2 November 2012
2QFY13 Results Update | Sector: Financials
Jammu & Kashmir Bank
BSE SENSEX
S&P CNX
18,562
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel.Perf.(%)
M.Cap. (INR b)
M.Cap. (USD b)
5,645
JKBK IN
48.5
1,249/645
24/27/42
59.5
1.1
CMP: INR1,226
TP: INR1,415
Buy
J&K Bank's 2QFY13 PAT grew 35% YoY (+10% QoQ) to INR2.7b. Healthy NII growth of ~27% YoY, higher trading gains
(INR261m v/s INR85m in 2QFY12) and containment of opex (up 15% YoY) gave a boost to the bottom line. NIMs
improvement of 10bp QoQ to 3.9% and stable asset quality were positives during the quarter.
Key highlights:
Gross slippages in 2QFY13 were contained at INR984m, of which INR750m was due to the transition to system-
based recognition of NPAs. Credit cost for the quarter (including provision on investment for a media account
of INR500m) stood at 0.27%.
In 2QFY13, the bank restructured loans of INR2.3b (including two large accounts), thus taking the outstanding
restructured loans portfolio to INR15b, 4.4% of overall loans.
Loan growth was healthy at 3.2% QoQ and 21.4% YoY to INR343b, whereas deposits grew 3.4% QoQ and 16%
YoY to INR549b. Hence, the CD ratio was stable at 62.4%.
Other highlights:
(1) CASA ratio declined marginally to 38.2% and (2) fee income (including insurance) grew
16% YoY but declined 10% QoQ to INR460m.
Valuation and view:
JKBK continues to deliver healthy performance in business growth, margins and asset quality.
Certain core operating parameters such as CASA ratio of ~38%, NIMs of 3.8%+ with the lowest CD ratio of 62%, PCR
of 90%+ and RoA/RoE of 1.5%+/21%+ remain the best in the industry. In our view, the bank would continue to
retain its market leadership in the state of J&K and focus on qualitative growth. Maintain
Buy.
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com); + 91 22 3982 5415
Sohail Halai
(Sohail.Halai@MotilalOswal.com); + 91 22 3982 5430
Investors are advised to refer through disclosures made at the end of the Research Report.

Jammu & Kashmir Bank
Healthy business growth; Management guidance of loan growth of 20-25%
Loan growth was healthy at 3.2% QoQ and 21.4% YoY, whereas deposit grew 3.4% QoQ
and 16% YoY to INR549b. As a result, CD ratio was stable at 62.4% and there still
remains ample scope to improve CD ratio which would in-turn provide cushion to
margins. SA deposit growth was strong at 21% YoY (2% QoQ) which led to healthy
CASA growth of 16% YoY (+2% QoQ). CA deposits were flat YoY, and CASA ratio declined
marginally to 38.2% as compared to 38.7% a quarter ago.
Margins improve 10bp QoQ; muted fee income growth
Improvement of 17bp QoQ in yield on loans (12.7%) coupled with stable cost of
deposits QoQ led to 10bp QoQ improvement in NIM to 3.9%. Managment has guided
for margins of 3.9-4% for 2HFY13. Non-interest income growth was strong at 28% YoY
led by higher trading gains of INR261m (v/s INR85 in 2QFY12 and INR202m in 1QFY13).
Fee income (including insurance) grew 16% YoY (but declined 10% QoQ) to INR460m.
Healthy asset quality performance; Restructured INR2.3b in 2QFY13
Gross slippages in 2QFY13 were contained at INR984m - of which INR750m was on
account of bank transiting to system based recognition of NPA. The performance on
asset quality during the quarter was impressive as bank transited 25% of overall loans
of less than 0.5m accounts through system based recognition of NPA, but was still
able to contain slippages unlike some of the PSBs wherein slippage ratio had increased
significantly.
As a result, GNPA in absolute terms increased just 2% QoQ to INR5.5b. Bank continued
to maintain high PCR of 93%+ (one of the highest in the industry), and NNPA stood at
INR553m. In percentage terms, NNPA stood at just 16bp (stable QoQ). During the
quarter bank made provision of INR125m on investment exposure of a media company
(overall exposure is INR500m). Credit cost for the quarter (including provision for
media account) stood at 0.27%. During the quarter, bank restructured loan of INR2.3b
(including two large accounts), taking the outstanding restructured loan portfolio to
INR15b - 4.4% of overall loans.
Valuation and view
JKBK continues to deliver healthy performance on business growth, margins and asset
quality. Some of the core operating parameters like CASA ratio of ~38%, NIM of 3.8%+
with the lowest CD ratio of 62%, PCR of 90%+ and ROA/ROE of 1.5%+/21%+ remains
the best in the industry. J&K's focused growth strategy towards J&K state has paid off
with superior margins, high CASA ratio and improving core business performance.
The bank will continue to retain its market leadership in the state and focus on
qualitative growth. The stock trades at of 1.2x FY13 BV of INR1,033 and 1x FY14 BV of
INR1,180. We have not considered Metlife value in our valuations. Maintain
Buy
with
a target price of INR1,415 (P/BV of 1.2x FY14).
2 November 2012
2

Jammu & Kashmir Bank
J&K Bank : One year forward P/E
J&K Bank: One year forward P/BV
Highlights of Conference Call
Strong presence in state of J&K enables bank to earn higher margins of 6% in
the state. Outside J&K margins would be sub 3%. Management maintained its
guidance of margins of 3.9-4%. Yield on loans in state of J&K are strong at 13%+
due to pricing power that bank have in the state.
Bank has exposure of INR1b (INR800m in form of loans) to king fisher which is
still standard asset.
The proportion of NPLs within J&K and outside is 41% and 59% respectively
(same proportion as loan book). The loan growth target for within state of
Jammu and Kashmir is 25% and that outside J&K is 20%, implying overall loan
growth of 22%.
Of the 65% deposit proportion within J&K, 53% constitutes CASA Deposits. The
bulk deposits form ~20% of total deposits.
Bank has entered into an agreement to sell 52m shares of Metlife India at the
price of INR36.5 per share (INR1.9b), however the process is pending approval
of IRDA. Management expects the process to be completed in 2HFY13.
2 November 2012
3

Jammu & Kashmir Bank
Quarterly trends
Business growth remains healthy
CD ratio stable QoQ (%)
Management target business growth of 20-25% for FY13
CD ratio remains low leaving ample scope for
improvement which would provide cushion to margins
CASA ratio declines QoQ (%)
Fee income growth continues to lag balance sheet growth (%)
SA deposit growth was strong at 21% YoY (2% QoQ) which
led to healthy CASA growth of 16% YoY (+2% QoQ).
Fee income as a proportion of average assets remains
low at just 30bp - one of the lowest among peers
Healthy asset quality performance; PCR at 90%+
Credit cost remains low - a key driver of RoA (in bps)
Bank has been able to maintain asset quality despite
transiting to system based recognition of NPA which is
impressive
Credit cost including provision on investment (INR25m)
for a media account (INR500m) was contained led by
lower net slippages
2 November 2012
4

Jammu & Kashmir Bank
Quarterly Snapshot
FY12
1Q
Profit and Loss (INR m)
Net Interest Income
Other Income
Trading profits
CEB
Insurance Income
Others
Total Income
Operating Expenses
Employee
Others
Operating Profits
Provisions
NPA
MTM
Others
PBT
Taxes
PAT
Asset Quality
GNPA
NNPA
GNPA (%)
NNPA (%)
PCR (Calculated, %)
4,372
670
101
342
74
153
5,042
1,878
1,278
600
3,164
445
250
37
158
2,719
896
1,823
5,283
584
2.0
0.22
89.0
2Q
4,343
712
85
339
59
230
5,055
1,927
1,255
672
3,128
223
130
45
48
2,904
908
1,997
5,419
630
1.9
0.22
88.4
3Q
4,508
736
88
387
61
200
5,244
2,009
1,308
700
3,236
182
150
-2
33
3,054
922
2,132
5,450
489
1.8
0.16
91.0
4Q
5,161
1,222
227
433
81
481
6,383
2,208
1,373
834
4,176
843
370
198
275
3,333
1,252
2,081
5,166
493
1.5
0.15
90.4
FY13
1Q
5,356
934
202
436
75
221
6,290
2,138
1,379
759
4,152
504
260
0
244
3,648
1,187
2,461
5,410
482
1.6
0.14
91.1
2Q
Variation (%)
Cumulative Numbers
QoQ
YoY 1HFY12 1HFY13 YoY Gr (%)
3
-3
30
-11
-1
-15
2
3
4
3
2
-35
-65
-5
7
1
10
2
15
-1
2
-113
27
28
N.A.
14
26
-19
27
15
14
16
35
47
-31
-87
N.A.
34
33
35
2
-12
-30
-6
160
8,715
1,382
186
680
133
383
10,097
3,805
2,533
1,273
6,292
668
380
82
207
5,623
1,804
3,819
10,883
1,843
463
823
148
409
12,726
4,347
2,809
1,539
8,378
832
350
6
476
7,547
2,391
5,156
25
33
149
21
12
7
26
14
11
21
33
25
-8
-93
130
34
33
35
5,527
909
261
387
74
187
6,436
2,209
1,430
779
4,227
328
90
6
232
3,899
1,203
2,695
5,516
553
1.6
0.16
90.0
Ratios (%)
Fees to Total Income
Cost to Core Income
Tax Rate
CASA (Reported)
Loan/Deposit
CAR
Tier I
Margins - Quarterly (%)
Yield on Advances
Yield on Investments
Cost of Deposits
NIM
Margins - Cumulative (%)
Yield on Advances
Yield on Investments
Cost of Deposits
NIM
Balance Sheet (INR B)
Loans
Deposits
CASA Deposits
of which Savings
Current
Break up of Investments
HTM
AFS
For %age change QoQ and YoY
8.2
39.2
33.0
40.4
61.3
14.4
11.8
11.5
7.1
5.9
4.0
11.4
6.3
5.4
3.8
264
431
174
132
42
182
121
60
is bp
7.9
40.7
31.3
38.2
59.5
13.6
11.3
12.1
7.3
6.5
3.8
11.8
7.2
6.2
3.9
282
474
181
135
46
198
126
72
8.5
40.5
30.2
40.2
61.0
13.6
0.0
12.2
7.6
6.6
3.6
10.7
7.6
6.6
3.6
297
488
196
150
46
198
132
66
8.1
38.9
37.6
40.7
62.0
13.4
11.1
12.2
7.5
6.4
3.9
11.5
6.8
5.9
3.6
331
533
217
160
57
216
139
77
8.1
36.4
32.5
38.7
62.6
13.8
11.5
12.5
7.7
7.0
3.8
12.4
7.7
6.9
3.8
332
531
206
161
45
220
143
77
7.2
36.9
30.9
38.2
62.4
13.7
11.6
12.7
7.5
7.0
3.9
12.6
7.6
7.0
3.9
343
549
210
164
46
225
149
76
3
3
2
2
2
2
4
-1
21
16
16
21
-1
14
18
6
17
-20
-4
10
61
17
52
18
3.8
41.8
32.1
3.2
38.5
31.7
Source: Company, MOSL
2 November 2012
5

Jammu & Kashmir Bank
Stock Info
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
207.7
230.5
Consensus
Forecast
223.7
249.8
Variation
(%)
-7.2
-7.7
1-year Sensex rebased
FY13
FY14
Shareholding pattern (%)
Sep-12
Promoter
Domestic Inst
Foreign
Others
53.2
3.9
25.2
17.7
Jun-12
53.2
3.0
26.9
16.9
Sep-11
53.2
2.9
25.3
18.7
2 November 2012
6

Jammu & Kashmir Bank
Financials and Valuations
2 November 2012
7

Jammu & Kashmir Bank
Financials and Valuations
2 November 2012
8

Jammu & Kashmir Bank
N O T E S
2 November 2012
9

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Jammu & Kashmir Bank
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No
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