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- JANUARY 11, 2002
J&K Bank: Strong 3Q performance
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). JKB’s 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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