Motilal Oswal has started coverage on Tata Capital with a 'Neutral' rating and a target price of ₹390. While the brokerage highlights strong loan book expansion, it suggests that the stock's current valuation already accounts for the company's growth potential and earnings outlook.
What Happened
Brokerage firm Motilal Oswal has initiated coverage on Tata Capital (TATACAP) with a 'Neutral' rating, setting a target price of ₹390. This move by the brokerage comes as the company continues to see significant interest following its robust performance in the financial services sector. The 'Neutral' stance indicates that while the brokerage recognizes the company's strong business fundamentals, it believes the current stock price already reflects these strengths, leaving limited room for immediate upside from current levels.
Why Investors Are Watching Tata Capital
Tata Capital has become a significant player in the Non-Banking Financial Company (NBFC) space. The company reported Assets Under Management (AUM) of ₹2.77 trillion as of March 2026. A key driver for this growth has been its consistent performance, with the company achieving a Compound Annual Growth Rate (CAGR) of approximately 29% in its AUM—excluding the motor finance segment—between fiscal years 2023 and 2026. This consistent track record has attracted investor attention, especially given the company's backing by the Tata Group.
Business Strengths and Portfolio Quality
Beyond its growth numbers, the brokerage highlighted the structure of Tata Capital's loan book as a major strength. The portfolio is highly granular, with approximately 98% of its accounts having a ticket size of less than ₹10 million. A granular portfolio is generally viewed as safer because it spreads risk across a large number of smaller borrowers rather than relying on a few large loans. Furthermore, 80% of the loan book is secured, meaning the loans are backed by assets, which adds a layer of protection against potential defaults.
The Valuation Perspective
Despite these positive attributes, the 'Neutral' rating is driven by valuation concerns. The brokerage notes that the stock’s current price appears to have 'priced in' the expected growth and profitability improvements. For the stock to see a further re-rating or a significant rise from here, analysts suggest the company will need to demonstrate sustained improvements in its Return on Assets (RoA) and Return on Equity (RoE). The target price of ₹390 is based on a valuation of 2.7 times the projected Price-to-Book (P/BV) value for March 2028.
What Investors Should Track Next
Looking ahead, the company aims to maintain a healthy AUM CAGR of around 23% between FY26 and FY28. Whether the company can achieve this will depend on several factors, including its strategic shift toward higher-yielding lending segments and its ongoing investment in digital capabilities. Investors may want to monitor quarterly updates on profit margins, asset quality, and the effectiveness of the company’s funding strategy, which currently benefits from its AAA credit rating and the strength of its parent group.