NBFCs serve a critical purpose in an ever-changing financial world, specifically in the extension of financial services to various clients. Tata Capital Limited and Bajaj Finance Limited (BFL) are two of the most notable companies in this industry. Both have proven to be sound in terms of business fundamentals and growth. However, their valuation metrics comparison shows that Tata Capital and Bajaj Capital have a huge unexplained gap. This disparity is problematic given the high valuation placed on Tata Capital.
About Tata Capital Limited
Tata Capital Limited (“TCL”) is the financial service arm of the Tata Group, which operates as a non-banking financial company, owing to Tata Sons Private Limited, its parent company.
Tata Capital and its subsidiaries are providing a plethora of services and products under the financial services umbrella. They also deal with a wide range and diverse spectrum of commercial activities, which encompass commercial finance, consumer loans, wealth services, marketing, and the distribution of Tata Cards.
Introduction to Bajaj Finance Limited
Bajaj Finance Limited (BFL) is a Pune-based non-banking financial company that has emerged as one of the key players in India’s financial sector. Established as the subsidiary of Bajaj FinServ Ltd., BFL has a commanding customer base of 83.64 million and assets under management (AUM) worth ₹330615 crores (US$40 billion) as of March 2024. They offer a vast spectrum of financial products and services.
Common Features
- Tata Capital and Bajaj Finance share a common growth trend in their loan books.
- They compete in the same markets.
- Both companies are subsidiaries of well-known brands, Tata and Bajaj, respectively.
Financial Performance of Bajaj Finance
₹ in crores
| Particulars | FY24 | FY23 | Y-o-Y Growth |
| Total Income | 54990 | 41398 | 33% |
| PAT | 14451 | 11508 | 25% |
| AUM | 3,30,400 | 2,47,379 | 34% |
Financial Performance of Tata Capital
₹ in crores
| Particulars | FY24 | FY23 | Y-o-Y Growth |
| Total Income | 18198 | 13637 | 33% |
| PAT | 3326 | 2945 | 13% |
| Loan Book | 1,57,761 | 1,16,789 | 35% |
Key Ratios
| Particulars | Tata Capital | Bajaj Finance |
| Current Market Price (04/03/2025) | ₹1022 | ₹8550 |
| P/B Ratio | 20 | 6.1 |
| P/E Ratio | 122.96 | 33.1 |
| Market Cap | 3,87,338 Crs. | 5,29,999 Crs. |
Tata Capital’s P/E ratio stands at 122.96, significantly higher than that of Bajaj Finance, which is 33.1. Of the two, Tata Capital is undoubtedly operating at a much higher premium relative to its earnings.
This not only questions the valuation but also opens the floor for discussion if the valuation seems justified. In case there are any turns in market conditions, the share price is under huge potential for damage. On the other hand, Bajaj Finance, with its lower P/E and P/B ratios, gives a stronger argument that with less valuation, a balance is reached.
To summarize, concerns regarding strong valuation metrics make the investment case for Tata Capital comparatively weaker than Bajaj Finance, despite both companies showing promising business fundamentals and growth trajectories. Investors need to be careful about the operational risks that come with high valuations and take the necessary steps to monitor these firms’ performance judiciously.
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Tata Capital’s Rights Issue and IPO: Strengthening Financial Position Before Market Debut
The Company intends to make an offer for a rights issue of ₹1,504 crore to boost its balance sheet ahead of the expected IPO. This is a ratio of 1:70, whereby eligible shareholders will be offered a share of 10 rupees for each 70 shares.
- Right Issue Outstanding Shares: 5,35,20,102 (Contribution Ratio: 1:70)
- 5,35,20,102/70= 7,64,573
- 3746407148 Outstanding Shares as Of February 2025
- Add: Right Issues: 0.07 crores
- Total Outstanding Shares: 379 Crores
Aside from these, the increase in share capital will give existing third-party investors, as well as the holders of convertible debentures, the right to enhance their stake in the firm prior to public listing, enabling them to realize their expected benefits. This approach seems to allow Tata Capital’s move towards efficient capital allocation, which confirms investors’ optimism before the major market listing.
Tata Capital has plans to open its IPO with a valuation estimated to reach $11 billion, making it India’s largest IPO of the year. The offering aims to raise $2 billion through a combination of fresh equity issuance and an offer for sale by existing shareholders. The Tata group is ready to set out on numerous reconfigurations within this framework and is heading toward achieving its 2025 target by strategically mandating it to list with the Reserve Bank of India in September. This listing will mark Tata Capital as the 17th company within the group to be publicly listed, setting a milestone within the financial services backdrop of the group.
Final Thoughts
Despite having a strong business foundation and getting ready for a historic IPO, Tata Capital’s high valuation raises concerns when compared to its counterpart, Bajaj Finance. Under unfavorable circumstances, the large P/E ratio discrepancy may indicate overvaluation dangers and result in a substantial market downturn.
When making investment decisions, investors should exercise caution and take these valuation metrics into account. It is nevertheless crucial to keep a careful eye on Tata Capital’s financial developments and strategic decisions as it approaches its public debut.
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