Jammu & Kashmir Bank

The recent floods in the valley have not only affected daily life in J&K state, but
also the Banking business. We through this report, try to assess the situation to
Bank credit in the state, with specific attention to J&K bank which has 60% share in
the overall business and is likely to be the worst affected. Although it is early to
assess the quantifiable impact of the floods, we believe that there could possibly be
near term headwinds to asset quality.

September 16, 2014

Pritesh Bumb
priteshbumb@plindia.com
+91-22-66322232

Rating
Price
Target Price
Implied Upside
Sensex
Nifty

Accumulate
Rs149
Rs185
24.2%
26,817
8,042

Srinagar district The most affected: As of Q1FY15, ~75% of credit disbursed

are in the flood affected areas in J&K state with Srinagar and Jammu districts
having the lions share of ~50%, while the share of credit to the worst affected
areas were ~34% of loans (Exhibit 2). Jammu district is relatively less affected
than Srinagar. Srinagar has mostly tourism related businesses and has exposure
of short term in nature which could have a knock on effect on asset quality
immediately. Although it is early to assess the impact on asset quality, Srinagar
has 4.6% GNPAs (Exhibit 2), while J&K bank being the largest share in J&K state
has lowest GNPAs of 2.3% among the three large banks as at Q1FY15 (Exhibit 3).

J&K bank most affected but regulatory relief to come in: J&K banks B/s
remains highly concentrated in J&K state with ~69% deposits and ~45% loans
(Exhibit 1). Immediate impact on asset quality could be limited as only ~35% of
J&K Banks advances & deposits remain below tenure of 12 months and could
be possibly recognized upfront which mostly are in Agri, Trade and Personal
segments (largely unsecured). J&K Banks management believes flooding in the
state is a national disaster and would be provided regulatory relief on loans
mostly by dispensation in NPA recognition and restructuring of loans on easier
terms. SBI, PNB (~19% of Biz) and other banks overall asset quality will not see
material impact on lower concentration to J&K state compared to their B/s size.

Remain positive despite near term head winds: We believe that NIMs/ROAs for
J&K Bank will likely moderate on asset quality pressures and distorted normalcy
of payment schedules. Though non-J&K book possess threat of additional stress
to asset quality, we believe J&K bank has navigated well through economic
challenges by displaying best in class ROA/ROEs of 1.5%/20%. P/ABV remains
reasonably undemanding at 1x FY16E we retain Accumulate with TP of Rs185.

(Prices as on September 15, 2014)

Trading data
Market Cap. (Rs bn)
Shares o/s (m)
3M Avg. Daily value (Rs m)
Major shareholders
Promoters
Foreign
Domestic Inst.
Public & Other
Stock Performance
(%)
1M
6M
Absolute
1.5
1.0
Relative
(1.2)
(21.9)
How we differ from Consensus
EPS (Rs)
PL
Cons.
2015
22.9
23.8
2016
29.1
29.4

72.3
484.9
373.2
53.17%
29.37%
3.13%
14.33%
12M
29.3
(6.6)
% Diff.
-3.5
-1.1

Price Performance (RIC: JKBK.BO, BB: JKBK IN)

(Rs)
200
150
100

50

Source: Bloomberg

Sep-14

Jul-14

May-14

Mar-14

Jan-14

Nov-13

Sep-13

Key financials ( Y/e March)

Net interest income (Rs m)
Growth (%)
Operating profit (Rs m)
PAT (Rs m)
EPS (Rs)
Growth (%)
Net DPS (Rs)
Profitability & Valuation
NIM (%)
RoAE (%)
RoAA (%)
P / BV (x)
P / ABV (x)
PE (x)
Net dividend yield (%)

2013
23,160
26.0
18,108
10,551
21.8
31.4
5.0

2014
26,845
15.9
18,998
11,825
24.4
12.1
5.0

2015E
30,287
12.8
20,391
11,124
22.9
(5.9)
5.0

2016E
36,340
20.0
24,546
14,093
29.1
26.7
5.0

2013
3.51
23.6
1.60
1.5
1.5
6.9
3.4

2014
3.57
22.3
1.57
1.3
1.3
6.1
3.4

2015E
3.53
18.1
1.30
1.1
1.2
6.5
3.4

2016E
3.60
19.8
1.40
0.9
1.0
5.1
3.4

Source: Company Data; PL Research

Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that
the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision.
Please refer to important disclosures and disclaimers at the end of the report

Event Update

Will Weather near term headwinds in asset quality!

Jammu & Kashmir Bank

Exhibit 1: Bank wise Deposit and Advances in J&K State. J&K Bank has high share followed
by SBI & PNB, while other banks have negligible share

Source: J&KSLBC, PL Research

September 16, 2014

Jammu & Kashmir Bank

Exhibit 2: ~75% of J&K advances of Banks in flood affected areas but only ~34% of
advances in worst affected areas
Advances:

As of Q1FY15

(Rs m)

Srinagar district has largest share of credit

followed by Jammu which combined is

District

Advances

% of J&K State
Advances

GNPA

% GNPA

~50% of advances.

Srinagar

81,219

26.9%

3,742.6

4.6%

comprises mainly of Agri, Trade and SME

Jammu

72,921

24.1%

5,272.8

7.2%

advances. The corporate advances would

Baramulla

21,557

7.1%

955.7

4.4%

be largely to Srinagar & Jammu districts

Anantnag

16,750

5.5%

386.1

2.3%

Kathua

12,569

4.2%

608.9

4.8%

Pulwama

12,444

4.1%

274.6

2.2%

Credit to the flood affected districts

Asset Quality:
Jammu district is comparatively less

Samba

11,757

3.9%

827.0

7.0%

affected than Srinagar. Despite Srinagars

Budgam

11,205

3.7%

297.0

2.7%

share being highest in advances its GNPAs

Kupwara

8,938

3.0%

436.0

4.9%

are below J&K states GNPAs and has only

Udhampur

6,971

2.3%

361.9

5.2%

Shopian

6,612

2.2%

79.4

1.2%

Kulgam

5,441

1.8%

89.2

1.6%

Rajouri

5,283

1.7%

219.0

4.1%

Ganderbal

4,900

1.6%

218.0

4.4%

Bandipora

4,262

1.4%

137.6

3.2%

Reasi

3,751

1.2%

109.4

2.9%

Leh

3,744

1.2%

89.3

2.4%

Poonch

3,038

1.0%

331.2

10.9%

Doda

2,951

1.0%

71.9

2.4%

announced by Central and State Govt but

Kargil

2,118

0.7%

61.2

2.9%

would take place after assessing situation

Ramban

1,867

0.6%

88.9

4.8%

Kishtwar

1,759

0.6%

62.1

3.5%

Flood affected

227,825

75.4%

11,156.9

4.9%

Worst affected

102,452

33.9%

4,757.8

4.6%

J&K State

302,056

14,719.8

4.9%

~25% share in GNPAs. We believe RBI

would provide short term relief to Banks
exposures to flood affected areas mostly by
restructuring loans of short term into long
term and working capital loans into term
loans. Also RBI may allow elongated
recognition of dues which may help asset
quality.
Some relief package could also be

Source: J&KSLBC, PL Research

Exhibit 3: Despite being the biggest in J&K state J&K Bank has the lowest NPA ratio
displaying its better relationship with borrowers
Bank

Advances

GNPA

% GNPA

J&K

198,437

4,662.2

2.3%

SBI

50,032

1,856.5

3.7%

PNB

15,305

1,583.4

10.3%

302,056

14,719.8

4.9%

J&K State
Source: J&KSLBC, PL Research

September 16, 2014

Jammu & Kashmir Bank

Exhibit 4: J&K bank advances portfolio in J&K state. Agri, Trade & Personal portfolio will
have immediate impact while corporate advances to have lower impact
Agri, Trade and Personal loan portfolio
which is ~65% of loan exposure to J&K
Corporate
19%

state will be affected immediately in near

term as the natural calamity will affect the

Others
2%

Agri
20%

daily wage earners and tourism related

sectors
Trade
15%

SME
14%

We believe there will be regulatory easing

for these loans as it may provide incentives
to J&K Bank in terms of PSL target
requirements and NPA recognition but

Personal
30%

Banks balance sheet will be impacted for

the next 2 quarters
Source: Company Data, PL Research

Impact of ratios to be short term: Asset quality pressures likely would increase
credit costs and impact NIMs (on interest reversals) also impacting profitability
in the near term. Although it is early to assess the impact on financials there
could be slight blip in ROA/ROEs but would return to back as growth prospects
remain high in J&K state with higher yields. While credit costs will ease if nonJ&K book performs well improving return ratios

Exhibit 5: We factor in ~80bps credit cost in FY15E, but could increase as we seek more
clarity on asset quality
Credit Cost

0.90%

0.79%

0.80%

0.68%

0.70%
0.60%

0.56%
0.47%

0.50%

0.40%

0.63%

0.59%

0.30%

0.35%

0.30%
0.30%

0.20%
0.10%
0.00%
2008

2009

2010

2011

2012

2013

2014

2015E

2016E

Source: Company Data, PL Research

September 16, 2014

Jammu & Kashmir Bank

Exhibit 6: Some blips in ROA/ROEs in FY15E as asset quality risks now from both J&K and
Non-J&K book
ROA decomposition

2010

2011

2012

2013

2014

2015E

2016E

NIM/Assets

2.85%

3.39%

3.39%

3.58%

3.65%

3.62%

3.69%

Fees/Assets

0.62%

0.60%

0.55%

0.52%

0.44%

0.45%

0.44%

Inv. Profits/Assets

0.44%

0.20%

0.07%

0.23%

0.09%

0.09%

0.08%

Net revenues/Assets

3.91%

4.19%

4.00%

4.32%

4.18%

4.16%

4.20%

Opex/Assets

-1.47% -1.67% -1.48% -1.53% -1.60%

-1.72%

-1.72%

Provisions/Assets

-0.43% -0.47% -0.31% -0.44% -0.20%

-0.48%

-0.39%

Taxes/Assets

-0.71% -0.70% -0.73% -0.73% -0.77%

-0.63%

-0.67%

Costs/Assets

-2.61% -2.84% -2.52% -2.69% -2.57%

-2.83%

-2.78%

ROA

1.30%

1.33%

1.43%

1.35%

1.48%

1.63%

1.61%

Equity/Assets

7.17%

7.13%

6.97%

6.92%

7.20%

7.33%

7.22%

ROE

18.2%

19.0%

21.2%

23.6%

22.3%

18.1%

19.8%

RORWA

2.43%

2.29%

2.40%

2.61%

2.49%

2.00%

2.13%

Source: Company Data, PL Research

Exhibit 7: We retain our accumulate rating with TP of Rs185
Risk free rate

8.0%

Equity Risk Premium

6.0%

Beta

1.25

Cost of Equity

15.5%

Terminal growth

5.0%

Normalised ROE

17.4%

Stage 2 growth

12.0%

Mar-15 PT (incl. Metlife value)

185

Implied Mar-16 P/B

1.02

Implied Mar-16 P/E

5.6

Remaining MetLife stake

23.3

Source: Company Data, PL Research

September 16, 2014

Jammu & Kashmir Bank

Income Statement (Rs m)
Y/e March
Int. Earned from Adv.
Int. Earned from Invt.
Others
Total Interest Income
Interest expense
NII
Growth (%)
Treasury Income
NTNII
Non Interest Income
Total Income
Growth (%)
Operating Expense
Operating Profit
Growth (%)
NPA Provisions
Investment Provisions
Total Provisions
PBT
Tax Provisions
Effective Tax Rate (%)
PAT
Growth (%)

Balance Sheet (Rs m)

Y/e March

2013

2014

2015E

2016E

43,176
17,226
966
61,368
38,208
23,160
26.0
1,493
3,344
4,837
66,205
28.1
9,890
18,108
32.1
2,011
149
2,842
15,266
4,715
30.9
10,551
31.4

50,213
16,856
602
67,670
40,825
26,845
15.9
636
3,266
3,903
71,573
8.1
11,750
18,998
4.9
1,274

1,477
17,520
5,696
32.5
11,825
12.1

56,810
19,204
602
76,616
46,330
30,287
12.8
750
3,776
4,526
81,142
13.4
14,422
20,391
7.3
4,031

4,031
16,360
5,235
32.0
11,124
(5.9)

66,419
22,587
602
89,608
53,267
36,340
20.0
750
4,365
5,115
94,723
16.7
16,909
24,546
20.4
3,822

3,822
20,725
6,632
32.0
14,093
26.7

2013

2014

2015E

2016E

Par Value
1
No. of equity shares
485
Equity
485
Networth
48,647
Adj. Networth
48,094
Deposits
642,206
Growth (%)
20.4
Low Cost deposits
251,910
% of total deposits
39.2
Total Liabilities
717,433
Net Advances
392,004
Growth (%)
18.5
Investments
257,411
Total Assets
717,433
Source: Company Data, PL Research.

1
485
485
57,236
56,216
693,359
8.0
270,833
39.1
786,197
463,846
18.3
261,951
786,197

1
485
485
65,523
60,310
826,484
19.2
322,833
39.1
928,681
551,977
19.0
304,616
928,681

1
485
485
76,777
71,383
970,662
17.4
379,150
39.1
1,089,438
656,852
19.0
348,294
1,089,438

September 16, 2014

Quarterly Financials (Rs m)

Y/e March
Q2FY14

Q3FY14

Q4FY14

Q1FY15

16,497
9,679
6,818
995
901

7,813
2,848
1,768
1,081
4,965
4,964
557
494
63
4,408
1,381
3,027

3,027

17,155
10,689
6,466
875
736

7,340
2,932
1,878
1,054
4,408
4,408
(46)
4
(50)
4,454
1,242
3,213

3,213

17,775
10,763
7,012
1,111
901

8,123
3,308
2,037
1,271
4,814
4,815
606
619
(13)
4,209
1,703
2,506

2,506

17,680
11,303
6,377
1,310
1,030

7,687
3,212
2,060
1,152
4,475
4,475
2,468
2,340
128
2,008
707
1,301

1,301

2013

2014

2015E

2016E

149
485
72,278
10.1
21.8
100
101
6.9
1.5
1.5
5.0
3.4

149
485
72,278
9.2
24.4
118
118
6.1
1.3
1.3
5.0
3.4

149
485
72,278
7.8
22.9
135
129
6.5
1.1
1.2
5.0
3.4

149
485
72,278
6.6
29.1
158
153
5.1
0.9
1.0
5.0
3.4

2013

2014

2015E

2016E

3.5
1.6
23.6

3.6
1.6
22.3

3.5
1.3
18.1

3.6
1.4
19.8

Efficiency
Y/e March

2013

2014

2015E

2016E

Cost-Income Ratio (%)

C-D Ratio (%)
Business per Emp. (Rs m)
Profit per Emp. (Rs lacs)
Business per Branch (Rs m)
Profit per Branch (Rs m)

35.3
61.0
99
10.1
1,427
15

38.2
66.9
96
9.8
1,388
14

41.4
66.8
99
8.0
1,438
12

40.8
67.7
102
8.8
1,477
13

Asset Quality
Y/e March

2013

2014

2015E

2016E

Gross NPAs (Rs m)

6,438
Net NPAs (Rs m)
553
Gr. NPAs to Gross Adv. (%)
1.6
Net NPAs to Net Adv. (%)
0.1
NPA Coverage (%)
91.4
Source: Company Data, PL Research.

7,834
1,020
1.7
0.2
87.0

14,894
5,213
2.7
0.9
65.0

17,983
5,395
2.7
0.8
70.0

Interest Income
Interest Expense
Net Interest Income
Non Interest Income
CEB
Treasury
Net Total Income
Operating Expenses
Employee Expenses
Other Expenses
Operating Profit
Core Operating Profit
Provisions
Loan loss provisions
Investment Depreciation
Profit before tax
Tax
PAT before EO
Extraordinary item
PAT

Key Ratios
Y/e March
CMP (Rs)
Equity Shrs. Os. (m)
Market Cap (Rs m)
M/Cap to AUM (%)
EPS (Rs)
Book Value (Rs)
Adj. BV (75%) (Rs)
P/E (x)
P/BV (x)
P/ABV (x)
DPS (Rs)
Dividend Yield (%)

Profitability (%)
Y/e March
NIM
RoAA
RoAE

Jammu & Kashmir Bank

Prabhudas Lilladher Pvt. Ltd.

3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
Rating Distribution of Research Coverage

60%
% of Total Coverage

50.0%

50%
40%

33.6%

30%
16.4%

20%
10%

0.0%
0%

BUY

Accumulate

Reduce

Sell

PLs Recommendation Nomenclature

BUY

Over 15% Outperformance to Sensex over 12-months

Accumulate

Outperformance to Sensex over 12-months

Reduce

Underperformance to Sensex over 12-months

Sell

Over 15% underperformance to Sensex over 12-months

Trading Buy

Over 10% absolute upside in 1-month

Trading Sell

Over 10% absolute decline in 1-month

Not Rated (NR)

No specific call on the stock

Under Review (UR)

Rating likely to change shortly

This document has been prepared by the Research Division of Prabhudas Lilladher Pvt. Ltd. Mumbai, India (PL) and is meant for use by the recipient only as
information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be
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The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy
or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accept any responsibility of whatsoever nature for the information,
statements and opinion given, made available or expressed herein or for any omission therein.
Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The
suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an
independent expert/advisor.
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September 16, 2014