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Recommendation From Bank Sectors


This section gives a recommendation of a stock having stock margin padding price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon 

Jammu and Kashmir Bank 

BSE Code: 532209 
CMP: Rs 38.40 
FV: Rs 1 
BSE Volume: 18,374


Positive financial trend
Prudent management
Good growth prospects 

Jammu and Kashmir Bank (JKB) offers numerous products and services like loans, insurance, tax products, tax planning, savings and deposits, cards, mutual funds and non-resident banking. It operates across a number of segments including treasury operations, corporate banking, wholesale banking, retail banking and other banking business. Its loan offerings extend to education loans, agriculture finance and automobile loans. 

On the standalone front, the bank's total interest earned stood at Rs 2,002.71 crore in Q3FY19 as against Rs 1,682.97 crore in Q3FY18, posting a growth of 18.99 per cent. Its operating profit before provisions and contingencies rose to Rs 424.92 crore in Q3FY19 in comparison to Rs 382.74 crore in Q3FY18, registering a growth of 11.02 per cent. Consequently, the net profit climbed 43.16 per cent to Rs 103.75 crore in Q3FY19 from Rs 72.47 crore in Q3FY18. EPS rose to Rs 1.86 in Q3FY19 from Rs 1.30 in Q3FY18. 

JKB showcased an improvement of 13 per cent in net interest income (NII). This led to resilient margin improvement on the back of greater yields on account of booking of interest income from impaired assets. Overall, the reduced strain of interest reversals and enhanced loan growth towards high margin segments strengthened the core performance of the bank. JKB reported deposits of Rs 86,210.29 crore in Q3FY19 as against Rs 73,155.06 crore in Q3FY18, posting a growth of 18 per cent. Advances were recorded at Rs 65,026,83 crore in Q3FY19 versus Rs 57,928.69 crore in QFY18, up 12 per cent. Post-tax return on assets stood at 0.43 per cent (annualized) in Q3FY19 compared to 0.36 per cent in Q3FY18. Post-tax return on average net-worth (annualized) in Q3FY19 stood at 6.28 per cent compared to 4.76 per cent in Q3FY18. 

The company recognized 70 per cent of the IL&FS exposure mainly towards Holdco and immediate subsidiaries, while the remaining portion is servicing. As such, it reported slippages of Rs 10 billion. JKB is more focused on expanding its retail assets and growing in the J&K state, while preferring incremental corporate exposure if a lucrative opportunity arises. The bank is also open to considering short term prospects for treasury gains. Moving forward, the margins are likely to improve as the bank continues to expand the J&K state book at a faster rate to incorporate loans associated with agriculture, horticulture, personal loans and state government employee related loans. 

Its state restructured book is witnessing stable trends with NPAs less than 1 per cent of outstanding book. Thus, the bank is optimistic about upgrading to standard from impaired by December 2019. Although Tier-I of 9.8 per cent could restrict loan growth, the bank will grow assets requiring lower RWA, primarily in retail. Further, to bolster growth, the bank expects to meet capital needs via stake sale in PNB Metlife (5 per cent stake), which could materialize in the next 3-6 months. The management is confident about its guidance of 20 per cent YoY loan growth with a business turnover of Rs 2.5 trillion by FY22 and earnings of Rs 20 billion. By virtue of these factors, we recommend our reader-investors to BUY this stock.

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