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Emerging companies - Mid caps that can become large cap
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Topic: Jammu & Kashmir bank - As good as the Place

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vinvestor2010
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Joined: 19/Mar/2010
Location: India
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Posts: 299

Posted: 01/Jul/2010 at 1:09am

Hi just 2 points about J&K Bank that might be useful

1]The bank is very dependent on government spend plans

- the government owns half the bank, and lends itself 15-2O% of the money. Like all PSU banks that creates a circularity that should be accounted in calculations.

2]In the CASA ratio a very large share is of J&K government employees as private sector is nascent there due to political situation.

-not sure if 6th pay commission is implemented there but it would impact it

significantly.

So to look for a trigger to this stock look at Central and J&K Govt spend plans for the state

-The current strategy needs to be checked

- A slide on the Motilal Oswal presentation states they want to expand advances in J&K, to put it simply recovering personal loans might be a problem

only if political situation is stable then investment there in tourism and fruit farming makes a lot of business sense. In both Kashmir is a world leader.

On the funny side due to Article 37O their real estate exposure is close to nil I guess

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subu76
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Joined: 25/Feb/2008
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Posts: 5709

Posted: 01/Jul/2010 at 10:10am

Hey vinvestor2010, could you please describe more on the circular money funda. Is this an issue as long as a bank maintains a decent NIM?

On the Motilal Oswal point ..... the NPA levels of this bank seems to be quite good.

BTW....nio triggers seems to be apparent for this bank....but it seems to be doing pretty well on the earnings front and various bank parameters NIM, NPA, RoA seems to be improving every year.... The mai baap status and lack of competition that folks highlighted in the thread seems to be at work. (personally that's the fact which i find extremely attractive)

Edited by subu76 - 01/Jul/2010 at 10:11am

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vinvestor2010
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Joined: 19/Mar/2010
Location: India
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Posted: 02/Jul/2010 at 1:25pm

Subuji what I mean by circularity is it is sort of related party transaction.

The government is owning the bank, giving the deposit and taking the loan.

So it's earning is [Dividend + Deposit Earning - Loan Payment]

Net net it is taking from left pocket and putting in right pocket, we need to check if value is being created.

So the deposit and loan book should examined Y on Y to check if they are diversifying from govt or it is still the same.

I do not have numbers but if say 3 years ago Govt share of loans was 3O% and now it is 25%, that would be a good sign.

Also this is applicable for all PSU banks not just J&K bank. Private banks are safer because they have a 5% ownership ceiling. However that also means in troubled times they do not have a strong promoter

But the numbers are quite compelling and even I am thinking if I should buy the low NPA and valuation are quite good

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subu76
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Posted: 02/Jul/2010 at 6:42pm

Thank you for explaining.

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subu76
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Posted: 03/Jul/2010 at 5:40am

Originally posted by Market Maniac

RoA>1% is considered healthy in the bankin industry.

for FY10, J&K Bank has got a RoA of 1.20% and not 1.09%.

This is amongst the best RoA across the sector.

BTW RoA is now 1.3%....that's a pretty sweet spot to be in.

Over the last 6 years the Cost of funds has never gone above 6%.

Edited by subu76 - 03/Jul/2010 at 5:40am

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subu76
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Posted: 03/Jul/2010 at 5:44am

Originally posted by vinvestor2010

-The current strategy needs to be checked

- A slide on the Motilal Oswal presentation states they want to expand advances in J&K, to put it simply recovering personal loans might be a problem

only if political situation is stable then investment there in tourism and fruit farming makes a lot of business sense. In both Kashmir is a world leader.

On the funny side due to Article 37O their real estate exposure is close to nil I guess

I will check more:

My understanding is that they're mainly exposed to handicrafts/horticulture/personal loans and home loans. (besides corporate exposure)

The personal loans is mostly made to government employees whose salary accounts are with them so it might be ok.

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subu76
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Joined: 25/Feb/2008
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Posts: 5709

Posted: 04/Jul/2010 at 5:41pm

Originally posted by Market Maniac

26% stake in Metlife.

Chairman has declared that they would bouble the PAT to 1000Cr by 2012.

Do you know how they plan to do this?

With a RoE around 19-20% this seems like a pretty uphill task.

Though i'll admit they have significant scope to leverage

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nikhil090
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Joined: 06/Nov/2006
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Posts: 1344

Posted: 04/Jul/2010 at 7:25pm

How will this compare with kvb?

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