Tata group eyes private equity investor in financial services business

TCFSL's net interest margins (NIMs) declined to 4.62% in FY19

The Tata group is looking at the option of selling a minority stake in Tata Capital Financial Services (TCFSL) by way of fresh equity issuance so that the company can grow its loan book faster as its capital base increases.

The group is in talks with a clutch of private equity companies to gauge their interest in the company and may offer 10 to 15 per cent equity depending on the valuation, said a source close to the development.

In financial year 2018-19, Tata Sons invested Rs 2,500 crore in Tata Capital Ltd— the group’s financial services holding company — which, in turn, holds 100 per cent equity in TCFSL. The same year, TCFSL converted compulsorily convertible preference shares worth Rs 656 crore into equity shares of Rs 10 each at a premium of Rs 74.09.

Early this month, the Aditya Birla group's financial services arm, Aditya Birla Capital, raised Rs 2,100 crore by selling shares to Advent International, Azim Premji Trust, and Aditya Birla group companies. The capital was raised at Rs 100 a share.

Tata's stake sale is in addition to the financial services arm planning to raise up to $1.5 billion by way of debt from overseas markets in the ongoing financial year. When contacted, a Tata Sons spokesperson declined to comment on "market speculation".

TCFSL’s net interest margins (NIMs) declined to 4.62 per cent in FY19 from 4.92 per cent in FY18, even as its loan book rose by 21 per cent to Rs 44,022 crore as of March 31, 2019 from Rs 36,319 crore reported a year earlier. After cleaning up its books of bad debt due to infrastructure loans given earlier, the company reported a net profit of Rs 437 crore in FY19 against a net profit of Rs 403 crore in FY18.

On a consolidated level, total assets under management of TCFSL, Tata Capital Housing Finance, and Tata Cleantech Capital grew by 24 per cent to Rs 74,737 crore in FY19 against Rs 60,498 crore a year earlier, with retail loans comprising 60 per cent of the consolidated portfolio in March 2019.

Top Tata Sons officials have said the financial services business will remain priority for the group for investments in the coming years.

It’s not only Tata Capital companies, but the insurance and mutual fund arms of the group also performed well in FY2019. The insurance and mutual funds businesses are housed directly under Tata Sons.

Tata Motors also has a separate auto finance subsidiary, Tata Motors Finance, which lends money to Tata Motors’ dealers and customers. Overall, the loan book of TCFSL and Tata Motors Finance has crossed the Rs 1.1-trillion mark.