Stock Watch- Jammu & Kashmir Bank
(Source:Capital Market)
[Apr. 5 - 18, 1999]
Jammu & Kashmir Bk.
Old Recommendation --
New Recommendation Buy
Jammu & Kashmir Bank (JKB) has a number of strong points which set it apart from other banks. The most significant being its low cost of funds. As it is based in Jammu & Kashmir (J&K), it faces little competition in raising deposits. Moreover, all J&K government funds are routed through the bank and these are normally in current accounts. Low-cost deposits account for almost 40% of its total deposits. Its average cost of deposits at 6.7% is one of the lowest, especially among the private sector banks.
By quoting low lending rates and offering services comparable to those of any private sector bank, JKB has succeeded in winning over many blue chip clients like Reliance, IRCON, Hinduja, Finolex and Food Corporation of India. Such high-quality clients help to limit its NPA exposure. In spite of militancy in the state, JKB has performed well consistently.
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Key Ratios
JKB scores over others
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RONW NET NPA NET INTEREST CAR OP.PER
(%) (%) SPREAD(%) (%) EMP.(Rs lac)
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Bank of Baroda 1.10 6.60 5.5 12.02 1.75
Bank of India 0.86 7.34 4.7 9.11 1.33
Dena Bank 0.96 8.28 5.2 11.88 1.81
Oriental Bank 1.59 4.5 4.6 15.28 2.37
Corporation Bank 1.72 2.93 5.4 16.90 3.15
State Bank of B & J 1.09 7.13 5.0 10.65 1.30
State Bank of Mysore 0.89 10.75 5.8 11.61 1.13
State Bank of Travancore 0.75 12.21 4.2 11.48 1.53
Bank of Rajasthan NEG 9.14 4.3 5.54 0.66
Dhanalaxmi Bank 0.69 11.1 4.9 11.39 1.51
Federal Bank 0.79 5.28 2.8 9.43 1.51
Karur Vysya Bank 1.95 1.87 5.6 14.47 3.38
Lakshmi Vilas Bank 1.45 6.07 4.7 10.35 1.40
Nedungadi Bank 0.91 9.41 4.9 12.85 1.10
South Indian Bank 0.76 6.16 4.4 9.4 0.74
United Western Bank 1.27 5.73 4.3 9.87 2.34
Vysya Bank 1.20 8.45 4.7 12.49 1.85
State Bank of India 1.11 6.07 4.9 14.58 1.45
J and K Bank 1.02 4.57 5.9 20.48 2.83
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CAR : Capital Adequacy Ratio
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In the past five years, its deposits have increased at a CAGR of 21% to Rs 4,882.46 cr in FY 9803. Advances have recorded a CAGR of 14% to Rs 2,158.24 cr. Total income and net profit have grown at a CAGR of 22% to Rs 588.06 cr and 64% to Rs 50.37 cr respectively. The growth in advances is less than the growth in deposits because JKB was not able to lend enough due to militancy. However, it has successfully managed growth in income by investing prudently in government securities. In the last couple of years, branch network has been expanded out of J&K and active efforts have been made to woo good clients outside the state to accelerate the advances growth. Improvement in the conditions within the state will also boost its advances in the future. Today, JKB has 389 branches, of which 89 are outside the state.
While 70% of its deposits are raised in J&K, 60% of the advances are made outside. Another plus point is its low NPA level. Net NPA was just 4.57% as of Mar.'98; it is expected to be brought down further to 4% by Mar.'99. Thanks to the government's special relief scheme for small borrowers, JKB will receive funds to write off more of its NPAs. By Apr.'99, when these funds are received, its net NPA will come down to just 2.5%. With most of the new lending restricted to blue chip clients and industrial scenario improving in the state (especially the tourism industry), it should not be difficult to control NPAs in the future.
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Jammu & Kashmir Bank : Financials
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9503 9603 9703 9803 9903(P)
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Deposits 2378.08 2895.18 3658.14 4882.46 6000.00
Advances 1207.9 1364.13 1693.98 2158.24 2600.00
Total Income 277.18 347.57 429.32 588.06 700.00
Net Profit 15.98 18.39 25.00 50.37 90.00
EPS (Rs)* 3.4 3.9 5.3 10.6 18.9
Dividend (%) 22 22 22 25 NA
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* On an equity of Rs 47.6 cr (P): Projections
Figures in Rs cr Source: Capitaline Ole
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JKB, in spite of being a private sector bank, is recognised as a banker to the J&K state government. All state government department accounts are maintained with JKB. All budgetary and non-budgetary fund allocations of the state government are routed through it. Hence, it has an enviable position in J&K.
In the first nine months of the current year, JKB recorded an income and net profit of Rs 519.87 cr and Rs 65.43 cr respectively. Third-quarter income and net profit stood at Rs 168.43 cr and Rs 20.88 cr. By Dec.'98, its deposits had increased 26% to Rs 5,213 cr and advances went up 19% to Rs 2,109 cr.
For the full year 9903, JKB can be comfortably expected to report an income of Rs 700 cr and a net profit of Rs 90 cr. The EPS works out to Rs 18.9. In FY 9803, it had paid a dividend at the rate of 25% and it is likely to increase in the current year. The book value should cross Rs 85.
At the current market price of Rs 27(May'98 public issue offer price : Rs 38), the 9903 projected EPS is discounted only 1.4 times. Price/book value ratio is also low at just 0.32. Dividend yield is 9.3%. Medium-to-long term investors should get decent returns.
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