Bullish on Tata Capital: Expert sees 25-30% compounding potential despite post-IPO underperformance

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Market expert Parag Thakkar has expressed a strong bullish view on Tata Capital stock, suggesting it is a compelling investment opportunity despite its lack of performance since its listing. Speaking with CNBC TV18, Parag Thakkar, Senior Fund Manager at Fort Capital, said that while Tata Capital stock is currently trading below its initial public offering (IPO) price of ₹326, the underlying fundamentals and market environment have improved, positioning it for significant growth.

Parag Thakkar highlighted that the current environment is "absolutely lucrative" for non-banking financial companies (NBFCs). He pointed to government actions, such as cuts in the Goods and Services Tax (GST), which are expected to boost auto consumption and, in turn, benefit Tata Capital's auto loan book. He also anticipates strong results for the third and fourth quarters, buoyed by increased credit card spending during the festive season. As a disclaimer, Parag disclosed that he holds a 4.5% weight of Tata Capital in his personal portfolio and also in the portfolio management services (PMS) he manages.

Citing company guidance, he mentioned an expected earnings per share (EPS) growth of 30-34% over the next three years. This, combined with a return on investment (ROI) that is projected to improve from 1.9% to 2.4%, makes the stock attractive. He underscored the confidence of the promoters, noting that the Tata Group participated in a rights issue at ₹343 per share.

Macroeconomic factors also support this optimistic outlook. Parag Thakkar stated that abundant liquidity ensured by the Reserve Bank of India (RBI) and recent rate cuts will lower the cost of capital for the company. Furthermore, he believes Tata Capital is set to benefit from operating leverage by increasing the productivity of its 1,450 branches, which will further enhance profitability.

Conservatively estimating, Parag Thakkar sees Tata Capital as a 25-30% compounder and advises being a "buyer on every dip" in the stock.