Macquarie, a prominent financial services firm, has raised concerns about Tata Capital's valuation in light of its financial performance compared to other Non-Banking Financial Companies (NBFCs). The analysis comes as Tata Capital prepares for its Initial Public Offering (IPO), having recently filed its papers with regulators.

Financial Performance vs. Valuation

Tata Capital's financial metrics show a Return on Equity (ROE) of 12.00% and a Return on Assets (ROA) of 1.70%. These figures fall significantly short when compared to industry peer Bajaj Finance, which reported an ROE of 19.19% and an ROA of 4.57% for the same period.

Despite these lower returns, Tata Capital's current unlisted market price stands at Rs 775.00 per share, suggesting higher valuations than its peers. Macquarie noted that even with a substantial 60% discount from the unlisted price, Tata Capital would still command premium valuations relative to its financial performance.

IPO Details

Tata Capital has filed for an IPO with a proposed offering of 47.58 crore equity shares. The offering will comprise both fresh issuance of shares and an offer for sale by existing shareholders.

Market Impact

As the third-largest NBFC in India, Tata Capital's listing is expected to have significant implications for the broader unlisted NBFC sector. Macquarie anticipates increased competition across various segments, including housing, auto, and SME lending.

Valuation Concerns

The brokerage highlighted that Tata Capital's current price-to-book ratio stands at 6.40, which is considered high given its financial performance. This valuation metric has raised eyebrows among analysts and investors alike.

Macquarie suggested that if Tata Capital lists at a discount to its current unlisted market price, it could potentially reset valuations for other unlisted NBFCs. This scenario could have far-reaching implications for the sector, particularly for companies with similar or lower financial performance metrics.

Market Outlook

The upcoming Tata Capital IPO is being closely watched by market participants. Its listing price and subsequent performance could serve as a benchmark for valuations in the NBFC sector, potentially influencing investor sentiment and future funding opportunities for peer companies.

As the IPO process unfolds, investors and analysts will be keenly observing how the market reconciles Tata Capital's current valuations with its financial performance, and what this might mean for the broader NBFC landscape in India.

Tata Capital, a prominent non-banking financial company (NBFC), is set to make waves in India's financial sector with its ambitious plans for a $2 billion initial public offering (IPO). The move comes as the company races to meet the Reserve Bank of India's (RBI) September 30 deadline for upper-layer NBFCs to list on stock exchanges.

IPO Details

The proposed IPO is structured to include:

• 210 million new shares
• 266 million shares offered for sale by existing shareholders

Tata Sons, which currently holds an 88.6% stake in Tata Capital, plans to offload 230 million shares as part of the offering. Additionally, the International Finance Corporation (IFC) will sell 35.8 million shares from its 1.8% stake in the company.

Regulatory Compliance

Tata Capital's IPO initiative is driven by the RBI's mandate requiring upper-layer NBFCs to go public within three years of being designated as such. The company received this classification in September 2022, making the upcoming IPO a crucial step in adhering to regulatory requirements.

Market Significance

If successful, this IPO would mark significant milestones:

• It would become the largest public issue in India's financial sector to date
• It represents the Tata Group's second public listing following Tata Technologies in November 2023

Financial Performance

Tata Capital's recent financial results underscore its strong market position:

The company's impressive year-on-year growth in both net profit and total income demonstrates its robust financial health and market potential.

Investor Roadshow

To gauge market interest and attract potential investors, Tata Capital is currently conducting an investor roadshow for the planned share sale. This strategic move aims to build momentum and generate buzz around the upcoming IPO.

As the September 30 deadline approaches, all eyes will be on Tata Capital's IPO, which promises to be a landmark event in India's financial landscape. The success of this offering could set new benchmarks for the NBFC sector and further solidify the Tata Group's position in the public markets.