Tata Capital IPO and Risk analysis📊

Tata Capital Ltd - GMP of ~1.8%*🔻

We are AVOIDING this IPO for listing gains due to modest GMP and large IPO size, limiting its demand post IPO for listing gains!

In terms of forming a long term view on this company, we would wait to analyse its upcoming con calls, credit rating report & at least next 2 to 3 quarterly results.

Currently the IPO valuations also don’t look very attractive at 4.1 PB, where peers like HDB financial services is trading around 3 PB as well.

If you’re looking to apply this IPO, most probably you will get the allotment but with modest GMP - the listing gains maybe a risk. Hence even if you’re looking to invest in company for long term it’s suggested to enter post listing and at more attractive valuations.

🏭 Company Overview :

Tata Capital, the flagship financial services arm of the Tata Group, is India’s third-largest and fastest-growing diversified NBFC. The company began its lending operations in 2007 and has served more than 7.3 million customers as of June 2025

⚠️ Risk Factors :

➡️ Declining ROA: Tata Capital’s return on assets (ROA) has continuously declined from 2.9% in FY23 to 1.8% in FY25, primarily due to the merger with Tata Motors Finance Ltd (TMFL), which had weaker profitability

➡️ Asset Quality Pressure: Post-merger, Tata Capital’s standalone Gross Stage 3 Loan Ratio increased to 1.9% in FY25 from 1.5% in FY24. The Provision Coverage Ratio fell from 74.1% to 58.5% over the same period, leading to a higher Net Stage 3 Ratio

➡️ Elevated Unsecured Loan Exposure: As of June 30, 2025, unsecured loans formed 20% of the loan book (down from 22.4% in June 2024 and 21% in March 2025). Despite the moderation, the exposure remains high, posing credit risk since these loans lack realizable collateral

➡️ Interest Rate Risk: Fixed-rate loans accounted for 36.3% of the loan portfolio, while fixed-rate borrowings stood at 55% of total borrowings as of June 30, 2025. Any adverse movement in interest rates may increase borrowing costs, compress net interest margins (NIM), and affect both lending and treasury operations

➡️ Legal Contingencies: Tata Capital, its subsidiaries, promoters, and key managerial personnel are subject to ongoing legal proceedings involving claims amounting to Rs 17,941 crore. Any unfavorable rulings could significantly impact the company’s financial performance, operations, and reputation

If there are improvements in above mentioned parameters in coming quarters, then company can be considered for long term with further analysis as an NBFC - we won’t be closely monitoring this company since we already have 2 long term stocks operating in NBFC sector with good future potential, over diversification in one sector won’t be healthy for our portfolio📈

Regards,

Team GROWTHSQUAD