Tata Capital Limited (TCL), the financial services arm of the Tata Group, functions primarily as a holding company with investments in subsidiaries engaged in a range of financial services. Registered with the Reserve Bank of India (RBI), TCL is classified as a Systemically Important Non-Deposit Accepting Core Investment Company (CIC) and a Middle Layer Non-Banking Financial Company (NBFC-ML). "Tata Capital" collectively refers to TCL and its subsidiaries. They are involved in retail finance, commercial finance, private equity fund investments, and advisory/management of such funds, regulated by various authorities.
Tata Capital's consolidated income and profit after tax increased significantly in FY23. The company manages private equity funds, invests in early-stage technology solutions, and provides financing/advisory services for projects in renewable energy, waste/water management, and infrastructure. It caters to retail, corporate, and institutional customers with a diverse suite of products, including personal, home, and business loans, along with private equity, commercial/SME finance, leasing solutions, and wealth products distribution. In April 2022, the company introduced Micro Business Loans for traders, service providers, and manufacturers, offering fully digitized onboarding.
Key financial highlights for FY23 include crossing ₹1 lakh crore in book size, a 28% year-over-year growth in the loan book to ₹1,20,940 crore (80% retail/SME), highest-ever disbursements and profit after tax of ₹2,975 crore (up by 80% Y-o-Y). The Return on Equity (RoE) including one-time gains was 23% (17.30% excluding one-time gains). Credit costs were 0.50%, and GNPA stood at 1.7% (down from 1.9% in March 2022), while NNPA was 0.40% (down from 0.6% in March 2022). Tata Capital has started to simplify its legal structure by merging Tata Capital Financial Services Limited (TCFSL) and Tata Cleantech Capital Limited (TCCL) with Tata Capital Limited. The company expects the merger to happen soon.
Subsidiaries of Tata Capital Ltd. include Tata Capital Financial Services Limited (“TCFSL”), Tata Capital Housing Finance Limited (“TCHFL”), Tata Cleantech Capital Limited (“TCCL”), Tata Securities Limited (“Tata Securities”), Tata Capital Pte. Ltd., (“TCPL”), Singapore and its subsidiaries, Tata Capital General Partners Limited Liability Partnership, Tata Capital Healthcare General Partners Limited Liability Partnership, Tata Opportunities General Partners Limited Liability Partnership, Tata Capital Growth II General Partners Limited Liability Partnership, and Tata Capital Healthcare II General Partners Limited Liability Partnership.
The NBFC industry benefits from tailored product offerings, wider reach into Tier 2-4 markets, technology advancements, co-lending arrangements (facilitated by RBI guidelines), and government initiatives supporting small business lending. India's economy is expected to grow by 6.21% in FY24, driving demand for credit, particularly among MSMEs and retail. Housing and infrastructure loans constitute a major portion of the NBFC portfolio, while microfinance loans have increased their share.
Tata Capital's financials for the 9 months ended 31/12/2023 showed Interest Income of 8,294.17 Cr., Finance Cost of 4797.84 Cr., Net Interest margin of 3496.33 Cr., and Profit after Tax of 1715.53 Cr. GNPA was 1.69 and NNPA was 0.39. For the period ended 31/03/2023, Interest Income was 11,895.90 Cr., Finance Cost was 6600.78 Cr., Net Interest margin was 5295.12 Cr., and Profit after Tax was 2,945.77 Cr. GNPA was 1.71 and NNPA was 0.40.
Tata Capital's valuation ratios show a CMP of 1,025, EPS (annualized) of 61.87, and a P/E Ratio of 16.56. Cash flow statement data includes CFOA of (23,189.71) and (14,386.84) for FY 2022-23 and FY 2021-22 respectively, CFIA of (2,269.46) and (2,617.10), and CFFA of 26,429.57 and 17,055. Compared to its peers, Tata Capital Ltd. has a Market Cap of 3,59,467.50, P/E Ratio of 16.56, P/B Ratio of 23.26, ROE of 7.10%, and ROA of 5.60%.
Currently, Tata Capital trades at a Price-to-Book (P/B) ratio of 23x, which is exceptionally high when compared to its peers in the financial sector. This high P/B ratio suggests an overly optimistic market sentiment. Considering the recent rights issue priced at ₹188, the fair value could be around INR 350-400 level.
