Tata Capital IPO: Long Term Compounding
Tata Capital’s Rs 15,500-crore initial public offering has drawn strong institutional interest, with several brokerages describing it as a steady long-term compounding story anchored in the Tata group’s reputation, AAA credit standing, and diversified retail-lending franchise. The company is viewed as a structural participant in India’s expanding credit cycle rather than a short-term valuation trade.
Riding India’s credit growth wave
At the centre of this story is the scale
Tata Capital has steadily built. Its loan book of Rs 2.33 lakh crore as of June 2025 places it among India’s top diversified NBFCs, with 87.5 percent of assets in retail and SME lending. That balance gives the company both granularity and systemic relevance.
Analysts at Deven Choksey Research and Aditya Birla Money expect India’s NBFC credit to grow 15-17 percent annually between FY25 and FY28, driven by greater formalisation of household and SME borrowing. “The ongoing recovery in consumption trends is also anticipated to contribute meaningfully to the credit momentum in FY26,” said Deven Choksey Research.
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Tata Capital is well-positioned to capture this trend. “NBFCs … have consistently outpaced banks in credit growth,” said Aditya Birla Money. “Their share in systemic credit is expected to rise from 21% in FY25 to 22% by FY28, underpinned by their ability to serve underpenetrated segments and leverage technology for faster, customised lending solutions.”
Headroom for growth and performance
For investors, the opportunity is defined by headroom as much as by performance. Bajaj Finance, the sector’s most profitable benchmark, operates with an asset base of roughly Rs 4.15 lakh crore and a return on equity of nearly 19 percent. Tata Capital’s RoE of 12-13 percent shows room for improvement. Its NIM of about 5 percent and largely secured book indicate a steadier, lower-risk growth model aimed at compounding value.
Brokerages including ICICI Direct, Aditya Birla Money and Deven Choksey Research said Tata Capital’s strong parentage, diversified loan portfolio, and governance standards position it to sustain growth and profitability through cycles.
Strong funding profile and institutional confidence
That conservatism extends to how the company funds itself. ICICI Direct said that “Tata Capital enjoys the highest domestic credit ratings (AAA/Stable, A1+) and international ratings of BBB- (S&P, Fitch)…” The firm’s borrowings are well diversified across bank
loans, NCDs, subordinated and perpetual debt, CPs, and a $400 million maiden bond issuance in January 2025, ensuring a prudent maturity profile and reducing concentration risk, it said.
This depth of funding, supported by Tata group backing, lowers refinancing risk and gives the company cost stability. Analysts say its capital strength and funding diversity reinforce its place among systemically important NBFCs -- qualities that could shape investor appetite for future large-scale NBFC offerings and bond issues.
The Rs 4,642-crore anchor allocation on 3 October further affirmed that confidence. LIC led the investor roster, joined by Morgan Stanley, Goldman Sachs, Citigroup, Nomura, Amansa Holdings, WCM Investment Management, and the Government Pension Global Fund, alongside eighteen major domestic mutual funds such as ICICI Prudential, HDFC AMC, DSP, and WhiteOak Capital. The breadth of participation -- spanning sovereign, institutional and retail fund managers -- demonstrated the market’s conviction in Tata Capital’s governance and balance-sheet quality even at full pricing.
Short-term pressures, long-term potential
However, profitability remains under short-term pressure. SBI Securities attributed the dip in RoE and RoA during FY25 and 1QFY26 to post-merger losses from Tata Motors Finance Ltd (TMFL) but expects profitability to recover as that business turns around. ICICI Direct cited the rise in borrowing cost to 7.8 percent (from 6.6 percent in FY23) and a decline in the provision-coverage ratio to 58.5 percent -- factors likely to keep margins tight in the near term. Still, it said “asset quality metrics remain sound”. Aditya Birla Money pointed to gross Stage-3 loans of 2.1 percent and unsecured exposure of 20 percent as manageable within a well-diversified retail and SME portfolio.
Investor takeaway
Collectively, these assessments explain why analysts have chosen restraint over exuberance. Aditya Birla Money and Anand Rathi have issued “Subscribe - Long Term” recommendations. Most brokerages view Tata Capital as a structural compounder in India’s credit ecosystem -- one that can steadily improve profitability as funding costs ease and synergies from the TMFL merger are realised.
For investors, Tata Capital is not a sprint stock. It is a long-distance financial franchise, aligned with the credit demand that still outpaces supply.
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