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J&K Bank: Strong 3Q performance

Jan 11, 2002

The third quarter earnings season for the banking sector started on a positive note with encouraging financial performance from Jammu & Kashmir Bank (JKB). The bank recorded a 41% rise in earnings and 27% growth in interest income for the nine months ended December 2001.

(Rs m) 3QFY01 3QFY02 Change 9mFY01 9mFY02 Change
Income from operations 2,719 3,355 23.4% 7,866 9,954 26.5%
Other Income 259 633 144.7% 695 1,439 107.0%
Interest expense 1,855 2,248 21.2% 5,312 6,825 28.5%
Operating Profit 559 733 31.1% 1,495 1,779 19.0%
Operating Profit Margin (%) 20.5% 21.8% 19.0% 17.9%
Other expenses 305 374 22.7% 1,060 1,350 27.4%
Provisions and contingencies 91 452 395.3% 396 770 94.4%
Profit before Tax 726 913 25.8% 1,794 2,448 36.5%
Tax 215 250 16.3% 550 700 27.3%
Profit after Tax/(Loss) 511 663 29.8% 1,244 1,748 40.5%
Net profit margin (%) 18.8% 19.8% 15.8% 17.6%
No. of Shares 48.1 48.2 48.1 48.2
Diluted Earnings per share* 42.4 55.1 34.4 48.3
P/E Ratio 0.8 1.0
*(annualised)

Unlike other banks, JKB's interest on advances income grew by 48% in the first nine months accounting for 46% of total interest income. The bank's 25% of total loans are to the retail sector (home loans, personal loans and auto loans), which has fueled its overall interest income growth. Income from investments on the other hand grew at a slower rate of 16%.

The bank has successfully improved its operating margins by about 130 basis points on the back of more than proportionate reduction in deposit cost (compared to lending rates) and cost control measures. JKB's cost to income ratio declined to 22% in 3QFY02 from 27% in the comparable previous quarter. For the first nine months, the ratio stood at 30% (33% in 9mFY01). JKBs cost of deposits at about 7% is amongst the lowest in Indian banking sector, as 40% of its deposits are low cost deposits.

Over 100% growth in other income figure was the key earning driver in the third quarter. The proportionate contribution of other income to total income jumped to 16% from 9% in 3QFY01. However, a five fold increase in provisions and contingencies amount trimmed the bottomline growth of the bank. The bank's net NPA to advances ratio stood at 2.5% as on March 2001.

At the current market price of Rs 46 JKB is trading at a P/E of 1x and Price/Book value ratio of 0.3x nine months FY02 annualised earnings. The bank's lower valuations are the result of its public sector status (53% stake held by the government of J&K), regional nature and risk of concentration of business in one region (most part of its deposits are from J&K but lending is spread across India).

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