Jammu & Kashmir Bank: Recommendation Review

We had recommended Jammu and Kashmir Bank, in our Issue No. 15 (dated 15th July, 2012), when it was trading at Rs 947 per share. We had recommended the scrip as the company had posted good business growth (advances and deposits), had seen an improvement in its asset quality and was available at a fair valuation coupled with a high dividend yield.

After our recommendation, the scrip traded higher, creating wealth for those who had invested in it. However, due to the volatile market conditions, we recommended that investors book profits at the level of Rs 1153 per share, which yielded a return of around 21.75 per cent. In addition to this, investors would also have received Rs 33.5 per share as dividend, which would be exempt from tax. This takes the effective return to around 25 per cent.

In the June quarter of FY12, the Net NPAs of the bank improved, as they contracted by eight basis points to 0.14 per cent on a YoY basis and one basis point on a sequential quarter basis. This level is the lowest among its peers. As of 30th June, 2012, the advances of the bank increased by 26 per cent to Rs 33225 crore, while the deposits increased by 23.30 per cent to Rs 53117 crore. One should note that the bank is outpacing the industry growth rate.

Though macroeconomic concerns like sticky inflation and the current and fiscal account deficits still remain major headwinds over the economy, we have been of the view that these will soon blow over. But because of the volatile market conditions prevailing as of now, we would advise our readers to book profits at the current level. One should watch out for the September 2012 quarter results of the bank before taking any fresh positions.