Tata Capital, a prominent player in India's financial services sector, is set to make waves in the stock market with its upcoming Initial Public Offering (IPO). The company is planning to launch a substantial $2 billion IPO in the week commencing September 22, with ambitious targets for both valuation and market debut.

IPO Details

The IPO is structured to offer a total of 47.58 crore shares, comprising:

• 21 crore fresh shares
• 26.58 crore shares through an offer for sale

Key stakeholders participating in the offer for sale include:

• Tata Sons, which will divest 23 crore shares
• International Finance Corporation (IFC), offering 3.58 crore shares

This strategic move will see a shift in the ownership structure of Tata Capital, with Tata Sons and IFC reducing their current holdings of 88.6% and 1.8% respectively.

Valuation and Timing

Tata Capital is aiming for a valuation of $11 billion, showcasing the company's confidence in its market position and growth prospects. The company is targeting a market debut by September 30.

Purpose of the IPO

The primary objective of this IPO is to bolster Tata Capital's Tier-1 capital base, providing a robust foundation for future lending requirements. This move aligns with the Reserve Bank of India's (RBI) mandate, which requires upper-layer Non-Banking Financial Companies (NBFCs) to list within three years of classification. Tata Capital received this designation in September 2022.

Financial Performance

Tata Capital has demonstrated strong financial performance:

The company's asset quality has remained stable, with:

• Gross bad loans at 1.9%
• Net bad loans at 0.8% in FY25

Recent Performance

Tata Capital reported impressive results for Q1 FY26:

• Consolidated net profit more than doubled to ₹1,041 crore, up from ₹472 crore in the same quarter of the previous year

This substantial IPO by Tata Capital is poised to be one of the largest in India's financial services sector, potentially reshaping the landscape of the country's NBFC market.

Tata Capital, the financial services arm of the Tata Group, is gearing up for its Initial Public Offering (IPO), with expectations that the price band will be set considerably lower than its current unlisted market valuation of Rs 775.00 per share. This anticipated pricing strategy aligns with recent trends observed in the IPO market for financial services companies.

Recent IPO Pricing Trends

The IPO market has recently witnessed a pattern of companies setting their public offering prices well below their unlisted market valuations:

• HDB Financial Services: Traded at Rs 1,550.00 in the unlisted market but set its IPO price band at Rs 700.00-740.00.
• NSDL: Had a grey market price of Rs 1,275.00 but established an IPO band of Rs 700.00-800.00.

Tata Capital's IPO Details

Tata Capital filed its draft prospectus with the Securities and Exchange Board of India (SEBI) on August 4, outlining its IPO plans:

• Fresh Issue: 21 crore shares
• Offer for Sale: 26.58 crore shares

The company's most recent rights issue was priced at Rs 343.00 per share, providing a baseline for potential IPO pricing considerations.

Valuation Insights

According to analysis by Macquarie:

• Even with a 60% discount to its current unlisted price, Tata Capital would trade at higher valuations compared to its NBFC peers.
• Projected price-to-book multiple: 6.4 times
• Comparison: HDB Financial Services trades at 3.4 times price-to-book

Company Overview

Tata Capital stands as the third-largest diversified Non-Banking Financial Company (NBFC) in India, boasting Rs 2.3 lakh crore in assets under management. The primary objectives for going public include:

1. Augmenting Tier-I capital
2. Ensuring compliance with Reserve Bank of India (RBI) norms

Market Implications

The anticipated lower pricing of Tata Capital's IPO compared to its unlisted valuation could have several implications:

• Potentially higher investor interest due to more attractive entry points
• Possible strong listing gains if the market perceives the IPO as undervalued
• Increased scrutiny on the valuation gap between unlisted and listed prices in the financial services sector

As Tata Capital moves forward with its IPO plans, investors and market watchers will be keenly observing how the company balances its pricing strategy to attract public investors while maximizing value for existing shareholders.