Unveiling the Financial Tapestry of Tata Capital Limited: A Comprehensive Exploration

Tata Capital Limited, a subsidiary of Tata Sons, emerges as a financial powerhouse, commanding a valuation of ₹1.5 lakh crore in the unlisted market. With robust subsidiaries like Tata Capital Financial Services and Tata Cleantech Capital, TCL showcases impressive financial highlights, achieving its highest-ever Profit After Tax of ₹2,975 Crore. Anticipation surrounds an upcoming Initial Public Offering (IPO) as TCL navigates uncharted markets, underlining its resilience and leadership in the financial realm

Introduction:

Tata Capital Limited (TCL), a subsidiary of the prestigious Tata Sons, stands tall as a trusted and customer-centric financial solutions partner. Its registration with the Reserve Bank of India (RBI) as a Systemically Important Non-Deposit Accepting Core Investment Company underscores its significance in the financial landscape. This article embarks on a detailed analysis of TCL, delving into its corporate structure, subsidiaries, product portfolio, and key financial highlights, to paint a comprehensive picture of its formidable presence in the financial services sector.

Tata Capital, the mutual fund and lending arm of India's illustrious Tata conglomerate, has emerged as a significant player in the unlisted stock market, commanding a valuation of ₹1.5 lakh crore. This valuation catapults Tata Capital to the third spot among non-banking lenders by market capitalization, trailing closely behind the Bajaj twins. This article delves into Tata Capital's remarkable journey in the unlisted market, the factors driving its valuation surge, and the expectations surrounding its potential Initial Public Offering (IPO).

Corporate Structure:

TCL operates as a holding company, primarily engaging in holding investments in subsidiaries and group companies. The subsidiaries, each specializing in distinct areas of the financial landscape, are the driving force behind TCL's multifaceted approach. These subsidiaries include Tata Capital Financial Services Limited (TCFSL), Tata Capital Housing Finance Limited (TCHFL), Tata Cleantech Capital Limited (TCCL), Tata Securities Limited, and Tata Capital Pte. Ltd., among others.

Subsidiaries Overview:

1. Tata Capital Financial Services Limited (TCFSL):

TCFSL, a jewel in TCL's crown, is a Systemically Important Non-Deposit Accepting Non-Banking Financial Company (NBFC-ND-SI) registered with the RBI. Its focus spans Retail Finance, SME, and Commercial Finance, offering a diverse range of loans to cater to various needs. TCFSL's portfolio demonstrated remarkable growth, reaching ₹71,859 crore in FY 2022-23, showcasing robust financial performance. The company's Profit Before Tax soared to ₹1,853 crore, underlining a substantial rise. Asset quality remains a forte, with Gross Non-Performing Assets (NPA) at 2.0% and Net NPA at 0.3% in FY 2022-23.

2. Tata Capital Housing Finance Limited (TCHFL):

TCHFL, a wholly-owned subsidiary, operates as a registered Housing Finance Company with the NHB. Specializing in providing housing finance solutions, including Home Loans, Affordable Housing Finance Loans, and Loans Against Property, TCHFL witnessed substantial growth, with its loan portfolio reaching ₹38,617 crore in FY 2022-23. The company's Profit Before Tax surged to ₹1,101 crore, reflecting notable growth. TCHFL's commitment to maintaining a strong asset quality is evident, with Gross NPA at 1.55% and Net NPA at 0.6% in FY 2022-23.

3. Tata Cleantech Capital Limited (TCCL):

A joint venture between TCL and the International Finance Corporation (IFC), TCCL specializes in providing finance and advisory services for clean energy and infrastructure projects. TCCL's portfolio witnessed a significant uptick, growing to ₹10,464 crore in FY 2022-23. The company's financial performance improved, with Profit Before Tax reaching ₹371 crore, and the Profit After Tax experienced a growth of about 37% to ₹279 crore. Asset quality metrics showed improvement, with Gross NPAs at 0.5% and Net NPAs at 0.2% in FY 2022-23.

4. Tata Securities Limited:

Despite facing financial challenges, Tata Securities, a wholly-owned subsidiary, remains committed to providing innovative investment solutions. Specializing in the distribution of Mutual Fund units, Tata Securities holds memberships with BSE Limited and NSE. In addition, it operates as a Depository Participant of Central Depository Services (India) Limited and National Securities Depository Limited, facilitating seamless trading and investment processes.

5. Tata Capital Pte. Ltd. (TCPL) and Subsidiaries:

TCPL, a wholly-owned subsidiary of TCL, engages in proprietary investments and fund management. Its subsidiaries, including Tata Capital Advisors Pte. Ltd. (TCAPL) and Tata Capital Plc. (TCPLC), contribute to TCL's global presence. TCAPL holds a Capital Markets Services license under the Securities and Futures Act of Singapore and acts as an Investment Manager to offshore Private Equity Funds set up by TCPL.

Key Highlights FY2022-23:

• Disbursals grew by an impressive 42% YoY to ₹75,099 Crore, driven by investments in digital and a focus on deeper markets.
• The consolidated market position in key products across Retail and MSME segments, constituting 80%+ of the loan book.
• Margins improved by 20 basis points YoY, with credit cost standing at 0.5%, among the lowest in the industry.
• Strong asset quality was maintained, with gross NPA and net NPA standing at 1.7% and 0.4%, respectively.
• Achieved the highest-ever Profit After Tax (PAT) of ₹2,975 Crore with a YoY growth of 80%.

Tata Capital's Unlisted Market Valuation:

Tata Capital's current valuation of ₹1.5 lakh crore places it among the top non-bank lenders in the market. The scrip, which has been trading for about six months in the unlisted market, typically fluctuates in the range of ₹400 to ₹425. This valuation places Tata Capital in a formidable position, securing the third spot after Bajaj Finance, which boasts a market capitalization of ₹4.47 lakh crore, and Bajaj Finserv and Jio Financial Services with market capitalizations of ₹2.53 lakh crore and ₹1.37 lakh crore, respectively.

The strong demand for Tata Capital shares in the unlisted market is attributed to the stellar performance of Tata Technologies, which, like Tata Capital, has garnered substantial investor interest. Tata Technologies trades at a premium of ₹300 per share compared to its anticipated issue price, further contributing to the optimism surrounding Tata Capital.

Anticipated IPO and Regulatory Compliance:

As of September 2022, the Reserve Bank of India (RBI) classified Tata Capital Financial Services as an upper-tier non-bank lender within the systemically important Non-Banking Financial Company (NBFC) category. In accordance with RBI guidelines, Tata Capital is mandated to conduct an Initial Public Offering (IPO) by 2025. The company must establish a board-approved policy for adopting the enhanced regulatory framework and list within three years from its classification as an 'upper layer' non-bank lender.

Market experts anticipate Tata Capital's listing within the next 12-18 months at a substantial premium, fostering optimism among investors. Narottam Dharawat of Mumbai-based Dharawat Securities notes that Tata Capital shares, which commenced trading five months ago, reached a record high of ₹500 in August. 

Market Caution and Considerations:

While Tata Capital's surge in the unlisted market is a testament to its perceived value, market participants emphasize caution. The stock is trading nearly nine times the book value per share, signaling its premium position in the sector. 

Tata Capital: A Holding Company with Diverse Arms:

Tata Capital serves as the holding company for the Tata Group's three lending arms: Tata Capital Financial Services, Tata Capital Housing Finance, and Tata Cleantech Capital. Additionally, it oversees three investment and advisory businesses: Tata Securities, Tata Capital Singapore, and Private Equity. In FY23, the company issued and allotted 44 million shares at a premium of ₹125.10, totaling ₹593.80 crore, through a rights issue to existing equity shareholders.

Conclusion:

In conclusion, Tata Capital Limited, with its robust corporate structure and a diverse array of subsidiaries, continues to carve a significant niche in the financial services sector. The subsidiaries, each excelling in its domain, contribute to Tata Capital's success story. The financial highlights for FY2022-23 underscore Tata Capital's commitment to innovation, prudent financial management, and maintaining a strong foothold in the industry. As Tata Capital navigates the dynamic landscape of the financial sector, it remains a stalwart in providing comprehensive and customer-centric financial solutions, cementing its place as a leader in the financial realm.

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