Tata Capital IPO subscribed 39% on Day 1: Should you apply?

Tata Capital IPO: Long term governance vs short term alpha.

The initial public offering of Tata Capital opened for public bidding today, October 6. The Rs 15,512-crore mega IPO of the non banking financial institution was subscribed 39 percent on Day 1.

The maiden public issue of the company received bids for nearly 13 crore shares, as against the offer size of 33 crore shares, according to data on NSE.

Qualified Institutional Buyers (QIB) subscribed 52 percent of their reserved portion, while those kept for retail and non institutional investors (NII) have been booked 35 percent and 29 percent, respectively.

The Tata Group company launched its much awaited public issue to raise Rs 15,512 crore through a fresh issue of shares worth Rs 6,846 crore, and an offer for sale of shares worth nearly Rs 8,666 crore by the existing promoters. Tata Sons and investor International Finance Corporation are selling 26.58 crore equity shares through offer-for-sale component.

The price band for the IPO has been set at Rs 310-326. It will remain open for public bidding between October 6 and October 8. The allotments are likely to be finalized by October 9, and the shares are scheduled to be listed on stock exchanges BSE and NSE on October 13.

Investors can bid for a minimum of 46 shares, requiring an investment of Rs 14,996 at the upper price band, and in multiples thereafter. Tata Capital, which is valued at over Rs 1.31 lakh crore, aims to use the fresh issue proceeds for augmenting its Tier – I capital base in order to meet future capital requirements including onward lending, arising out of the growth of the business, while the offer-for-sale money will go to two selling shareholders including IFC.

Notably, this is the biggest IPO in Indian markets in the current year, and the largest since Hyundai Motor India's Rs 27,859-crore public issue last year.

Ahead of listing, the unlisted shares of the company were trading with nearly 4 percent grey market premium (GMP) over the IPO price, according to data on Investorgain.

According to IPO Watch, the unlisted shares were trading with around 2 percent GMP.

Before the IPO opened for public bidding, the flagship financial services company of the Tata group raised Rs 4,641.8 crore from 135 anchor investors on October 3. Insurance major Life Insurance Corporation (LIC) emerged as the biggest anchor investor in the IPO, as earlier reported by Moneycontrol.

Analysts recommended investors to subscribe to the issue for the long term. While the valuation seems to be strong in tune with large NBFCs, the lower grey market estimates indicate cautious investor optimism, said Siddharth Maurya, Founder & Managing Director, Vibhavangal Anukulakara. “With a diversified lending book covering consumer and MSME finance and with robust risk management in place, Tata Capital shows good fundamentals. Though the issue is priced fully, it offers a strategic opportunity to long-term investors to invest in a well-established financial institution, well-placed for long-term growth in India's growing credit market,” he added.

Master Capital Services in its IPO note said that NBFCs are expected to continue gaining market share over other lenders due to their ability to provide flexible lending solutions and tailored services, focused approach to tap under-served and niche customer segments, ability to penetrate deeper into geographies, leveraging technology to reimagine the lending process, strong origination skills and shorter turnaround time.

"Tata Capital Limited is well-positioned to capitalize on sector growth, being the third-largest diversified and one of the fastest growing NBFC in India,” it added. “With a wide product portfolio covering retail, SME, housing, and corporate finance, as well as non-lending businesses such as wealth management and fund management, Tata Capital enjoys strong synergies within the Tata Group ecosystem and a diversified funding base. Investors may consider the IPO as a potential long-term investment opportunity," it said.

Choice Broking also advised investors to subscribe to the issue for the long term, noting that the strong brand positioning is the only positive, while the high valuations remain a concern.

"Tata capital is expected to list slightly above the higher end of its price band close to Rs 326 per share. This will give it a P/E of close to 34 which will similar to Bajaj finance which has one of the highest valuation in NBFC space.

We believe that Tata capital is getting the higher premium due to the Tata brand and it being one the key NBFCs which has show consistent growth while improving operational metrics," said Shravan Shetty, Managing Director, Primus Partners.

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