Tata Capital shares focus after stable debut; brokers see up to 10% upside potential

Shares of newly listed Tata Capital are likely to be in the spotlight on Tuesday after the non-banking finance company made a solid but measured debut on Monday, trading 1.23% above its issue price and closing 1.4% higher on its first day of trading. Despite the muted start, analysts from Emkay Global and JM Financial have initiated coverage with buy ratings and identical target prices of Rs 360, implying a potential upside of 10% from the IPO price.

Tata Capital is trading at Rs 330, barely 1% above its IPO price, in a tepid market, but brokers cited its Tata Group pedigree, strong credit profile and improving financials as key positives.

“Our positive view is based on the fact that the Tata heritage and brand name provide the essential ingredients, namely AAA credit rating and abundant debt availability at competitive costs, for Tata Capital to become a meaningful NBFC lender,” Emkay Global said in its opening note.

The brokerage expects Tata Capital to post a CAGR EPS of around 30% in FY25-28, driven by a turnaround in the vehicle finance segment and higher share of secured loans. Assets under management (AUM) are expected to grow at a CAGR of 24% over the same period. Emkay also forecasts return on assets (RoA) and return on equity (RoE) in FY28 to be around 2.2% and 15.4%, with the shares valued at 2.8x FY27 price-to-book.

JM Financial sees a stable growth trajectory

JM Financial reiterated the positive outlook and pointed to Tata Capital’s strong track record. The NBFC achieved an assets under management CAGR of 31% in FY22-24, with an average RoA and RoE of 2.3% and 18% respectively. However, the merger with Tata Motors Finance weighed on the FY25 numbers, moderating AUM growth to 17% YoY and reducing RoA and RoE to 1.6% and 13% respectively.

“We expect an improvement in financials going forward and foresee an AUM/PAT CAGR of ~20%/34% over FY25-27 with an average RoA/RoE of ~1.9%/13% during FY26/27,” said the broker, valuing the stock at 2.9x FY27 book value.

JM Financial added that on the IPO, Tata Capital’s valuation of 2.7x price-to-book value for FY27 compares with 2.5x for HDB Financial Services and 3.7x for Cholamandalam Investment and Finance, “leaving limited upside in the near term.” It expects Tata Capital to trade at a 10-12% premium to HDB Financial, but at a discount to Cholamandalam based on relative growth and return metrics.

IPO attracts solid institutional interest

Tata Group’s flagship NBFC was subscribed 1.95 times in its IPO, led by strong institutional participation. Qualified institutional buyers (QIBs) oversubscribed their share 3.42 times, while non-institutional investors subscribed 1.98 times and retail investors 1.10 times. The issue was priced between Rs 310 and Rs 326 per share and came at a 56% discount to Tata Capital’s unlisted market value.

Ahead of the IPO, Tata Capital raised Rs 4,642 crore from key investors led by Life Insurance Corporation of India (LIC), which acquired 2.15 crore shares worth nearly Rs 700 crore. Other key domestic participants included ICICI Prudential, HDFC Mutual Fund, Aditya Birla Sun Life, DSP, Axis, Kotak and Nippon Life AMC, besides global investors Morgan Stanley, Goldman Sachs, Nomura and Norway’s Government Pension Fund Global.

Strong balance sheet, diversified portfolio

Founded in 2007, Tata Capital is a diversified NBFC with almost 80% of its loan portfolio in secured segments. Retail financing accounts for 61% of total loans. The company offers products across the retail, SME and corporate segments, along with wealth management and investment banking services.

With total assets of Rs 2.52 lakh crore and a loan book of Rs 2.33 lakh crore as of June 2025, Tata Capital is India’s third largest diversified NBFC after Bajaj Finance and Shriram Finance. Its gross NPA ratio of 2.1% is among the lowest in the industry, supported by a wide network of 1,516 branches across 27 states and union territories.

Between FY23 and FY25, the company’s revenue rose 56%, while profit after tax rose 10% to Rs 3,655 crore.

Valuation and prospects

While both Emkay and JM Financial remain bullish on the company’s fundamentals, they caution that the moderate return profile limits near-term revaluation potential. “The moderate return profile limits the scope of a revaluation in the short to medium term; equity returns will largely be driven by BV compounding,” Emkay said.

Investors will be closely watching Tuesday’s session to see if Tata Capital shares continue their steady debut momentum or pause as valuations settle down post-listing.

Also read | TCS and Tata Motors plummet to 42% from peak, wiping out more than Rs 4 lakh crore of Tata shares by 2025 amid boardroom turmoil

(Disclaimer: Recommendations, suggestions, views and opinions expressed by the experts are their own. These do not represent the views of the Economic Times)