May 1: The Jammu & Kashmir Bank opens up yet another investment opportunity with its Rs 70.3 crore public issue. In the past, retail investors had fancied bank issues especially when the primary market was in doldrums. Although J&K Bank is small in size, its maiden public offer at Rs 38 seems to be attractive compared to some of the other bank issues in the recent past which include SBBJ's at Rs 54, SBT at Rs 60, BoI at 45 and Dena Bank at Rs 30.While BoI offered its equity at a high price to bookvalue (P/BV) of 2.44, J&K Bank is offering is at half its intrinsic value (P/BV of 0.5). In fact, J&K Bank's P/BV is very low compared with SBBJ's 1.02, SBT's 1.01 and Dena Bank's 1.96. Even post-issue, price to bookvalue will be at a low of 0.62.Moreover, valuations have become even more attractive after the bank announced a 102 per cent jump in net profit for the year ended March 31, 1998. The bank earned a net profit of Rs 50.15 crore against the previous year's figure of Rs 25 crore. It announced a totalincome of Rs 5352.13 crore in 1996-97, showing a compounded average growth rate of 15.38 per cent over a period of five years.
Based on the EPS for 1997-98, price-earning ratio works out to a low of 3.65X. The bank has a very low non-performing assets of 4.5 per cent for 1997-98, which is good compared to the industry average.
Since J&K Bank has a very high capital adequacy ratio of 15.88 as of March 31, unlike other bank issues, it is raising fresh equity with the main objective of increasing its exposure limit for industrial advances as per prudential norms.
The bank has a total equity base of Rs 29.99 crore which will be increased to Rs 48.49 crore after the issue. It has reserved Rs 1.9 crore each for banks/FIs and NRIs/OCBs. Besides, 10 lakh equity shares of Rs 10 each at a premium of Rs 28 are reserved for its own employees. According to the chairman of J&K Bank, M Y Khan, the bank is planning to advance loans to its employees for subscribing to the employee quota as well as in the public portion.Net offer to the public is around Rs 13.7 crore.
The J&K Bank's limited exposure is an investment negative. Outside the state of Jammu & Kashmir, the bank's business is mainly concentrated among bluechip companies and public sector units. Of the total 360 branches that it has recently, the bank has only 70 branches outside the state. This may not help the bank expand its clientele base to small and medium sized companies. The handicap may prove to be a big impediment especially when J&K Bank is planning to enter project and infrastructure financing. In J&K, the bank also generates business from both agricultural and horticultural sectors. However, as of now, almost 65 per cent of its advances is outside the state.
One of the main sources of the banks' business is the state government. As per the existing agreement between the Jammu and Kashmir government and the bank, all the state government department accounts are with J&K Bank. The bank also provides all credit facilities to the state government and tothe state level corporations backed by the J&K government guarantee. The bank also undertakes activities on behalf of the government relating to treasury business, disbursement of salaries and pension and collection of taxes and income tax.
The bank has a track record of uninterrupted profitability and dividend payment for the last three decades.
Lead managed by SBI Capital Markets, the issue opens on May 13 and closes on May 20. The shares are slotted to be listed at Ludhiana, Mumbai, Delhi and NSE.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
