Tata Capital

IPO Size: Rs. 15,512 cr

• Fresh Issue of Rs. 6,846 cr for growth capital and to comply with RBI’s mandatory listing for large ‘upper tier’ NBFCs by 30.9.25
• Offer for Sale (OFS) of Rs. 8,666 cr: 87% by the promoter Tata Sons (promoter holding of 96% to drop to 85% post IPO) and 13% by IFC (4% to shrink to 3%)

Price band: Rs. 310-326 per share

M cap: Rs. 1.38 lakh cr, implying 11% dilution

IPO Date: Mon 6^th Oct to Wed 8^th Oct 2025, Listing Mon 13^th Oct 2025

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Diversified Non Banking Finance Company (NBFC)

Tata Capital is India’s 3^rd largest NBFC, after Bajaj Finance and Shriram Finance, with assets under management (AUM) of Rs. 2.3 lakh cr, as of 30.6.25, split between Retail (60%), SME (26%) and Corporates (14%). In past 2.25 years, AUM almost doubled from Rs.1.2 lakh cr as of 31.3.23, implying a 34% CAGR. Even organic AUM, excluding Tata Motors Finance (TaMoFin) merger, rose at 25% CAGR, growing faster than HDB Fin (22%), Shriram (19%) and L&T Finance (11%), but slower than peers Bajaj Fin (29%) and Cholamandalam (30%). 

TaMoFin Merger: Tail Wagging the Dog

TaMoFin merger was reflected in Tata Capital’s books, with effect from 1.4.25, although was completed in May 2025.

TaMoFin clocked Rs. 181 cr net loss in FY25 and incoming Rs. 30,000 cr AUM’s quality was poor, with 7.1% gross non-performing assets (NPA) and 4.4% net NPA. As against this, net NPA of Tata Capital ex-merger, was at 0.5%. Thus, Net NPA rose to 1% as of 30.6.25, from 0.4% until 31.3.24, which may be the norm going forward. RoE also contracted to 12.5% in Q1FY26, from 15.5% in FY24 on high provisions.

Merger was double whammy for Tata Capital – high NPA and losses – dimming its IPO attractiveness.

To absorb the merger, company raised Rs. 1,752 cr via rights on 18^th July 2025, at Rs. 343 per share. IPO price is 5% lower than rights, but rights price is not material, as over 95% of it was allotted to promoter and <5% went to 7,400 of total 37,000 public shareholders.  

Peer Comparison

• Q1FY26 AUM Growth healthy: Tata Capital’s Q1FY26 AUM grew 3% QoQ, 17% YoY and 23% YoY ex- merger. This is lower than Bajaj Fin’s 6% QoQ and 25% YoY jump to Rs. 4.4 lakh cr AUM and Chola’s 4% QoQ and 24% YoY Rs. 1.9 lakh cr, but comparable to Shriram’s 3% QoQ and 17% YoY to Rs. 2.7 lakh cr and higher than HDB Fin’s 2.3% QoQ and 14% YoY rise to Rs.1.1 lakh cr. AUM growth may pick-up going forward, with merger now behind the company.  
• Net Interest Margin (NIM) lowest: Due to low yields of 12.5% (14%+ for peers) and cost of borrowing of 7.8% similar to peers, Tata’s NIM of 5.1% is the lowest, vis-à-vis 7.7%+ for peers.
• Net NPA: As of 30.6.25, Bajaj Fin 0.5% net NPA is top-notch, followed by 1% for Tata Cap and L&T, and 1.1% for HDB, and much better than ~2.6% for auto-loan focused Shriram and Chola.
• Credit Cost best: FY25 incremental credit cost due to merger was at Rs. 1,275 cr leading to Rs. 2,800 cr provision in FY25 (1.4% credit cost), up from Rs. 592 cr in FY24 (0.4% credit cost). In Q1FY26 too, provision remained elevated at Rs. 908 cr (1.6% credit cost). Despite this, Tata Capital’s credit cost is industry-lowest, with Chola being #2 at 1.7% and HDB Fin the worst at 2.4%, based on Q1FY26 results. Low credit cost demonstrates Tata’s healthy underwriting skills and risk management, which is a critical factor for any lender. Management is confident that clean-up of TaMoFin is complete and does not expect more provisioning Q2FY26 onwards, aiming for sub-1% credit cost in FY26E.
• Lowest Return Ratio: Tata’s RoA of 1.8% is the lowest among peers (4.5% for Bajaj, 2.7% for Shriram, 2.4% for Chola and L&T, 1.9% HDB). Even with a 6.5x leverage, RoE fell to just 12.5% in Q1FY26, from 15.5% in FY24. Tata Capital’s RoE is also the lowest among peers, with 15.5% in FY24 (before merger) much lower than Bajaj Fin’s 22%, Chola’s 20.6%, HDB 19.6% and Shriram’s 15.8%). Even if credit cost declines as per guidance, return ratios, the most-important business parameter, may not improve meaningfully, due to low NIMs.

Priced to Perfection

Based on FY26E book value per share of about Rs. 111, IPO is priced at a PBV multiple of 2.9x, on current year basis, which factors in lower credit cost guidance as well as low return ratios.

IPO pricing is only slightly lower than HDB Fin’s 3x. L&T Fin with Rs. 1 lakh cr AUM, 1% net NPA, 2.1% credit cost and 11% RoE is trading at 2.4x PBV. Bajaj and Chola’s multiples of 5.5x and 4.8x respectively reflect high AUM growth and superior RoE while Shriram’s 1.9x prices in 2.6% net NPA. Thus, nothing is left on the table, for prospective investors.

Except for Bajaj Housing, IPOs from large corporates like HDB Financial and JSW Cement have been priced to perfection, not rewarding investors. Tata Capital’s seems to be following the suit.

RHP Disclosure to Strengthen

Tata Group is known for high corporate governance standards. But Tata Capital’s RHP disclosures is perplexing. In Basis of Offer Price, table Comparison of KPIs with peers has many NA, even though data is easily available. Other RHPs having NA does not mean Tatas must follow suit.  

• NIM, RoE, RoA Shriram and Chola are stated as NA, while this is provided in respective company presentations.
• Disbursements are mentioned for Sundaram and HDB Fin, but disbursement YoY growth on the very next line is NA. Similarly for Sundaram’s gross loan growth and PAT growth.

One wonders whether so many NAs can be an oversight on behalf of the company, its 10 merchant bankers as well as SEBI? Or is NA conveniently used when the matrix is unfavorable to Tata Capital? Is the RHP losing its significance?

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