• JULY 12, 2002

J&K Bank: Margins on a rise

Jammu & Kashmir Bank (J&K) reported a strong growth in earnings at 30% and also over 20% rise in interest income from core advances in 1QFY03. J&K Bank's profit growth was also fueled by a commendable improvement in operating margins. The bank's fee based income however, declined steeply by 30%.

(Rs m)1QFY021QFY03Change
Income from operations 3,280 3,584 9.3%
Other Income 471 325 -31.1%
Interest expense 2,275 2,335 2.6%
Net interest income 1,004 1,249 24.4%
Other expenses 441 413 -6.4%
Operating Profit 563 836 48.5%
Operating Profit Margin (%)17.2%23.3% 
Provisions and contingencies 228 183-20.0%
Profit before Tax 806 97821.3%
Tax 250 2552.0%
Extraordinary items - - -
Profit after Tax/(Loss) 556 72330.0%
Net profit margin (%)17.0%20.2% 
No. of Shares (m) 48.1 48.1  
Diluted Earnings per share*46.260.1 
P/E Ratio 1.7 

During the quarter, the bank's cost to income ratio declined to 26% from 30% in the comparable previous quarter. This is despite a 31% fall in other income. J&K Bank managed to control costs on the back of 45% reduction in administrative costs (forms 21% of operating expenses).

The bank's income from investments however, witnessed a marginal growth of 2% due to a sharp fall in yield over the last one year. With incremental investments at lower rates, the bank's investment income is likely to witness slower growth in the current fiscal. Its core interest income could show strength on the back of pick up in credit demand.

Income breakup
(Rs m)1QFY021QFY03Change
Interest on advances 1,429 1,748 22.3%
Income from investments 1,641 1,678 2.2%
Interest on balance with RBI & others 209 159 -24.1%
Total 3,280 3,584 9.3%

The bank reduced its provisions for non-performing assets by 20% during the June quarter. This could be on the back of recovery seen by the bank with improvement in the industrial activity. J&K Bank's net NPA to advances ratio stood at 1.9% as on March 2002.

At the current market price of Rs 101, J&K Bank is trading at a P/E of 2x 1QFY03 annualised earnings and adjusted price to book value ratio of 0.6x. The bank's stock price has attracted strong buying interest over the last four months due to its relatively low valuations. However, concerns of its being situated in sensitive area of Jammu and Kashmir and its PSU status, is likely to trim appreciation in stock price.

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