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Macquarie's report suggests that the listing of Tata Capital, even with valuation concerns, could significantly impact the NBFC sector. The brokerage acknowledges Tata Capital's strong growth rate and potential for re-rating the NBFC sector, which could ultimately benefit investors in TATA Capital Unlisted Shares. Listing at a discount may initially hurt investors but pave the way for long-term value.
Despite warnings from Macquarie regarding high valuations and lower return ratios compared to its listed peers, the upcoming IPO of Tata Capital is poised to have significant implications for the unlisted NBFC sector, particularly for those holding TATA Capital Unlisted Shares. While the brokerage firm has expressed caution, pointing out that Tata Capital's Return on Equity (ROE) and Return on Assets (ROA) for the financial year 2025 are lower than those of industry giants like Bajaj Finance and CIFC, the analysis also highlights the potential for positive long-term impacts.
Macquarie's report notes that Tata Capital, the third largest NBFC in India, filed its Draft Red Herring Prospectus (DRHP) with SEBI on August 4, proposing a combination of a fresh issuance of 21 crore equity shares and an Offer For Sale (OFS) of 26.58 crore shares, totaling 47.58 crore equity shares. The brokerage firm acknowledges that the listing of Tata Capital will lead to increased competition across various segments, including housing, auto, and SME lending.
One of the key concerns raised by Macquarie is the valuation of Tata Capital. Based on the company's current unlisted market price of Rs 775, even if it lists at a 60% discount, its valuations would still be above those of many other NBFCs. The brokerage also points out that the company's Return on Equity for the financial year 2025 stood at 12%, and Return on Assets came in at 1.7% for the same period, which are lower than Bajaj Finance's Return on Assets of 4.57% and Return on Equity of 19.19% in FY2025.
However, the report also highlights the company's strong growth rate, suggesting that the listing will impose more demands to sustain higher growth rates. Furthermore, Macquarie notes that Tata Capital's listing, whether at a premium or discount valuation, could be a catalyst for re-rating or de-rating the NBFC sector. This is particularly relevant for TATA Capital Unlisted Shares, as the listing price could serve as a benchmark for other unlisted NBFC valuations.
Macquarie suggests that a discounted listing, while potentially hurtful for short-term investors in TATA Capital Unlisted Shares, could be a positive indicator in the long run, bringing down valuations for the company's stock. The report also notes that even with a 60% discount to the unlisted market price, the estimated IPO price of Rs 300 could imply upward re-rating of other listed NBFCs.
While Macquarie's analysis presents a mixed outlook, the potential benefits for TATA Capital and the NBFC sector as a whole cannot be ignored. The company's strong growth rate, coupled with increased competition and the potential for re-rating the sector, could lead to long-term value creation for investors. As the IPO landscape evolves, stakeholders will be closely watching how Tata Capital navigates its listing and how it impacts the broader financial ecosystem. The IPO could foster increased confidence and attract a broader range of investors, which could boost the overall market capitalization of the NBFC sector and benefit investors holding TATA Capital Unlisted Shares.
