Tata Capital IPO: Key Details, Merger Benefits, and Risks

Tata Capital, one of the most anticipated IPOs of September, is set to hit the markets soon. The non-banking financial company (NBFC) from the Tata Group is preparing its listing as per the Reserve Bank of India’s directive, which mandates upper-layer NBFCs to go public within three years. With the deadline ending this September, the IPO is expected to open in the later part of the month, though official dates are yet to be announced.

Company Profile and Financial Performance

Tata Capital is the flagship financial services arm of the Tata Group and ranks as the fourth most profitable listed Tata entity by profit after tax. Within the NBFC space, it is India’s third-largest diversified player with a gross loan book of ₹2,26,550 crore as of March 2025. The company has been among the fastest-growing NBFCs, expanding aggressively in branch network and loan offerings.

IPO Structure and Size

The IPO will combine a fresh issue and an offer for sale (OFS), with a total size estimated at nearly ₹17,000 crore, making it one of the largest offerings in the past decade. About 47.58 crore shares are on offer, including a fresh issue of 21 crore shares.

In the OFS, promoter Tata Sons will sell 23 crore shares, while the International Finance Corporation (IFC) will divest 3.58 crore shares. The issue also includes a reservation for employees, capped at 5% of post-offer paid-up equity.

While the price band is yet to be fixed, proceeds from the fresh issue will be used to augment Tier-1 capital, support future lending requirements, and cover IPO expenses.

Merger with Tata Motors Finance

A significant development for Tata Capital was its merger with Tata Motors Finance (TMFL), effective May 8, 2025. This move consolidated lending businesses, strengthened the asset base, and expanded geographical reach. The merger is expected to generate synergies, boost diversification, and enhance value for stakeholders.

Strengths and Industry Recognition

According to Crisil, Tata Capital offers one of the most comprehensive product portfolios among large NBFCs and has the fastest-growing branch network between FY23–FY25. The company also enjoys a strong AAA credit rating from Crisil, ICRA, and India Ratings, supporting its liability profile.

Key Risks for Investors

The DRHP outlines several risks:

• Rising defaults: Gross Stage 3 loans stood at 1.9% of total gross loans in FY25, slightly up from 1.7% in FY23.
• Lower provisioning: Provision coverage ratio fell to 58.5% in FY25, compared to 77.1% in FY23.
• Unsecured loans: These made up 21% of gross loans as of March 2025.
• Retail exposure: Retail loans formed 62.3% of the book, heightening sensitivity to consumer defaults.
• Real estate exposure: Loans to the sector accounted for 33.8% of total gross loans in FY25.
• Rising borrowing costs: Average cost of borrowing increased to 7.8% in FY25, up from 6.6% in FY23.

Read More: Tata Capital Plans $2 Billion IPO in September, Targets $11 Billion Valuation

Conclusion

The Tata Capital IPO is expected to draw strong investor attention, given its scale, brand strength, and growth trajectory. However, potential subscribers should weigh the risks around credit quality, rising borrowing costs, and exposure to the real estate sector before making investment decisions.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.