JK Bank just released its first quarter results and there is a lot to talk about it that we would like to share:

JK Bank Q1 – 2017 Q4 – 2016 Q1 – 2016 %Change Q-Q % change Y-Y
Total Income 1,789.05 1,805.33 1,888.35 -0.90% -5.26%
Net Interest Income 632.6 647.11 694.84 -2.24% -8.96%
Net Profits 22.88 -56.02 158.76 -85.59%
Deposits 68,999.80   62264.91 10.82%
Advances 48,854.42   43,267.67 12.91%
Gross NPA 4,714.92 4,368.62 2,994.50 7.93% 57.45%
Net NPA 3,023.47 2,163.95 1,276.76 39.72% 136.81%


There is nothing to cheer about JK bank results other than that deposits had grew at 11% and advances by 13% on year-on-year basis. Well, those are the fundamental requirement for any banks to become successful. Other than this you also need to be prudent while issuing any advances and also at what price are you attracting depositors to deposit their money with you.

If you are the regular reader on our blog, you will exactly know how bullish we were with this stock 5 months ago. But after their last year financial results, our view changed on its profitability, and diverged to what the other analysts were forecasting for 2017. Similar to other sick banks, we are worried on issues like NPA’s and their practices of issuing advances. In the last one year, they added Rs 5,587 crore in advances and they also reported gross NPA’s of Rs 1,720 crore and net NPA’s of Rs 1,747 crore for the same period. Almost 31% of their advances were Net NPA’s!

Our research and analysis forecasted towards profits of around Rs 600 crore last quarter for 2017 financial year, and now I am pretty sure will be less than that after looking at this first quarter (we haven’t completed in-depth analysis of this bank). Analysts are expecting its profits in range of Rs 280 – Rs 873 crore for this financial year. There is no way they are even coming close to the upper level of the band, I will be surprised even if they achieve their lower level of profit band.

Our platform guides us with changes in its intrinsic values as analysts forecast changes, we are pretty sure that JK bank will see a steep downgrade in its earnings in coming weeks from these analysts. If we punch in analysts profit forecast into our way of calculation for intrinsic values, then its spectrum comes in range of Rs 15 – Rs 95 per share.

This doesn’t mean that share price of JK bank will see steep fall close to Rs 15 in few weeks! Remember, in long term prices always converge with its intrinsic values, not necessary that it should in the short term. We still think today’s market price of this share is trading at extremely expensive valuations.

Aziz Dodhiya is the chief investment officer for the Valueoperations funds which operates in the Indian market as an FPI (Foreign Portfolio Investor). We do not offer any personal advice to buy or sell any stocks and the views that are shared by Aziz might not incline to your personal investment strategy and this is the reason we advise you to take professional advice before going ahead with our views.