Tata Group's Second IPO in Two Decades. Will It Live Up to the Hype?

India's IPO market in 2024 has set a remarkable benchmark, with new listings adding nearly 3% or Rs 14 trillion (tn) to the country's total market capitalisation.

This figure represents a significant jump from last year's 1.4% (Rs 5 tn). According to Motilal Oswal, while the percentage contribution in 2024 is slightly below the peaks seen in 2017 (3.7%) and 2019 (3.4%), the absolute contribution this year marks the highest ever.

IPO fundraising also reached unprecedented levels, surging to Rs 1.8 tn - 2.6 times the Rs 576 billion (bn) raised in 2023.

While listings this year have captured significant attention, the focus is now shifting toward the promising pipeline for 2025, with one upcoming IPO generating considerable buzz - Tata Capital.

More than a year after the successful listing of Tata Technologies, the Tata Group is reportedly preparing to take another company public.

The conglomerate, spanning sectors from salt to aviation, is expected to make a significant mark on the IPO landscape with Tata Capital's listing.

About Tata Capital

Tata Capital, the flagship financial services arm of the Tata Group, operates as a non-banking financial company (NBFC) under the ownership of Tata Sons Private Limited.

As a trusted name in India's financial landscape, Tata Capital and its subsidiaries offer a broad range of financial products and services, catering to diverse customer needs.

The company's operations span several key areas, including commercial finance, consumer loans, wealth management, and the distribution and marketing of Tata Cards. Through its subsidiaries, Tata Capital has expanded its footprint in the financial sector.

One such subsidiary, Tata Capital Housing Finance, focuses on providing home loans and affordable housing finance solutions. It also offers loans against property and extends financing to developers for residential and commercial construction projects.

Another notable arm, Tata Securities, plays an active role in India's capital markets. As a member of the Bombay Stock Exchange in both cash and derivatives segments, it also functions as a Depository Participant with Central Depository Services and National Securities Depository.

After news of Tata Capital's IPO speculation, the announcement has created significant buzz, sending listed Tata Group stocks soaring on the bourses on 24 December 2025.

Why is the Tata Capital IPO Sparking Such Excitement?

The Tata Capital IPO is making headlines as it marks the Tata Group's second public issue in two decades. The first was the highly successful Tata Technologies IPO, which debuted on D-Street in November 2023.

Before this, the Tata Group's last IPO was the listing of Tata Consultancy Services (TCS) in 2004, an event that remains iconic in India's stock market history.

Tata Capital plans to raise Rs 150 bn through its upcoming IPO, and if reports are accurate, this could become the largest public issue ever by the Tata Group and one of the most significant in India's history. The offering is expected to include a combination of primary and secondary share sales.

This development follows the remarkable success of Tata Technologies' IPO, which made a stellar debut on 30 November 2023.

Tata Technologies listed with a 140% premium to its issue price of Rs 500. On the NSE, the stock opened at Rs 1,200, while on the BSE, it began trading at Rs 1,199.95.

Investors might be anticipating something similar from Tata Capital's upcoming offering.

IPO Timeline

The RBI's Scale-Based Regulation framework categorizes NBFCs into four layers, Base, Middle, Upper, and Top.

In September 2022, Tata Capital Financial Services was classified as an upper-layer systemically important NBFC, which requires enhanced regulatory compliance and mandates a public listing within three years.

Tata Capital is the holding company for the group's three lending businesses namely, Tata Capital Financial Services, Tata Capital Housing Finance, and Tata Cleantech Capital.

It also manages three investment and advisory arms: Tata Securities, Tata Capital Singapore, and its private equity ventures.

As part of the upper-layer category, Tata Capital must complete its public listing by September 2025.

IPO Preparations Underway

The Tata Group has kickstarted preparations for a US$ 2 bn initial public offering (IPO) of Tata Capital, initiating discussions with a couple of bankers, as per recent market reports.

Further, according to the reports, Tata Group has given Kotak Investment Banking the green light to initiate the IPO process. Additionally, the group is expected to appoint more bankers by January 2025 for this mega IPO.

Valuation

Tata Capital's unlisted shares have garnered significant demand in the unlisted market over the past few months. Shares that were priced at Rs 450 in December 2023 experienced a remarkable surge, reaching Rs 1,100 by April 2024.

Currently, the shares are trading at around Rs 900, which places the company's valuation at approximately Rs 3.5 tn. This valuation is based on Tata Capital's 3.74 bn outstanding shares, as reported at the end of FY24.

This sharp rise in share price reflects the market's growing confidence in Tata Capital's financial strength and future potential, further amplifying the buzz surrounding its upcoming IPO.

Why the IPO Matters

The Tata Capital IPO is a pivotal move in the Tata Group's strategy to enhance its financial services segment, aligning with its broader goal of expanding in high-growth areas.

The listing will not only strengthen Tata Capital's market presence but also provide the company with the capital needed to expand its operations, diversify its product offerings, and deepen its presence in India's financial sector.

For investors, the IPO is an opportunity to invest in a well-established and rapidly growing financial institution, backed by the trusted Tata brand.

With a broad portfolio of services, including commercial finance, consumer loans, and wealth management, Tata Capital is poised for sustained growth. As the financial services industry continues to expand in India, this IPO provides investors with a chance to invest in a key player in the sector.

Robust Financials

In FY24 Tata Capital reported impressive financial growth. The company achieved a revenue of Rs 181.8 bn, a 34% increase over FY23. The net profit also saw a rise of 12%, to Rs 33.2 bn in FY24. The company's net worth stood at Rs 234.2 bn as of 31 March 2024.

Tata Capital raised Rs 5.9 bn in FY23 through a rights issue, offering shares at Rs 125.10 each.

A significant portion of Tata Capital's growth is attributed to its retail loan book, which now accounts for 63% of the company's total book.

As of 31 March 2024, the overall loan book stood at Rs 1,577.6 bn, a growth of 38% from Rs 727.6 bn in FY23 to Rs 1,000.5 bn in FY24.

However, growth in personal loans moderated in FY24, following the Reserve Bank of India's (RBI) decision to increase the risk weightage on unsecured lending portfolios.

Can it Match Tata Tech's Market Debut?

Tata Technologies made a stellar debut on the bourses with a 140% premium, but its stock price has since experienced a subdued performance, declining by over 25% from its listing price.

Year-to-date, the stock has remained in the red, with a drop of more than 22% on the National Stock Exchange. Additionally, the company's profits have been volatile, with the September quarter reporting a profit of Rs 1.5 bn, slightly down from Rs 1.6 bn in Q1FY25.

In contrast, Tata Capital has posted strong earnings for FY24, which positions it well for its IPO. The listing is expected to draw significant market interest, fuelled by Tata Capital's solid track record and broad customer base.

While it remains to be seen if Tata Capital's IPO will match the success of Tata Technologies' debut, if successful, it could set a new benchmark for future listings within the Tata Group.

What's Next?

Tata Capital expects its retail loan portfolio to grow by 25-30% in FY25, slightly slower than the previous year. This anticipated slowdown is due to a high base effect and a decline in personal loans resulting from recent regulatory actions.

The growth in the unsecured personal loan segment has also moderated, a trend observed across the industry. As a result, Tata Capital projects a slightly lower revenue growth rate for its retail segment in FY25.

However, despite this moderation, the company expects retail to continue being a key growth driver, with the projected growth still significantly higher than the industry average.

In FY25, Tata Capital expects business, microfinance, and two-wheeler loans to be the primary drivers of growth in its retail book.

Business and microfinance loans, part of the unsecured lending category, are projected to grow by 40-45%, while the two-wheeler segment is expected to grow by 45%. Personal loans are anticipated to grow at 25-30%, down from the 35% growth in FY24.

The company also plans to expand its footprint by opening new branches, focusing on unpenetrated geographies. Tata Capital aims to increase the number of branches to 1,000 in FY25, up from 723 in FY24, which is expected to further support the growth of its two-wheeler loans.

Conclusion

Tata Capital plans to enter a new segment every year. It entered education loans in January 2024 due to demand from customers. The education loan product offers three segments, including, study abroad, study in India, and vocational education.

Further, India's financial sector is growing rapidly, with projections suggesting a market volume of US$ 480 bn by 2029, according to the PIB.

The ICRA also forecasts a slight slowdown in the growth of NBFC assets under management (AUM), with growth expected to ease to 13-15% in FY25, down from 18% in FY24.

As of March 2024, the sector's AUM stands at Rs 47 tn. It's expected to surpass Rs 50 tn in FY25.

These developments position Tata Capital well to strengthen its foothold in the Indian financial market, benefiting from the sector's overall growth trajectory.

However, prospective investors should conduct thorough research into the company's financials and corporate governance practices to ensure the investment aligns with their financial goals and risk tolerance.

For more information on IPOs, check out the list of upcoming IPOs.

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