Tata Capital, the financial services arm of the Tata Group, has experienced a significant drop in its unlisted share price ahead of its planned Initial Public Offering (IPO). The company's shares have declined nearly 30% from their April peak, raising questions about investor sentiment and market conditions.

Sharp Decline in Share Price

Tata Capital's unlisted shares, which reached a high of ₹1,125 in April, have now fallen to around ₹785. This steep decline comes despite the anticipation surrounding the company's planned ₹17,200 crore IPO.

Factors Contributing to the Decline

Several key factors have been identified as contributors to this sharp drop in share price:

1. Volatility in Unlisted Markets: Lower liquidity in unlisted markets has led to increased volatility.

2. HDB Financial Services' Performance: Negative sentiment following the lackluster post-listing performance of HDB Financial Services has impacted investor confidence.

3. Valuation Concerns: Tata Capital currently trades at a price-to-book (P/B) multiple of 8.5X, which is significantly higher than its peers. For comparison, Bajaj Finance trades at 6X P/B, while Shriram Finance trades at 2X P/B.

4. Rights Issue Impact: The company's rights issue, priced at ₹343 per share, has influenced the current market price.

5. Sector-wide Weakness: The overall financial sector has experienced a downturn, with the Nifty Financial Services index declining by 4%.

Strong Financial Performance

Despite the share price decline, Tata Capital has reported robust financial results:

The company's estimated Assets Under Management (AUM) stand at ₹2.30 lakh crore.

Market Outlook

Analysts anticipate further consolidation in Tata Capital's share price until the actual IPO price band is announced. The upcoming IPO, valued at ₹17,200 crore, remains a significant event for both the company and potential investors.

As the financial services sector navigates through current market conditions, Tata Capital's IPO plans and their potential impact on the company's valuation will be closely watched in the coming months.

Tata Capital, the financial services arm of the Tata Group, has concluded its global investor roadshows for its much-anticipated $2 billion Initial Public Offering (IPO). The Non-Banking Financial Company (NBFC) has set its sights on a market debut by September 30, positioning it to become one of the largest IPOs in recent years.

Global Investor Interest

The company's management team traversed key financial hubs including Hong Kong, Singapore, London, New York, and various Indian cities to drum up investor interest. This extensive roadshow appears to have paid off handsomely, with the company's valuation reaching $18 billion, a significant jump from the $11 billion valuation when it filed confidential IPO papers in April.

IPO Structure and Timing

The IPO is structured to include:

• A fresh issue of up to 21 crore equity shares
• An offer for sale of up to 26.58 crore shares
  • Tata Sons plans to divest up to 23 crore shares
  • International Finance Corporation (IFC) will offer up to 3.58 crore shares

The IPO is scheduled to open in the week beginning September 22.

Current Ownership and Post-IPO Changes

At present:

• Tata Sons holds a commanding 88.6% stake in Tata Capital
• IFC owns a 1.8% share

The IPO is set to alter this ownership structure, potentially broadening the investor base.

Use of Proceeds

Funds raised from the fresh issue are earmarked to bolster Tata Capital's Tier-I capital base, a move aimed at supporting the company's lending growth ambitions.

Regulatory Compliance

The IPO aligns with the Reserve Bank of India's (RBI) mandate requiring upper-layer NBFCs to go public within three years of classification, underscoring the regulatory impetus behind this move.

Strong Financial Performance

Tata Capital's financial metrics paint a picture of robust growth. In the first quarter, the company reported:

The company more than doubled its net profit year-over-year, while also achieving a healthy increase in total income.

As Tata Capital prepares for its market debut, investors and market watchers alike will be keenly observing this significant event in India's financial landscape. The success of this IPO could set a new benchmark for the NBFC sector and potentially influence the broader Indian equity market.