Whalesbook
Driving Growth: Expanding AUM and Tech Focus
Tata Capital is expanding high-yield areas such as motor finance and affordable housing. Combined with strong demand for retail and SME credit, this pushed the total assets managed (AUM) to grow within the targeted 23-25% range. The company is also prioritizing investments in technology and digitization to boost productivity and create more opportunities for selling different products to existing customers.
Improving Asset Quality and Lowering Credit Risk
Loan defaults, known as slippages, dropped significantly, particularly for commercial vehicles and unsecured loans. This improvement stems from strong recovery actions and better underwriting practices. Credit costs were 1.2% in FY26, partly due to the TMFL merger, but are expected to settle below 1% long-term.
Boosting Margins and Operational Efficiency
Net interest margins held steady in Q4 FY26, supported by a diverse range of borrowing sources and the company's strong credit ratings. Analysts anticipate healthy growth in Net Interest Margins (NIMs) in FY27, driven by a lower cost of borrowing and a better mix of assets. Operational efficiency is also expected to rise, with the goal of reducing the cost-to-income ratio to 33-34% by FY28. The company aims to improve its Return on Assets (RoA) to 2.5-2.7% in FY27.
Strong Valuation Backed by Growth Prospects
Tata Capital's current valuation of 2.7 times its estimated book value for FY28 is considered premium, but justified by its forecast of mid-teen returns on equity (ROE). This outlook is supported by the company's strong brand and financial health. Analysts suggest buying the stock during price dips, seeing several factors that could lead to a higher valuation.