ICICIdirect.com has recommended hold rating on Jammu and Kashmir Bank (J&K) with a target price of Rs 145, in its research report dated November 17, 2014.
J&K Bank's PAT was below estimate at Rs 172 crore, plunging 43% YoY, mainly led by higher provisions of Rs 168 crore vs. expected Rs 80 crore
Asset quality deteriorated QoQ taking absolute GNPA to Rs 2187 crore (GNPA ratio: 4.73% vs. 4.16% in Q1FY15) from Rs 1888 crore. Fresh slippages stood at Rs 377 crore vs. Rs 1161 crore in Q1 but higher than witnessed in earlier quarters. Due to floods, ~ Rs 1200 crore of assets has been impacted of which ~Rs 400 crore have already been classified as stressed assets (RA or slippages) in Q2FY15
Credit growth moderated further to 9.6% YoY (vs. 11.5% in Q1) to Rs 45072 crore. Deposits grew a meagre 2.9% YoY to Rs 62972 crore as on Q2FY15 vs. 8% expected. Margins were strong at 4%
"Post the recent poor performance compared to peers, the stock is trading at in-expensive valuations of 1x FY16E ABV. However, owing to a surge in NPA in past two quarters and floods in J&K, we believe it will at least take two or three quarters for the bank to be on track. We have reduced earnings CAGR estimates over FY14-16E from 13.6% earlier to 6.4% now. This is owing to an increase in NPA estimates and consequent enhancement in credit cost. Accordingly, our FY16E ABV reduces to Rs 126 from Rs 146 earlier. We reduce our target multiple from 1.2x FY16E ABV to 1.1x and our target price to Rs 145 from Rs 170 earlier. We maintain HOLD", says ICICIdirect.com research report.
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