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.

Tata Capital, a prominent player in India's financial sector, is set to launch a substantial $2 billion initial public offering (IPO) next month. This move comes as the company races to meet the Reserve Bank of India's (RBI) September 30 listing deadline for upper-layer nonbanking financial companies (NBFCs).

IPO Structure and Stakeholder Participation

The upcoming IPO will comprise 476 million shares, including:

• 210 million new shares
• 266 million shares from existing investors

Tata Sons, the majority stakeholder with an 88.6% stake, plans to offload 230 million shares. Meanwhile, International Finance Corporation (IFC) will sell 35.8 million of its shares, representing its 1.8% holding in the company.

Market Sentiment and Share Price Fluctuations

Despite the imminent IPO, the unlisted market has shown a cooling sentiment towards Tata Capital shares:

This decline in the unlisted market could potentially impact investor enthusiasm for the upcoming public offering.

Financial Performance

Tata Capital has demonstrated strong financial growth in recent quarters:

The company's robust financial performance, marked by more than doubling its net profit and a significant increase in total income, could be a positive factor for potential investors.

Regulatory Compliance and Market Impact

This IPO is not just a significant financial event but also a regulatory necessity. The RBI mandates that upper-layer NBFCs must list within three years of being designated as such. Tata Capital's compliance with this requirement underscores the changing landscape of India's financial sector regulation.

If successful, this offering would rank among the largest ever in India's financial sector, potentially setting a new benchmark for NBFC listings in the country.

Investor Roadshow

Currently, Tata Capital is conducting an investor roadshow to drum up interest in the planned share sale. The success of these efforts, coupled with the company's strong financial performance, will be crucial in determining the IPO's reception in the market.

As the financial world watches closely, Tata Capital's IPO could provide valuable insights into investor appetite for large-scale offerings in India's dynamic and evolving financial services sector.