Jammu & Kashmir Bank

J&K Bank, is majority owned by the government of J&K. However, it is often treated as more of a private sector player.

The bank has been in the news lately over allegations of nepotism. J&K Bank, Parvez Ahmad Nengroo, was sacked and the bank headquarters raided by vigilance sleuths. 

However, we believe that is unlikely to impact the turnaround at the bank. 

The bank, particularly in 2016-17 was struggling and had a huge loss of 1,632 crores, during that period. However, we are increasingly noticing that the bank is returning to profitability and the non performing assets are beginning to show a declining trend.

Net Profit for the year ending March 31, 2019 surged to Rs 464.88 as compared to a net profit of Rs 202.72 crore during the financial year ended Mar, 2018.

 As we said earlier, the bank is showing a more stable performance and has now reported 6 consecutive quarters of profitability.

J&K Bank: Cheap on valuations

The management of the bank is laying an emphasis on recoveries and also on the retail sector. This is already bearing fruit. The Gross and Net NPA's as percentages to Gross and Net Advances as on March, 2019 stood at 8.97 per cent and 4.89 per cent respectively compared to 9.96 per cent and 4.90 per cent a year ago.

Among the few reasons to recommend the stock are cheap valuations and a sharp fall in the share price.

The shares of J&K Bank have dropped from 52-week high levels of Rs 90 to Rs 40. The stock has now moved higher to Rs 49. Going forward in 2018-19, the bank should report an EPS of Rs 7. The stock is barely quoting at a p/e of 6 times, one year forward earnings. Also, the price to book value is just 0.44 times. A good cheap shares to own from a 2-3 year perspective. It is likely that we may see some rebound in NPAs for the banking sector, which should benefit a bank like J&K. 

A good stock below Rs 50 to buy for the long term.

South Indian Bank

If you are looking to invest in banking stocks, that have the potential to generate returns in the long term, South Indian Bank should be a good bet. The bank is likely to focus on retail lending and has been gradually improving performance in this area. The CASA growth and control of non performing assets at the bank has also been pretty decent. 

For the quarter ending March 31, 2019, the bank did have a subdued financial performance. The gross non performing assets at the bank rose marginally to 4.92 from per cent from 4.88 in the previous quarter. 

South Indian Bank can report an EPS of close to Rs 1.5 for FY 2018-19. The stock is trading at a p/e of just 9 times one year forward earnings. This is a private sector bank that definitely deserves better discounting. This makes the stock a good bet at the current level. Buy for long term capital gains.

Exercise some caution

It is best to exercise some degree of caution, as the stocks recommended may or may not be fundamentally the best. Stocks under Rs 50 are generally small cap stocks, whose price can be extremely volatile. In some case the downside risk is very low, given the huge destruction already in the stock. Remember, if you hold for a longer period of time, there maybe some possibility of making money. We have also recommended some small cap stocks here

Disclaimer

The article is not a solicitation to buy, sell in securities or other financial instruments. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article.

The author and his family own some of the shares mentioned above, at the time of writing this article.