Tata Capital IPO: Macquarie Warns On High Valuations And Low Return Ratio

Macquarie has pointed out that Tata Capital's return ratio is lower than that of large listed NBFCs like Bajaj Finance and CIFC. The company's Return on Equity for the financial year 2025 stood at 12% and Return on Assets came at 1.7% for the same period. In comparison, Bajaj Finance delivered a Return on Assets of 4.57% and a Return on Equity of 19.19% in FY2025.

The brokerage was particularly cautious since Tata Capital's valuation, despite lower ROE, is higher than that of its peers. Based on the company's current unlisted market price of Rs 775, even if it lists at 60% lower than the unlisted market price, its valuations would still be above those of many other NBFCs, the brokerage noted.

The Tata company filed its DRHP with SEBI on August 4. The proposed IPO is a combination of a fresh issuance of 21 crore equity shares and an Offer For Sale (OFS) of 26.58 crore shares, totaling 47.58 crore equity shares.

Despite high valuation and lower return margins, Macquarie notes that the listing of Tata Capital (third largest NBFC) will have far-reaching implications across the unlisted NBFC sector.

Tata Capital's IPO will lead to "increased competition across various segments - housing, auto, SME," the brokerage noted. It further added that the company's growth rate has been strong, and listing will impose more demands to sustain higher growth rates.

However, it noted that since Tata Capital is the third largest NBFC, listing at premium or discount valuations could be a catalyst for re-rating or de-rating of the NBFC sector.

As a canon event for many NBFCs that have recently listed, including HDB Financial Services, if Tata Capital lists at a discount, it could reset other unlisted NBFC valuations, the brokerage said.

A discounted listing, while hurtful for short-term investors, is a positive indicator to bring down valuations for the company's stock, especially when Tata Capital's price-to-book ratio stands at a staggering 6.4 at the current unlisted market price.

However, the brokerage highlighted that the unlisted price cannot be taken as a benchmark for the listing price. "As seen in the case of HDBFS, the listing price was 40% lower than the price in the unlisted market. Even if one assumes a 60% discount to the unlisted market price for Tata Capital (estimated IPO price of Rs 300) it could imply upward re-rating of other listed NBFCs."