Tata Capital Ltd – IPO Note – Equity Research Desk

Company overview

Tata Capital Limited is the flagship financial services company of the Tata Group and a wholly-owned subsidiary of Tata Sons Private Limited. It is the third-largest non-banking financial company (NBFC) in India, with a gross loan portfolio of Rs.2,334 billion as of June 30, 2025. The company offers a diversified range of over 25 lending products, serving salaried and self-employed individuals, entrepreneurs, small businesses, SMEs, and corporates. With loan ticket sizes ranging from Rs.10,000 to over Rs.1 billion, Tata Capital maintains a strong focus on the retail and SME segments. Its wide distribution network spans 1,516 branches across 27 states and union territories, supporting its pan-India presence and customer reach.

Objects of the offer

• Carry out the Offer for Sale of up to 265,824,280 Equity Shares by the Selling Shareholder.
• Augmentation of Company’s Tier – I capital base to meet the company’s future capital requirements including onward lending

Investment Rationale

• Business segments – The company operates through three key business segments: Retail Finance, SME Finance, and Corporate Finance. Retail Finance, comprising 61.3% of total gross loans as of June 30, 2025, includes a wide range of offerings such as home loans, personal loans, vehicle loans, microfinance, and education loans for salaried, self-employed, and small business customers. SME Finance, contributing 26.2%, provides supply chain finance, equipment finance, leasing, and term loans to businesses with turnover up to Rs.2.5 billion. Corporate Finance, accounting for 12.5%, serves larger enterprises with term loans, infrastructure, cleantech, and developer finance solutions. In addition to its core lending business, Tata Capital operates non-lending businesses comprising distribution of third-party products (including insurance and credit cards), wealth management services for high-net-worth and retail clients, and a private equity division focused on two themes: Growth (urbanisation, manufacturing, and strategic services) and Healthcare (pharmaceuticals, hospitals, diagnostics, and related services).

• Strong market position – Tata Capital is the third-largest diversified NBFC in India by total gross loans of Rs.2,334 billion as of June 30, 2025, and offers the most comprehensive lending product suite among large NBFCs. With over 25 loan products catering to a wide spectrum of customers – from salaried individuals and entrepreneurs to SMEs and corporates – the company serves varied financial needs across ticket sizes ranging from Rs.10,000 to over Rs.1 billion. Its material subsidiary, TCHFL, which operates in the housing finance segment, has shown strong growth with gross loans rising at a CAGR of 32.6% between March 2023 and March 2025. The company’s well-diversified loan book, with no single product contributing over 20% of total gross loans, and its distribution strength across customer segments and geographies, help minimize concentration risk and support sustainable, profitable growth across economic cycles.

• Operational Performance – Tata Capital has demonstrated strong operational performance, with its branch network growing at a CAGR of 58.3% between June 30, 2023, and June 30, 2025. During this period, its customer base expanded from 4.8 million to 7.3 million, while gross loan disbursements rose by 35.5% YoY in FY25 to Rs.1,42,301 crore. This robust growth reflects the company’s ability to scale efficiently and strengthen its nationwide footprint. The expansion in branches and customer base enhances market reach, while rising disbursements improve revenue visibility and position the company to capture sustained credit demand across key segments.

• Financial Performance – The company reported a total income of Rs.28,370 crore in FY25 as against Rs.18,198 crore in FY24, a growth of 56%. The net interest income of the company in FY25 was Rs.5,310 crore. Net interest margin is at 5.1%. The PAT of the company in FY25 is Rs.3,029 crore. The CAGR between FY23-25 of total income, net interest income and PAT is at 42%, 44% and 10% respectively. Total gross loans is at Rs.23,399 crore, a CAGR of 37% between FY23-25. The ROA and ROE of the company stand at 2.10% and 14.20% respectively in FY25.

Key risks

• OFS risk – In addition to a fresh issue, the IPO will see the sale of shares of up to 230,000,000 by Promoter Selling Shareholder Tata Sons Private Ltd and 35,824,280 equity shares by Investor Selling Shareholder International Finance Corporation.

• Default risk – The risk of non-payment or default by customers may adversely affect the company’s business, results of operations and financial conditions.

• Regulatory risk – Any inability to comply with the requirements stipulated by RBI could have a material adverse effect on the company’s business.

Outlook

Tata Capital has demonstrated consistent growth in both loan disbursements and net interest income across reporting periods. Its strong brand presence and backing from the Tata Group provide a solid foundation to sustain and accelerate its growth momentum going forward. According to RHP, Bajaj Finance Limited, Shriram Finance Limited, Cholamandalam Investment and Finance Company Limited, L&T Finance Limited, Sundaram Finance Limited and HDB Financial Services Limited the listed competitors for Tata Capital Limited. The peers are trading at an average P/E of 26.58x with the highest P/E of 37.80x and the lowest being 12.10x. At the higher price band, the listing market cap of Tata Capital will be around ~Rs. 1,38,382.73 crore and the company is demanding a P/E multiple of 37.76x based on post issue diluted FY25 EPS of Rs.8.63. When compared with its peers, the issue seems to be reasonably priced in (fairly valued). Based on the above views, we provide a ‘Subscribe’ rating for this IPO for a medium to long-term Holding.

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