Tata Capital IPO: Should you subscribe?

Summary: Tata Capital, one of India’s largest NBFCs, will launch its IPO on October 6, 2025. We break down its strengths, risks and financial track record to assess whether the country’s biggest IPO of the year deserves a spot in your portfolio.

The Tata Capital IPO (initial public offering), India’s largest IPO of the year, is set to open on October 6, 2025 and will close on October 8, 2025. The non-banking financial corporation (NBFC) is set to raise Rs 15,512 crore, with Rs 6,846 crore through a fresh issue and the remaining Rs 8,666 crore via an offer for sale (OFS).

Below is a breakdown of the company’s business, financials, strengths, risks and valuation to help you make an informed investing decision.

What the company does

Tata Capital, the flagship financial services arm of the Tata group, is India’s third-largest diversified NBFC with a loan book of Rs 2.33 lakh crore as of June 2025. Retail and SME lending dominate its portfolio, comprising nearly 88 per cent of the total loans.

The company serves over 7.3 million customers through more than 25 loan products, ranging from Rs 10,000 to Rs 100 crore. Its reach spans over 1,500 branches across India, supported by strong digital platforms and extensive partner networks.

Track record and valuation

In terms of financials, Tata Capital seems to have a decent track record. Between FY23 and FY25, its net interest income (NII) saw a nearly 42 per cent increase, while net income (profit after tax) rose by a modest 10 per cent. Its average ROE and ROA stand at 16.2 per cent and 2.3 per cent, respectively, during the same period.

At the upper end of the price band (Rs 326), the stock is expected to be valued at 33 times its trailing twelve months earnings and 4.2 times its book value. In comparison, Tata Capital’s peers trade at a P/E and P/B of 27.2 and 3.6 times, respectively, signalling that the NBFC is overvalued.

The good

Here are some of the key strengths of Tata Capital.

#1 Among the leading NBFCs in India

Tata Capital is India’s third-largest diversified NBFC with a loan book of Rs 2.33 lakh crore as of June 2025. It offers over 25 lending products, making it one of the most comprehensive players in the sector.

The company serves a diverse customer base, ranging from individuals to SMEs and corporates, with ticket sizes varying from Rs 10,000 to Rs 100 crore. Importantly, no single product contributes more than 20 per cent of its loan book, reflecting a well-diversified portfolio across products, customer types and geographies.

#2 Omnichannel network

Tata Capital operates on a ‘phygital’ model, blending its nationwide branch presence with strong digital platforms and partner networks. As of June 2025, it had 1,516 branches across 1,109 locations in 27 states and union territories. This wide reach allows the company to serve diverse customer segments, deepen relationships on the ground and tailor its products and distribution strategy to local needs.

The bad

Despite its significant market share and extensive distribution network, Tata Capital faces certain risks.

#1 Loan default risk

Tata Capital has kept its Gross Stage 3 Loans (loans that have been overdue for over 90 days) between 1.5 and 2.1 per cent over FY23-25, signalling strong asset quality compared to peers. Yet, customer defaults remain a key risk. Factors such as bankruptcies, business failures, liquidity crunches, unemployment or adverse economic conditions can lead to delayed repayments or NPAs (non-performing assets). A rise in such defaults would not only reduce interest income but also push up credit costs and recovery expenses, weighing on profitability and cash flows.

#2 Unsecured loans add diversification but heighten credit risk

Unsecured loans form about 20 per cent of Tata Capital’s loan book, a share that has stayed broadly stable over the past three years. These loans, offered across retail, SME and corporate segments, carry higher credit risk since they lack collateral. Defaults in this portfolio could push up NPAs and provisioning costs, as legal recovery under insolvency laws does not prioritise unsecured creditors. This remains a structural risk despite the company’s monitoring and risk management practices.

#3 Interest rate volatility

The NBFC’s earnings remain sensitive to interest rate movements, which are influenced by RBI policy, inflation and global as well as domestic economic conditions. Shifts in rates can directly impact key metrics such as net interest income, margins, cost-to-income ratio, return on assets and return on equity, thereby affecting profitability and financial stability.

Where will the IPO proceeds go?

Tata Capital plans to utilise the entire fresh issue of Rs 6,846 crore towards meeting its capital requirements, including onward lending.

So, should you subscribe to the Tata Capital IPO?
The Tata Capital IPO may be the biggest of the year, but size doesn’t guarantee lasting wealth. At Value Research Stock Advisor, we cut through IPO buzz to find businesses with strong fundamentals, sensible valuations and the resilience to compound over time, so that you stay focused on wealth-building stocks, not fleeting market hype.

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