Tata Capital Limited has a diversified loan portfolio of $16 billion as of September 2023. A low gross Non-performing Loan (NPL) ratio of 1.6% indicates that Tata Capital is a robust and financially sound financial service company in India. The low gross NPL implies that only a small percentage of its loans have defaulted or are at risk of default. The low NPL ratio is also a positive indicator of a company’s credit quality and risk management practices. Due to its diversified loan portfolio, TCL has engaged in various types of lending activities that allow the company to mitigate any risks associated with over-exposure in a particular sector or against a borrower.
What does this Credit Rating Reflect?
Fitch and S&P have assigned Tata Capital a ‘BBB-’ rating with a stable outlook. A credit rating typically reflects an assessment of a company's creditworthiness and indicates the likelihood of its ability to meet its financial obligations. In this case, a ‘BBB-’ rating suggests that Tata Capital’s credit quality ranks between medium to low risk, but is still considered an investment grade. The stable outlook indicates that the credit rating agencies, Fitch and S&P believe that the company’s financial position is expected to remain relatively stable and steady shortly as well.
An additional ‘A-3’ short-term issuer credit rating and the stable outlook on the long-term rating of Tata Capital by S&P also reflects its view that the company will benefit from its promoters' linkages as well as will maintain a good capital position and average asset quality over the next two years. Fitch has also assigned a Shareholder Support Rating (SSR) of ‘bbb-’ The Shareholder Support Rating (SSR) is assigned to evaluate the likelihood that a company’s shareholders particularly its parent company or major shareholder will provide financial support to the company if the need arises. This means that Tata Sons which holds a significant shareholding of 96.6% in TCL will provide support in case it faces any financial difficulties or requires additional capital. As a result, Tata Sons is expected to maintain a stable record of capital investments in its subsidiary.
What Support Tata Capital Limited Seek from Tata Group of Companies?
Despite the direct infrastructural synergies between the parent company and subsidiary, TCL still has significant autonomy in its day-to-day operations. As the strategic decision-making of the subsidiary is directly being overseen by Tata Sons for being the major shareholder, TCL also gains from the infrastructural support from Tata group companies. Tata Capital also benefits from the strong legacy and brand name associated with Tata Group. By being part of such a big conglomerate, Tata Capital has attained a strong foothold in the financial service market of India.
There is a strong projection of above-average loan growth, however, Tata Capital will be able to maintain good capitalization due to the support of Tata Sons. There will also be scope for regular capital infusion from the parent company to support TCL’s growth. This provides Tata Capital with a competitive edge in the market against competitors.
What is the Future Outlook Like for Tata Capital?
As the company mainly operates in a high-risk high-high-return segment, the major focus will be on the retail and small-midsize enterprises (SMEs). Within the retail industry, Tata Capital focuses mainly on personal loans and affordable housing. In terms of Auto loans, it mainly focuses on four and two-wheelers. Thus, the company’s risk management practices are adequate for the segments it currently operates in. The ratings by Fitch and S&P have further solidified the view that Tata Capital will continue to grow while being a part of Tata Group. Its connection with a strong brand name will help the company to strengthen its market position while maintaining a good capital position over the next few years.
Explore the Unique Investment Opportunity by Investing in Tata Capital’s Unlisted Shares
Having a solid reputation as India’s strongest financial service company, Tata Capital has a well-diversified loan portfolio and low gross NPL ratio, which indicates its healthy financial position. Moreover, with the backing of Tata Sons, its parent company, there is added confidence in its stability and long-term growth prospects. As the holding company, Tata Group is considering Tata Capital’s IPO before September 2025, after RBI’s guidelines for non-banking finance companies came, investors are seizing the opportunity to purchase Tata Capital’s share in the unlisted market. Currently, Tata Capital unlisted share price is Rs. 525 with an AUM of Rs. 1,16, 756 crores. By seizing this opportunity investors can purchase Tata Capital unlisted shares using Stockify.
