Morningstar Analyst Suruchi Jain in a note said,
We are increasing our fair value estimate by 35% to INR 531 per share, or USD 43 per GDR, as we reduce our cost of equity to 12% from 14%. Our fair value estimate represents 2.5 times 2016 book value per share and 14 times our fiscal 2016 diluted earnings estimate of INR 37.54 per share. The lower cost of equity assumption is in line with a global change to Morningstar's cost of capital methodology as it takes into account a lower required investment return for the U.S. market of 9%, plus a 3% country premium for an Indian company with average systematic risk.
Our financial forecasts and outlook for the bank are unchanged. We assume average earnings growth of 18.6% annually over the next five years, driven by 18% growth in interest income and 20% annual growth in non-interest income.
