HDFC Bank’s third-quarter 2015 earnings were up 20%, and its nine-month earnings were also up 20% over the corresponding period last year. In line with this performance, we are reducing our fiscal 2015 earnings forecast to 20% from 24% previously assumed. Our five-year earnings growth forecast has also moved down to 20% versus 21% previously, as we adjust the bank's effective tax rate from 31% to 34% and our cost-to-income ratio down to 45.7% versus 46.7% previously for 2015 and beyond. These negatives are offset by the time-value-of-money impact since our last update. As a result, we keep our fair value estimate of INR 840.60 per share or USD 41.34 per ADR unchanged. We believe this narrow moat-rated bank is currently overvalued.
We are quite pleased with the bank’s recent INR 97 billion equity raise, which was done in the midst of a bull market, thereby limiting the amount of dilution by garnering a higher price per share. We already have this equity raise built into our assumptions, however at a lower issuance price, and are therefore positively surprised by the outcome. Overall, we continue to believe HDFC Bank deserves an Exemplary stewardship rating, as it continues to make sound capital allocation decisions to place the bank in a strong position for future growth, while adequate liquidity gained at a good price. We continue to maintain a positive outlook on the bank, despite shares trading at a premium to our intrinsic value.
