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JPMorgan started coverage on Tata Capital with an Overweight rating and Rs 370 target price
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Tata Capital's growth driven by strong liabilities, diverse products, and wide distribution
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The company maintains low credit costs and industry-best asset quality metrics
JPMorgan said that Tata Capital Ltd. is well-placed, and from here on, execution will be key monitorable as it started coverage on the stock. It rated the stock Overweight and gave a target price of Rs 370 apiece, which implies a 16% upside from Tuesday's close price.
Tata Capital will deliver system-leading growth and gain market share because of its strong liability profile, comprehensive product mix, and extensive omnichannel distribution network, JPMorgan said in a note on Wednesday.
The company follows a 'risk before growth' approach, which helps it gain the industry-best Gross Net Non-Performing Asset and credit costs. It also assists Tata Capital to weather the down cycles of asset quality without a major hit, according to JPMorgan.
The global investment banker expects that Tata Capital's Return on Asset will moderate to 1.9%, which is significantly lower than peers. There is a scope for expansion from higher Net Interest Margin, lower credit costs, and operating expenditure.
JPMorgan has forecasted Tata Capital will likely report net profit CAGR of 30% over the financial year 2026 and 2028. The Return on Equity Employed is expected to be 13.5%–14.7% and RoA to be at 2.1% for the same period.
The brokerage finds the risk-reward ratio favourable.
The key risks to JPMorgan's thesis is unfavourable asset quality, slow realisation of asset quality, and Tata Motors Finance's synergies.
Evidences of successful Tata Motors Finance Ltd. integration and an improving RoA trajectory remain critical for consistent re-rating. The upside will likelu be capped, according to JPMorgan.
As of now, Tata Motors Finance's current losses weigh on Tata Capital's RoA and RoE. Tata Capital aims to improve its RoA to 2% in financial year 2028 from -0.6% in the financial year 2026, JPMorgan said.
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