Jammu & Kashmir Bank

JK Bank over the period might have given better returns owing to smaller base, but I feel currently the base is bigger with around 6000 crore in market cap, so now will be a real test of fundamentals.

What is making it interesting is at current PE of 5.63 on FY13 basis, market seems to be pricing it like a no-growth story or highly discounting the concentration in J&K state and dividend yield of 4% and growing every year, protects the downside risk.

Parameters (crore)

Q1FY14

Q1FY13

Q4FY13

% change YoY

% change QoQ

Interest Income

1624.24

1476.16

1628.8

10.03

-0.3

Operating Profit

480.99

415.17

538.14

15.85

-10.62

Provisions and Contingencies

36.23

50.37

178.61

-28.07

-79.7

PAT

307.92

246.09

250.08

25.12

23.13

EPS

63.52

50.77

51.56

-

-

Gross NPA(%)

1.67

1.60

1.62

4.375

3.09

Net NPA (%)

0.14

0.14

0.14

-

-

ROA (%)

1.89

1.68

1.49

-

-

PCR (%)

94.01

-

-

-

-

Although it had lower than expected growth in operating profit , bank has made a good reduction as far as provision and contingencies are concerned.

The restructured book data will be available in Earnings update on website in next few days, which will be a key monitorable going forward.

There has been some questions asked on the recruitment process by the bank. Related link:

http://www.eurasiareview.com/31072013-jk-bank-credibility-at-stake-analysis/

Hi Utkarsh

As mentioned by hemant bhaiya technically J&K was in final stages of the uptrend…The uptrend is over…

Even though it looks undervalued its better not to get into it till some positive indications on the technical front…

Hemantji had said its in early stage of wave5 and this itself can give huge upside. The stock is still to break below 1000 support mentioned by him.

Rskm hemant bhaiya has mentioned the uptrend is intact till it holds 200 dma which is 1204rs … It has fallen below 1204… Hence the uptrend is over…

The result was good. Bank is a quality one and significantly underpriced. It will bounce back soon and will be over 1300 by this month end. (Technofunda call)

Outstanding restructured assets increased by 197 crore QoQ to 1687.8 crore, led by corporate portfolio outside Jammu Kashmir. Fresh restructuring was 221.2 crore. Amount converted from restructured to normal loan portfolio was 24.2 crore.

Fresh slippages during the quarter (Q1FY14) were 82.7 crore compared to 157.5 crore (Q4FY13) and 85.7 crore(Q1FY13)

J&K Bank conducted concall on 11 November 2013 to discuss financial performance for the quarter ended September 2013 and prospects of the bank. Mushtaq Ahmed â Chairman and CEO along with Parvez Ahmad âExecutive President addressed the call:

Highlights by Capital Mkt:

  • Industry is passing through a stressed environment, still bank has maintained the healthy credit growth of 20%. Bank continued to guide at the credit growth target of 20% for FY2014, while the credit growth of 25% is expected within the state of Jammu and Kashmir (JK).
  • The provision coverage ratio of the bank was steady at 92%. Bank is holding floating provision of Rs 52 crore.
  • Increase in provisions in the quarter ended September 2013, was mainly caused by increase in coverage ratio for non-performing account of Deccan Chronicle to 100%.
  • Bank expects credit cost in the range of 50-60 bps for FY2014.
  • As per the bank, situation continues to be challenging and has cushion of higher provision coverage ratio to take care of any fresh slippages.
  • NIM of the bank stood at 4.25% in H1FY2014 and 4.33% in Q2FY2014. NIM in JK state was above 6%, while outside JK stood at sub-3% mark.
  • Bank expects the NIM to be in the range of 4.15% to 4.25% for H2FY2014.
  • Repayment of Rs 7000-8000 crore of bulk deposits in Q1FY2014, mainly supported the NIMs in Q2FY2014.
  • Bulk deposits accounted for around 30% of the total deposits.
  • Bank is cautious about the asset quality outside JK state.
  • Fresh slippages of advances stood at Rs 196 crore H1FY2014, while bank has made recoveries and upgradations of Rs 131 crore.
  • Standard restructured advances of the banks were steady at Rs 1495 crore at end September 2013. About Rs 144 crore of restructured advances have slipped to NPA, against which bank is holding provision of Rs 119 crore.
  • Bank does not have any proposal for restructuring of advances.
  • Bank proposes to touch the branch network 800 branches by end March 2014.
  • Bank proposes to increase the business to Rs 1.6 lakh crore, branches network to 1000 branches and PAT of Rs 1700 crore over next three years.
  • Bank expects the cost-to-income at 35% for FY14
  • Total duration of the investment portfolio of the bank stood at 3.19 years, while that of AFS portfolio was at 1.76 years.

NIM at 4.33% is good and looks like will stay at the higher levels.

This as expected, is accompanied with increasing ROA to 1.86% and ROE of 23.62%. Leverage of 12.7, which seems to be industry average and high ROA also provides comfort

Decreasing cost of Deposit to 6.59% from 7% last year seems interesting as interest rates are again peaking, partly contributed to higher CASA

High NPA coverage ratio and low Cost Income ratio, looks like management is conservative and efficient

Increasing CD ratio will decrease banks dependence on short term yield movements

Reduction of Restructured Assets from 1687.8 crore from previous quarter to 1495.46 crore is a good sign but still they are at much higher level as % of advances as compared to other private banking peers.

Also bank has not raised capital since past 10 years which seems to be surprising as most wealth is created in banking when stock is sold to institutional investor at high PBV.

Chairman and CEO Mushtaq Ahmad addressed the call.

Highlights of the call by Capital mkt:

Net Profit grew 11.02 % to Rs 321.29 crore for the quarter ended Dec, 2013 as compared to Rs 289.40 crore earned during the quarter ended Dec, 2012.

NIMs (Net Interest Margins) Ratio for the quarter ended Dec, 2013 at 3.97% (annualized) vis–vis 4.07 % for the corresponding quarter of previous financial year.

The management said that this will increase in March 2014 quarter and will be around 4%+.

During the quarter Post tax Return on Assets stood at 1.88 % (annualized) compared to 1.87 %.

Post Tax Return on Average Net-Worth (annualized) for the quarter ended Dec, 2013 at 22.80 % compared to 24.35 % recorded for the corresponding quarter of last financial year.

The Cost of Deposits (Annualized) for the quarter ended Dec, 2013 stood at 6.94 % compared to 6.74 % recorded for the corresponding quarter of last financial year.

The Yield on Advances (annualized) for the quarter ended Dec, 2013 stood at 12.24% as compared to 12.60% for the quarter ended Dec, 2012.

Business per Employee and Net profit per Employee (annualized) were at Rs 11.36 crore and Rs 13.71 lakh respectively for the quarter ended Dec, 2013 compared to Rs 9.91 crore and Rs 12.37 lakh pertaining to the quarter ended Dec, 2012.

Gross and Net NPA’s as percentages to Gross and Net Advances as on Dec, 2013 at 1.65% and 0.22% respectively compared to 1.61% and 0.14% a year ago.

NPA Coverage Ratio as on Dec, 2013 at 90.24% well above RBI stipulated norm of 70%.

Cost to Income Ratio stood at 39.94% for the quarter as compared to 36.50%.

Capital Adequacy Ratio (Basel III) stood at 13.01% as on Dec, 2013 well above RBI stipulated norm of 9%.

For the quarter interest earned grew 11.89% to Rs 1715.52 crore. Interest expenses grew faster by 13.835 to Rs 1068.93 crore. Thus NII grew 8.82% to Rs 646.59 crore.

The company had raised Rs 4500 crore bulk deposit at higher rate of 9-10% that is why interest expenses have gone up.

For the nine month Net Profit grew 15.76 % to Rs 931.87 crore as compared to Rs 805.02 crore earned during the nine months ended Dec, 2012.

NIMs (Net Interest Margins) Ratio for the nine months stood at 4.18 % (annualized) vis–vis 3.93 % for the corresponding nine months of previous financial year.

Post tax Return on Assets stood at 1.88% (annualized) against 1.78 % for the corresponding period of the previous financial year

Post Tax Return on Average Net-Worth (annualized) for the nine months stood at 23.31% compared to 23.88%.

For the nine month the Cost of Deposits (Annualized) stood at 6.70% compared to 6.92%.

The Yield on Advances (annualized) for the nine months stood at 12.25% as compared to 12.61%.

Gross and Net NPA’s as percentages to Gross and Net Advances as on Dec, 2013 stood at 1.65% and 0.22% respectively compared to 1.61% and 0.14% a year ago.

NPA Coverage Ratio as on Dec, 2013 at 90.24% well above RBI stipulated norm of 70%.

Cost to Income Ratio stood at 37.31% for the nine months as compared to 34.98%.

March 2014 quarter will be better than December 2013 quarter.

Restructured loan fell from Rs 1495 crore to Rs 1450 crore. This is because one account of a south based company (from oil and exploration sector) went into NPA for Rs 94 crore. Thus restructured book went down and Gross NPA went up.

The management feels that Interest income will rise substantially in Q4 and PAT will also grow impressively.

Out of the total loan book around 15% is to the infra sector.

GNPA stands at Rs 725 crore and expect that to fall by March 2014 quarter.

Profit margin for J&K is 6.5% and rest of India it is around 2.7%. Profit margins from rest of India has grown from 2% 2-3 years ago.

Going forward CASA ratio should go up to 41-42% from current 39%

Top 5 single borrower exposure are Food Corporation of India, NHPC, Tata group, Reliance group and Birla.

In March 2014 quarter the company hopes to open 30-40 branches. It has identified the places already.

Around 66% of the deposit comes from J&K state. This has grown more than 20%. Outside J&K it has grown 15%.

The NPA Coverage ratio of the Bank during the quarteris90.24%.

In spite of the economic distress the bank has reported growth. The bank’s strategy to maintain a quality asset book has been fruitful so far.

The management feels that the results sound reasonably fine amid the stress in asset-quality of banks across the industry coupled with adverse macro-economic conditions persisting in the country. In such a scenario, its focus too has been more on maintaining quality of assets rather than raising the numbers.

With elections looming amid economic downturn, the management feels the going would get tougher for at least couple of quarters to come. Yet it feels confident to deliver growth around 15% besides preserving its key quality parameters.

Moving ahead with the policy of expansion, in the past three quarters it has opened 73 Business Units and commissioned 154 ATMs

Agriculture and handicrafts shall continue to be the bank’s focus in lending within the state. However, amid shrinking industrial output across the country, the entrepreneurial and industrial activity within the state looks poised to pick up. Going forward, the Bank plans to lend aggressively to build its momentum within the state.

The bank does not wish to have more exposure to the power sector.

The bank can easily grow at 20-25% year after year.

March 2014 quarter to be much better than December 2013 quarter.

Chairman Mushtaq Ahmad addressed the call.Highlights By Capital Mkt;

On the back of 9% rise in interest earnings (Rs 1777.50 crore) and 8% rise in interest expenses (Rs 1076.32 crore), Jammu and Kashmir Bank (JKB) posted 11% increase in net interest income (NII) (Rs 701.18 crore) in quarter ended March 2014.

OP fell 11% to Rs 481.44 crore.Net profit stagnated at Rs 250.60 crore.

In March 2013 quarter, the bank had onetime trading profit of Rs 72 crore. So the OP grew by Rs 72 crore and PAT was higher by Rs 52 crore. So one must see the results taking this into consideration.

During the quarter, NIMs (Net Interest Margins) Ratio stood at 4.13 % (annualized) vis--vis 4.07 % for the corresponding quarter of previous financial year.

Post tax Return on Assets at 1.37 % (annualized) for the quarter ended Mar, 2014 compared to 1.49 % for the corresponding period of the previous financial year.

During the quarter, Post Tax Return on Average Net-Worth (annualized) was at 18.93% compared to 20.49 % recorded for the corresponding quarter of last financial year.

During the quarter, the Cost of Deposits (Annualized) stood at 6.73 % compared to 6.69 % recorded for the corresponding quarter of last financial year.

Yield on Advances (annualized) for the quarter ended Mar, 2014 stood at 12.33 % as compared to 12.43 % for the quarter ended Mar, 2013.

Business per Employee and Net profit per Employee (annualized) were at Rs 12.35 crore and Rs 10.70 lakh respectively for the quarter ended Mar, 2014 compared to Rs 11.01 crore and Rs 10.64 lakh pertaining to the quarter ended Mar, 2013.

Gross and Net NPA's as percentages to Gross and Net Advances as on Mar, 2014 at 1.66 % and 0.22 % respectively compared to 1.62 % and 0.14 % a year ago.

During the quarter, NPA Coverage Ratio as on Mar, 2014 at 90.30 % well above RBI stipulated norm of 70 %.

The company will bring coverage ratio to 85% in Fy 2015 as it feels it does not need to provide 90% coverage ratio.

Cost to Income Ratio stood at 40.73 % as compared to 36.13 % for the quarter ended Mar, 2013.

Capital Adequacy Ratio (Basel III) stood at 12.69 % as on Mar, 2014 well above RBI stipulated norm of 9 %.

FY 2014 highlights

NIM for FY 2014 stood at 4.16 % (annualized) vis--vis 3.97 % for the previous financial year.

Post tax Return on Assets was at 1.74 % (annualized) compared to 1.70 % for the previous financial year

Post Tax Return on Average Net-Worth (annualized) for the financial year ended Mar, 2014 at 22.34 % compared to 23.56 %.

The Cost of Deposits (Annualized) was 6.70 % compared to 6.87 % recorded for the last financial year.

The Yield on Advances (annualized) stood at 12.23 % as compared to 12.59 %

.Business per Employee and Net profit per Employee (annualized) were at Rs 12.35 crore and Rs 12.62 lakh respectively compared to Rs 11.00 crore and Rs 11.22 lakh

pertaining to the financial year ended Mar, 2013.

Gross and Net NPA's as percentages to Gross and Net Advances as on Mar, 2014 at 1.66 % and 0.22 % respectively compared to 1.62 % and 0.14 % a year ago.

NPA Coverage Ratio as on Mar, 2014 at 90.30 % well above RBI stipulated norm of 70%.

Cost to Income Ratio stood at 38.21 % for the financial year ended Mar, 2014 as compared to 35.33 % for the financial year ended Mar, 2013.

Going forward

The management expects NIMs to be around 4% to 4%+ for FY 2015.

Yields fell due to re-pricing and increasing on increase in consortium advances. But as costs also went down, NIM improved.

The bank expects credits to grow by 25% and deposit by 20% within J & K.

Bank expects credits to grow by 15% and deposit by 15% outside the state of J & K

Overall the bank expects credits to grow by 19-20% and deposit by 15%.

Overall the bank expects business to grow by 17-18%.

GNPA will not go above 2%.Capex for FY 2015 is Rs 2-3 crore.

Q1 has historically been the lean quarter for the bank.

In FY 2014 the bank added 92 branches and hopes to add similar number in FY 2015.

Hi,

A VP asked me to go through it and today i went over its financials. As RoA is a better measure and predictor of a bank’s market valuations, i looked at its RoA in the last 7-8 years and got impressed. From close to 1, management has brought it up to the range of 1.4, it was 1.7 in fy12-13. But one question which bugging me is what is the incentive for the management in this? I mean its a Govt bank, CMD and other senior staff don’t have much at stake if stock rises or falls(as per fy11-12 AR, a total 230 shares were owned by Mr Mushtaq Ahmad, latest report doesn’t mention even that), so why management is consistently improving RoA or i m missing something? Might be that economy of J&K is doing well and numbers of this bank got propelled by the same wave? Why we should believe that management will keep on improving RoA, CMD is not changing for the next 2 years and apart from his salary of 70 lakhs, he doesn’t have anything at stake. His salary isn’t much given his post and experience and compared to salaries of CMDs of private banks so why he will do it.

Recent decrease in RoA from 1.7 to 1.4 is also a cause of concern as one should probe more.

I am yet to read latest concall but gathered that NPAs are going up and profits fell down. Isn’t that they gave loans without much KYC when economy of J&K was booming and now they r facing the music?

discl: Not invested

I don’t follow this bank but given the loss to the J&K economy due to the floods, there must be some impact its numbers in the coming periods.

http://www.outlookbusiness.com/article_v3.aspx?artid=291006

latest pick of PABRAI FUND from Sep-14 shareholding pattern from NSE :-

Statement showing Shareholding of persons belonging to the category “Public” and holding more than 1% of the total number of shares

4 THE PABRAI INVESTMENT FUND IV LP 7571950 1.56 0 0.00 0 0.00 2

9 PABRAI INVESTMENT FUND 3 LTD 4860610 1.00 0 0.00 0 0.00 1

Mushtaq Ahmad, Chairman & Chief Executive Officer & Parvez Ahmad, Executive President addressed the call. Highlights of the call by Capital Mkt;

Net Profit at Rs 172.30 crore for the quarter ended Sep, 2014 down 43 % against Rs 302.66 crore in quarter ended Sep, 2013.NIMs for the quarter stood at 4.01 % (annualized) vis–vis 4.33 % for the corresponding quarter of previous financial year.Post tax Return on Assets stood at 0.96 % (annualized) for the quarter compared to 1.86 % for the corresponding quarter of the previous financial year.Post Tax Return on Average Net-Worth (annualized) for the quarter ended Sep, 2014 stood at 11.60% against 22.74%.

Cost of Deposits (Annualized) for the quarter stood at 6.80 % compared to 6.59 % recorded for the corresponding quarter of last financial year.Yield on Advances (annualized) for the quarter stood at 11.91 % as compared to 12.35 % for the quarter ended Sep, 2013.Business per Employee and Net profit per Employee (annualized) were at Rs 11.59 crore and Rs 6.66 lakh respectively for the quarter ended Sep, 2014 against Rs 10.92 crore and Rs 12.92 lakh.

Gross and Net NPA’s as percentages to Gross and Net Advances as on Sep, 2014 at 4.73 % and 2.46 % respectively compared to 1.69 % and 0.19 % a year ago.NPA Coverage Ratio as on Sep, 2014 was at 54.85 %.Cost to Income Ratio stood at 44.33% for the quarter ended Sep, 2014 as compared to 36.45 % for the quarter ended Sep, 2013.

Capital Adequacy Ratio (Basel III) stood at 12.66 % as on Sep, 2014 well above RBI stipulated norm of 9 %.Net Profit at Rs 302.35 crore for the half year went down 50 %.NIMs (Net Interest Margins) Ratio for the half year stood at 3.83% (annualized) vis–vis 4.25%.Post tax Return on Assets was at 0.84% (annualized) for the half year ended Sep, 2014 compared to 1.87 % for the corresponding period of the previous financial yearPost Tax Return on Average Net-Worth (annualized) for the half year ended Sep, 2014 stood at 10.29 % compared to 23.62 % recorded for the corresponding half year of previous financial year.

Cost of Deposits (Annualized) for the half year stood at 6.84% against 6.57% recorded for the corresponding half year of last financial year.Yield on Advances (annualized) for the half year ended stood at 11.72 % against 12.26%.Business per Employee and Net profit per Employee (annualized) were at Rs 11.59 crore and Rs 5.84 lakh respectively for the half year ended Sep, 2014 compared to Rs 10.92 crore and Rs 13.04 lakh pertaining to the half year ended Sep, 2013.

Gross and Net NPA’s as percentages to Gross and Net Advances as on Sep, 2014 at 4.73 % and 2.46 % respectively compared to 1.69 % and 0.19 % a year ago.NPA Coverage Ratio as on Sep, 2014 stood at 54.85 %Cost to Income Ratio stood at 43.06 % for the half year ended Sep, 2014 as compared to 36.05 % for the half year ended Sep, 2013.

Last two quarters have not been good but the company has managed to do better than June 2014 quarter.Operations in Kashmir went out of gear for 4-5 weeks due to floods and it could not do much business as they were busy stabilizing things.

Total portfolio of Jammu and Kashmir was Rs 14000 crore and the company thought that restructuring due to floods would be of Rs 3000-4000 crore. However based on the current assessment done restructuring portfolio would be in the range of Rs 1200-1500 crore as insurance companies were very active and claims were quickly settled.Total claims were of Rs 7900 and out of this Rs 7500 claims have been settled.Central zone and south zone were severely impacted.This quarter saw no major slippages.Focusing is on bring back operation in J&K an so not much recovery was done. In nest 15 days around Rs 90 crore is up for recovery.The management is hopeful that it will be in position to maintain NIM of 4%.The company made provision of Rs 22 crore for CSR.

As on Q1 it had 542 accounts and restructured book outstanding was Rs 1390 crore, in Q2 the accounts have come down by 50 and restructured assets have fallen to Rs 1269 croreApprehensions of pressure from restructured books is now over.The company has received 3300 application worth Rs 830 crore for restructuring and it has sanctioned 1607 cases involving 164 crore. So pending restructuring is worth Rs 666 crore. This will reflect in coming quarters.For the natural calamity moratorium would be of 2 years for restructuring assets.

Net asset value stood at Rs 124.30 and adjusted book value stands at Rs 101.44 crore.Branches â Excluding Extension Counters, Controlling Offices & RCC’s stood at 802 crore.Slippages from restructuring to NPA was Rs 160 crore.J&K bank exposure to REI Agro is Rs 700 crore.The management expects HDIL account to come good in Q3. It has exposure of Rs 400 crore to HDIL and it has collateral back up of Rs 900 crore.More two to three quarters will be stressful for the company.

The company expects business to grow 15% outside J&K and within J&K it is expected to grow 20%. This is against earlier projection of 25-30% for within J&K stake.Demand for infrastructure building in J&K stake will be a huge opportunity in future.CASA will remain around 40-41% primarily coming from J&K in FY 2015.Gross NPA is expected to be around the same levels and the management feels that the most of the worst is behind.

Over deposit growth expected in FY 2015 is 17-18% and minimum expectation is 15%.RoE and RoA in FY 2016 would be at around March 2014 levels.

Pabrai seems to be very bullish on this. I am watching a recent pabrai video and he talks about j&k bank (watch from 1:43:50). He tells a student not to sell it for at least 10 years.

I was watching this video the other day and had to stop it in between. Since then, I never finished it. And i missed that part. I was holding JK bank prior to that. I could have added more. :slight_smile: Thanks for sharing this. What I like about Pabrai is his simplicity when speaks and he walks the talk, which can been seen in his recent picks in Indian equities. He never seems to be getting diverted from his style and from the fundamental rules laid by Warren Buffet, Charlie Munger etc. I read in a magazine last month that parag parikh holds it in his MF PPFAS and ICICi MF holds it too. But recently reading PPFAS recent update, it seems they have sold it completely.