Tata Capital is one of the most keenly followed IPOs in September. This non-banking financial company (NBFC) from the Tata Group has been in the news lately. As per the RBI directive, Tata Capital needs to list within 3 years of being notified as an ‘upper-layer’ NBFC. The deadline for this ends in September. While the company is yet to come up with a formal date, the buzz across media circles indicates the probability of a late September date.
Tata Capital is the Tata Group’s flagship financial services company. As per the most recent reports, Tata Capital has been ranked 4th in terms of profit after tax performance compared to the listed entities within the Tata group. In the NBFC space too, Tata Capital is the third largest diversified non-banking financial company (NBFC) in India with a gross loan book of Rs 2,26,550 crore as of March 2025. It is also one of the fastest-growing NBFCs.
Let’s take a look at the key aspects of the company and the IPO details, as listed out in the DRHP filed by the company
Tata Capital IPO: Issue details
The Tata Capital IPO is a combination of a fresh issue and also has an offer for sale component. The total issue size is expected to be nearly Rs 17,000 crore, making it one of the 5 largest issues in the last decade. A total of 47.58 crore shares are on offer for this book-built issue. The fresh issue comprises 21 crore shares.
The price band and the issue price are yet to be finalised. The company will be fixing this in consultation with the leading book managers.
Additionally, the offer includes a reservation of equity shares for subscription by eligible employees. This employee reservation portion, however, will not exceed 5% of the post-offer paid-up equity share capital.
Tata Capital IPO: Offer For Sale
The Tata Capital IPO also has an ‘offer for sale’ component. This comprises 26.58 crore shares. Some of the key stakeholders selling shares include:
-Tata Sons, the promoter group, will be selling 23 crore shares
– Key investor, the International Finance Corporation, will be selling 3.58 crore shares
Tata Capital IPO: Issue objectives
The Tata Capital IPO has two components. The proceeds from the ‘Offer For Sale’ will go directly to the shareholders, diluting their stake.
One of the primary objectives of the proceeds of the fresh share issuance is to augment the Tier-1 capital base.
Apart from this, Tata Capital also plans to meet future capital requirements, including onward lending, using the proceeds of the fresh issue.
A portion of the proceeds from the Fresh Issue will be used towards meeting IPO expenses as well.
Additionally, Tata Capital expects to receive the benefits of listing the equity shares on the stock exchanges, including the enhancement of the company’s brand name.
Tata Capital IPO: Benefits of merger with Tata Motors Finance
Tata Capital recently completed its merger with Tata Motors Finance (TMFL). This became effective on May 8. The merger is expected to help Tata Capital improve its asset base and expand its reach. This merger was approved by the NCLT and was seen as a key step to help Tata Motors exit its non-core business.
The merger was undertaken with the objective of consolidating the lending businesses of TMFL and Tata Capital, making it a win-win proposition for both companies. The benefits of the merger include:
– Consolidation of businesses would help in achieving greater scale
-Creation of a larger unified financial services entity with a wider geographical reach
– Strong capital and asset base
– Generate significant business synergies, thereby enhancing stakeholders’ value
– Drive diversification and provide integrated solutions to the enhanced customer base
– Provide differentiated growth opportunities to the employees and pool knowledge and expertise
Crisil on Tata Capital
In a recent report on the overall NBFC sector in India, Crisil highlighted, “Tata Capital is the most comprehensive amongst large diversified NBFCs in India based on the number of loan product offerings.”
The report highlighted that Tata Capital has the fastest-growing branch network amongst the peer set. Tata Capital also boasts of the highest growth rate in terms of the number of branches between FY23-FY25 at 66.6%.
Crisil highlighted that “Tata Capital’s credit cost is the third lowest among its peers as of FY25.” Tata Capital’s credit cost is at 1.4% in FY2. Aditya Birla Capital had the lowest opex at 1.9%, followed by Sundaram Finance and Tata Capital at 2.7% as of FY25.
Though Tata Capital has listed its Gross Stage 3 loan exposure as a key risk, the Crisil report highlighted that “Tata Capital had one of the lowest Gross Stage 3 and Net Stage 3 Loan Ratios and the second highest PCR amongst NBFC peers as of FY25.”
Amongst the key NBFC players, “Bajaj Finance’s Gross stage 3 loan share was the lowest at 1%, followed by Sundaram Finance at 1.4% and Tata Capital at 1.9% as of March 2025.
Apart from that, Tata Capital’s diverse liability franchise is backed by a strong credit rating of AAA by each of Crisil, ICRA, and India Rating, which is the highest rating that can be assigned on the credit rating scale for any NBFC in India.
Tata Capital IPO: Key risks
The Tata Capital IPO DRHP also lists out some key risks about the issue that one should carefully consider before subscribing to the issue-
1. Risk of Default: According to Tata Capital, the gross Stage 3 Loans comprised 1.9% of total gross loans as of March 31, 2025. This is slightly higher than what the share was in 2023 at 1.7% at the end of March 31, 2023. Non-payment or default by customers may adversely affect the business, operations, and cash flow.
2. Provision coverage ratio lower in 2025: The NBFC highlighted that its provision coverage ratio was 58.5% as of March 31, 2025, compared to 77.1% as of March 31, 2023. The company’s inability to provide adequate provisioning coverage for non-performing assets may adversely affect the business.
3. Unsecured Gross Loans: As per the Tata Capital DRHP, the unsecured gross loans comprised 21% of total gross loans as of March 31. This is lower than the 24.5% share in FY25. Failure to recover such receivables in a timely manner or at all may adversely affect the NBFC’s cash flows and financial condition.
4. Retail Finance: This segment comprised 62.3% of total gross loans at the end of FY25 as compared to 56.7% of total gross loans as of FY23. Any adverse developments that reduce demand for loans amongst retail customers and/or increase loan default rates amongst retail customers may affect business.
5. Exposure to the real estate sector: As per the Tata Capital DRHP, home loans, loans against property and developer finance together amounted to 33.8% of total gross loans in FY25. Though much lower than the 37.4% and 37.3% print for the previous two financial years, FY24 and FY23, this showcases the company’s significant exposure to the real estate sector, and any negative trends affecting this sector could adversely affect it.
6. Risk of regulatory action: The Tata Capital DRHP lists out that certain issuances of non-convertible debentures by Tata Motors Finance and some of the CRPS issuances have been down-sold by successful applicants in the past, leading to the number of holders of such securities. This exceeds “the prescribed limits under the applicable laws. Accordingly, we may be subject to regulatory action, including penal action, which may adversely affect our business and reputation.”
7. Average Cost of Borrowing Higher: The DRHP highlights that the cost of borrowing in FY25 was 7.8% vs 7.3% in FY24 and 6.6% in FY23. If, for any reason, Tata Capital is unable to secure funding on acceptable terms and at competitive rates when needed, including due to any downgrade in credit ratings, this can impact the business.