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Prabhudas Lilladher
J&K Bank (Buy)
CMP: ₹82.45
Target: ₹125
We hosted the management of J&K Bank recently. We believe that the bank is now getting back on track with focus returning to home State wherein the franchise still remain undisputable despite rising competition, while it lends to only top-notch public sector units/corporates outside J&K.
Asset quality should thus show a gradual improvement as bulky delinquent accounts have already been provided for and the Bank has minimal exposure to accounts included in the Reserve Bank of India’s newly constructed list.
J&K Bank aims to improve upon its return on assets (RoA) more than 1.5 per cent over the medium-term led by stable margins at around 4 per cent, moderation in credit cost and higher share of more profitable home State business.
We remain positive on J&K Bank with price target of of ₹125 and maintain ‘buy’ rating. We also add J&K Bank to our sectoral top-picks given the reasonable valuations — in line with PSU banks, despite significantly better RoA, capital position and high dividend yield at around 5 per cent (FY17 basis).
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