.
There has been some concerns regarding asset quality worsening in the previous 2 quarters,
but still Net NPA of 0.14% and Provision Coverage Ratio is about 94%, which is very high.
Bank is semi-private bank which has 53% stake by J&K State government, but it is run like a private bank and
So P/BV of 1.35 and P/E of 6.08 for FY13 is unwarranted, I feel.
The company has high regional concentration, which can be a huge risk due to security issues prevalent in J&K . Another way to look at it is high regional market share.
Such low valuations with good growth provides a decent risk-return opportunity. The continuity of management is a positive unlike a PSU bank.
The bank has CASA ratio of 39-40%, and it has NIM above 4 %.
So a possible re-rating could lead to higher levels and at P/E of 6.09, the downside seems to be capped as it is a mid-cap share.
As I am new to investing, I am not yet highly skilled in the analysis part. Would like others to suggest some improvements for the same. And even contrarian approach could lead to healthy discussion.
Attached below is excerpt of the research report of Motilal Oswal after Q3 result of FY13. Detailed report is on moneycontrol Stock Advice and Research Section
Jammu and Kashmir Bank (JKBK) posted PAT growth of 36% YoY (7% QoQ) in
3QFY13 to INR2.9b. Core operating parameters were healthy, with NIM at 4.1%
(up 44bp YoY and 13bp QoQ), loan growth of 20% YoY (4% QoQ) and PCR of ~94%.
ï While slippages were contained at INR1.1b (annualized slippage ratio of 1.5%),
negative surprise came from higher restructuring of INR7.3b (2% of overall
loans). The management mentioned that the restructuring was largely on
account of four large corporate accounts worth INR4.7b.
ï While yield on loans declined 11bp QoQ to 12.6%, the decline in cost of funds
was sharper (down 26bp QoQ), and led to margin expansion (13bp QoQ) to
4.1%. Margins were 6% in the home state and 2.5% in states other than J&K.
ï Loans grew 6% QoQ within J&K and 4.5% QoQ in other states. Overall loans
grew 20% YoY.
ï CASA growth was strong at 7% QoQ and 15% YoY, led by 7% QoQ (17% YoY)
increase in SA deposits. CA deposits grew 10% QoQ (9% YoY). CASA ratio
improved to 39.4% v/s 38.2% in 2QFY13.
Valuation and view: JKBK continues to deliver healthy performance on business
growth and NIM. Some of the core operating parameters like CASA ratio of ~40%,
NIM of 4% with the lowest CD ratio of 62%, PCR of 94%+ and RoA/RoE of 1.5%+/
21%+ remain the best in the industry. While the sharp increase in restructured
loans came as a negative surprise, the management stated that these were
technical and no NPV hit was taken. Further, it does not expect significant
restructuring going forward, which provides some comfort. Maintain Buy.