Tata Capital primed for strong growth, bank-like returns, says IIFL Capital

IIFL Capital on Tata Capital: Domestic brokerage IIFL Capital has initiated coverage on Tata Capital Ltd (TCL), the flagship financial services arm of the Tata Group, noting that the AAA-rated lender has rapidly scaled to become India’s third-largest non-banking financial company (NBFC) with an asset under management (AUM) base of ₹2.4 trillion.

 

The brokerage highlighted that TCL’s broad product suite, presence across customer income and geographic segments, and its deeply scaled distribution, technology, underwriting and operations infrastructure position it to grow at a pace comparable to leading NBFCs such as Bajaj Finance (BAF) and Cholamandalam Investment & Finance (CIFC). Yet, its profitability profile and asset-quality stability already resemble that of the best private-sector banks.

 

 

The company’s well-balanced loan book, with a retail-non-retail mix of 60:40, enables it to deliver private-bank-like return on assets (ROA) and credit-cost outcomes, despite retail loan yields that are broadly in line with other NBFCs. TCL’s disciplined and risk-calibrated expansion is evident from its decision to moderate growth around 18 months ago. In this period, its higher-risk segments, personal loans, business loans and microfinance, expanded at just 8 per cent CAGR, compared with 10-25 per cent for peers including BAF and CIFC.  CATCH STOCK MARKET LIVE UPDATES TODAY

 

IIFL Capital expects TCL’s ~15 per cent valuation discount to CIFC to narrow as the company delivers sector-leading earnings momentum. TCL is projected to post a robust 31 per cent earnings per share (EPS) compound annual growth rate (CAGR) over FY25-28, supported by a 60-basis-point (bps) improvement in ROA to around 2.3 per cent. Key drivers include improving net interest margins (NIMs) on account of portfolio mix, scaling of non-lending businesses, operating leverage benefits and a turnaround in subsidiary TMFL.

 

With more than 25 products, a diversified AUM profile and around 1 per cent overall credit market share (1.3 per cent in retail; mortgages accounting for nearly half), the brokerage believes TCL has a long runway for sustained high growth.

 

Given its scale and consistent performance, five-year AUM CAGR of 21 per cent and average ROA/ROE of 1.9 per cent/15 per cent, IIFL Capital has initiated coverage with a ‘Buy’ rating and a target price of ₹410 (29 per cent upside), implying 2-year forward PB/PE of 3.0x/21x and underscoring TCL’s potential to sustain a ~50 per cent EPS growth premium over private banks through FY26-28.

 

Disclaimer: Target price and stock outlook has been suggested by IIFL Capital. Views expressed are their own.