Buy Jammu and Kashmir Bank; target of Rs 58: ICICI Direct

ICICI Direct's research report on Jammu and Kashmir Bank

Absolute GNPA declined 2.8% QoQ at Rs 6068 crore. GNPA ratio declined ~83 bps QoQ to 9%, led by growth in advances. Slippages came at Rs 250 crore; lowest in last several quarters. NNPA declined 10.5% QoQ at Rs 2489 crore, with decline of ~74 bps QoQ to 3.91%. Standard restructured asset remained steady QoQ at Rs 3948 crore, with Rs 3847 crore related to J&K state. Rehabilitated account (~Rs 4300 crore) remained stable with ~0.8% slippages in 9 months’ period post cessation of the moratorium period. Reversal of ~Rs 53 crore in Q2FY19 kept NII growth subdued at 9.6% YoY to Rs 791 crore. Margins witnessed improvement with increase in yields. Growth in non-interest income remained subdued due to dismal treasury performance. Moderation in slippages led to lower provision at Rs 172 core vs run rate of ~Rs 250 crore and above. Lower than expected provisions led to 30.7% YoY growth in PAT to Rs 93.7 crore. Advances growth remained healthy on a YoY basis at 24% to Rs 63691 crore. Deposit came at Rs 81429 crore; up 15.7% YoY.

Outlook

Plagued by a slowdown in J&K state & corporate slippage, stressed asset accretion was high. Revival in growth, lower slippage from rehabilitated accounts till now are positive. However, we factor risk from rehabilitated books post moratorium and possibility of exposure to NBFC in default. We upgrade to Buy citing favourable risk reward ratio post recent sharp decline. Maintain Buy with target at Rs 58 (1x FY20E ABV building some reahabilitation losses in ABV).

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