Tata Capital IPO: A ₹1,504 Crore Rights Issue Lined Up

Tata Capital, a prominent non-banking financial company (NBFC) under the Tata Group, has recently made headlines with its plans for an initial public offering (IPO).

This move is part of the company’s strategy to comply with the Reserve Bank of India’s (RBI) regulations for “upper layer” NBFCs, which mandate listing on stock exchanges within a specified timeframe. In this article, we will delve into the details of the Tata Capital IPO, including its size, structure, and implications for investors.

Also read: What is IPO in Stock Market: Your Guide to Participating in Initial Public Offerings in India

Background of Tata Capital

Tata Capital was established in 2007 as a financial services arm of the Tata Group. It operates across various business segments, including commercial finance, wealth services, consumer loans, and the distribution and marketing of Tata Cards. The company has experienced significant growth, with its loan book expanding by 35% year-on-year in FY24 to reach ₹1.6 lakh crore. This robust growth trajectory positions Tata Capital as a major player in India’s financial sector.

Regulatory Context: RBI’s Upper Layer NBFCs

The RBI’s classification of Tata Capital as an “upper layer” NBFC in September 2022 comes with stricter regulatory requirements, including the necessity to list on stock exchanges within three years. This classification is part of the RBI’s scale-based regulation framework, aimed at enhancing oversight and governance for larger NBFCs. The listing deadline for Tata Capital is September 2025, aligning with the RBI’s guidelines.

Structure of the IPO

The Tata Capital IPO is expected to be a significant event in the Indian capital markets, with a proposed size of approximately around ₹15,000 crore. The IPO will consist of two main components:

• Fresh Issue of Equity Shares: The company plans to issue 23 crore new equity shares, valued at ₹10 each. This fresh issue will help Tata Capital raise capital for business expansion and investment opportunities.
  
• Offer for Sale (OFS): In addition to the fresh issue, the IPO will include an offer for sale by existing shareholders. This component allows current shareholders to sell their shares to the public, providing liquidity and potentially reducing their holdings.

Rights Issue

Alongside the IPO, Tata Capital has also approved a rights issue worth ₹1,504 crore. This rights issue is aimed at strengthening the company’s financial position and will be offered to existing shareholders as of the record date, February 25, 2025. The rights issue provides an opportunity for shareholders to increase their stake in the company at a predetermined price, usually lower than the market price.

Market and Investor Interest

The announcement of the Tata Capital IPO has generated significant interest among investors. Shares of Tata Investment Corporation Limited (TICL), a major shareholder of Tata Sons, surged following the news, reflecting optimism about the listing. The demand for unlisted shares of Tata Capital has also increased, indicating a strong appetite for the company’s stock ahead of the IPO.

Financial Performance

Tata Capital’s financial performance has been robust, with the company posting its highest-ever net profit of ₹3,150 crore in FY24, marking a 37% growth from the previous year. The company maintained a credit cost of 0.5% and delivered a Return on Equity (RoE) of 17.6% for the year, demonstrating its operational efficiency and profitability.

Impact and Future Prospects

The listing of Tata Capital is expected to have several implications for both the company and the broader financial sector:

• Compliance with RBI Regulations: By listing on stock exchanges, Tata Capital will comply with the RBI’s regulatory requirements for upper-layer NBFCs, ensuring transparency and governance standards.
  
• Access to Capital: The IPO will provide Tata Capital with access to a larger pool of capital, enabling it to expand its operations and invest in new business opportunities.
  
• Market Visibility: Listing on stock exchanges will increase Tata Capital’s visibility and credibility in the market, potentially attracting more customers and investors.
  
• Growth Opportunities: The fresh capital raised through the IPO can be utilised to diversify the company’s product offerings and enhance its market presence in the financial services sector.

Conclusion

The Tata Capital IPO represents a significant milestone for the Tata Group and India’s financial sector. As the company moves towards listing, it might open up new avenues for investment and business development. The success of this IPO could set a precedent for other NBFCs in the upper layer category.

Source: Money Control