J&K Bank - Resumption Of Dividend Payout In FY23 After Seven Year Gap Sends Positive Signals: HDFC Securities

HDFC Securities Retail Research

Valuation and recommendation:

We expect The Jammu and Kashmir Bank Ltd. to grow its loan book at 13% compound annual growth rate while net interest income and net profit are expected to grow at 11% and 19% CAGR respectively over FY23-25E.

Return on average asset is estimated to improve to 1% by the end of FY25E from current 0.9% in Q1 FY24. The asset quality should improve further from here on as collection starts stabilising.

J&K Bank is trading at 0.64 times FY25E adjusted book value, which is at a considerable discount to its peers.

Looking at the growth opportunities aided by peace and stability in the state, we believe that the discount will gradually narrow. Resumption of dividend payout in FY23 after seven-year gap sends positive signals.

We feel that investors can buy the stock of J&K Bank in the band of Rs 73.5-75 (0.64 times FY25E ABV) and add more on dips to Rs 65-66.5 band (0.57 times FY25E ABV).

We expect the base case fair value of Rs 81.5 (0.7 times FY25E ABV) and the bull case fair value of Rs 87.75 (0.75 times FY25E adjusted book value per share) over the next two-three quarters.

Company background:

The Jammu and Kashmir Bank was established in 1938 and is headquartered in Srinagar. It offers retail as well as corporate banking along with treasury services. It has a total of 1,001 branches, out of which 833 branches are in the Union Territories of Jammu & Kashmir.

The Government of Jammu & Kashmir holds 63% stake in the bank and the bank has been designated by the Reserve Bank of India as the exclusive agent of banking activities related to the Government of J&K and related administrative offices. This designation enables the bank to play a pivotal role in collection of taxes and implementing initiatives of the Government in the UT of J&K as well as Ladakh.

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