Tata Capital IPO: Riding India’s Credit Formalisation Wave – Should You Subscribe?

Tata Capital Limited (incorporated 2007) is a diversified NBFC–Upper Layer of the Tata Group, offering retail, SME and corporate finance, along with housing finance, infrastructure/clean-tech finance and allied financial services. Following the merger of Tata Motors Finance Ltd. in FY25, Tata Capital became India’s third-largest diversified NBFC by gross loans. As of March 31, 2025, it operated 1,516 branches across 27 States/UTs, serving 7.3 million customers through an omni-channel model. Key subsidiaries include Tata Capital Financial Services, Tata Capital Housing Finance and Tata Cleantech Capital, with cross-sell across secured/unsecured retail, SME and corporate products, backed by AAA ratings and robust risk controls.

Industry Outlook

India’s NBFC credit outstanding was Rs 48 trillion in FY25 and is forecast to grow at 15–17 per cent CAGR to Rs 74–77 trillion by FY28, driven by retail credit penetration, MSME formalisation and vehicle/housing cycles; globally, diversified lenders benefit from digitisation and alternative data underwriting. NBFCs are expected to outpace Banks in select profit pools as unsecured lending normalises and secured segments expand. Regulatory focus (UL NBFC) and capital buffers will shape growth/returns. Tata Capital’s diversified book and scale position it to ride India’s expanding TAM with prudent risk.

Objects of the Issue

Augment Tier-I capital base to support future growth: Rs 6,846.00 crore (fresh issue at upper band). Offer for Sale by existing shareholders (no proceeds to company): Rs 8,665.90 crore.

SWOT Analysis

Strengths: Strong Tata Group parentage; AAA ratings; diversified retail/SME/corporate mix; granular portfolio; pan-India omni-channel network; improving scale post-TMFL merger.

Weaknesses: Returns (ROA/ROE) below top-tier peers post-merger; elevated gearing typical of NBFCs; profitability sensitive to credit costs and interest-rate cycles.

Opportunities: Large India TAM (Rs 48 trillion in FY25 to Rs 74–77 trillion by FY28); cross-sell across 7.3 million customers; vehicle/housing/SME formalisation; digital origination and analytics.

Threats: Regulatory tightening (UL NBFC), competition from banks/fintechs, unsecured exposures/NTC customers raising underwriting risk; macro slowdown could lift credit costs and depress growth.

At a Glance

Financial Performance (Rs crore)

(a) Profit & Loss

(b) Balance Sheet

Peer Comparison

Outlook & Relative Valuation

At the upper band of Rs 326, Tata Capital’s post-issue valuation implies a P/E of 37.8x and a P/BV of 3.8x FY25, which is broadly comparable to Bajaj Finance (36.8x, 6.52x P/BV) and Cholamandalam Investment (31.5x, 5.94x P/BV), though richer than L&T Finance (24.1x, 2.5x P/BV). Its ROE of 14.0 per cent and ROA of 1.72 per cent currently trail Bajaj Finance (19.2 per cent, 3.99 per cent) and Chola (19.8 per cent, 2.38 per cent) but exceed L&T Finance (10.8 per cent, 2.4 per cent).

This moderate return gap is expected to narrow as Tata Capital benefits from merger synergies, stronger Tier-I capital, and expanding retail reach. The company’s scale, brand credibility, and diversification provide visibility for sustainable compounding once ROE normalises toward 16–17 per cent levels. Valuations, though full, are justified by improving operating metrics, high credit quality, and the long growth runway for NBFCs underpinned by India’s formalisation and consumption cycles.

10. Recommendation

Subscribe (Long-Term). Strong brand, scale, and capital base support steady growth. Valuations are fair versus peers, and profitability should improve as merger synergies and operating leverage kick in. Suitable for long-term investors.