Mumbai: Amid concerns around a significant drop in the price of unlisted shares of Tata Capital and a lower-than-expected IPO price band, MD and CEO Rajiv Sabharwal told Mint that the board of the company met for the first time to decide on the pricing on Sunday and that the price band is based on investor feedback and to incentivise retail participation.

The ₹15,500-crore initial public offering (IPO), which will be open for subscription from 6 October to 8 October; comprises fresh issue of up to 210 million shares, and an offer for sale of up to 266 million shares—of which 230 million will be sold by promoter Tata Sons and up to 36 million shares by investor International Finance Corporation (IFC). The price band for the public offer has been set at ₹310-326.

“Yesterday (Sunday) was the first time the board decided on the price,” Sabharwal told Mint, adding that the company’s board has officially come out with a price only once, which has been the current price band. “The only difference is that compared to the last rights (issue) price, the upper band of this price range is 5% lower. And we consciously did it because the board felt that at this point of time in the IPO, it is the best time for us to get more retail investors,” he said.

In July, Tata Capital raised ₹1,752 crore through a rights issue, with a price band of ₹343 per share. Prior to that, the company had raised ₹1,504 crore through another rights issue at ₹281 per share.

Reason for discount

On the sharp drop in the company’s unlisted shares since reaching a peak of ₹1,075 in June, Sabharwal stated that the price band has been set based on feedback from investors and book-lead managers. Following the announcement of the price band today, unlisted shares fell by more than 27% to ₹326.

“The unlisted grey market I don't track, and honestly, I have no clue how that operates. Our pricing for the issue is decided based on the feedback which we get from investors, which our book lead managers tell us. And then the board takes all that in mind and then decides on the pricing,” he said

“It is only for retail investors that the Tata Group wants to put something on the table, and that is the reason why we are pricing it 5% lower than the rights issue,” said Sandeep Tripathy, head, strategy and investor relations at Tata Capital.

During the IPO analyst meeting, Sabharwal stated that the company has been working on several digital and technological initiatives to reduce credit costs and improve operational efficiencies for customers. The aim, he said, is to keep credit costs at the pre-merger level of less than 1%. In May, Tata Motors Finance merged with Tata Capital.

Tata Capital’s gross non-performing assets (NPAs) rose to 2.62% as of 30 June, up from 2.33% in the previous quarter and 1.96% a year ago. Net NPAs increased to 1.24% from 0.98% and 0.70% over the same periods. Management attributed the deterioration in motor loan quality to a past reliance on a single product and original equipment manufacturer (OEM), Tata Motors, and expects diversification to improve credit costs.

Digital push

The third-largest NBFC, in terms of assets under management (AUM), has consolidated assets of ₹2.3 crore. The public issue is the largest IPO from the Tata Group and the largest ever among NBFCs in the country.

Tata Capital reported a return on equity (RoE) of 13%, a return on assets (RoA) of 2%, and a net interest margin (NIM) of 5% as of 30 June.

Asked about the lower valuation compared with peers such as HDB Financial—which has an RoE of 15% and RoA of 3% respectively, Saurabh Agrawal, group chief financial officer of Tata Sons, said that while he will “not comment on the valuation”, Tata Capital’s strengths and the investments being made in both digital offerings and distribution branch network, will ensure that the cost to income ratio comes down. This, combined with an improvement in margins through a focus on high-yielding products such as affordable housing loans, means that “RoAs will be on an increasing trend”.

“At the lower end of the price band, they will be trading at HDB Financial Services’ current valuation…HDB’s RoA trajectory is better than Tata Capital, though the growth for the latter is better,” said Suresh Ganapathy, managing director and head of financial services research at Macquarie Capital.

“And as has been the case in many recent listings of financials, there is no connection with the unlisted market price and what the eventual IPO price is. The losses, be it in options or for that matter in this unlisted market, are continuously being borne by the retail,” he said in a note to clients.

Benchmarking

Tata Capital, classified as an ‘upper layer’ NBFC by the Reserve Bank of India (RBI), is a holding company spanning lending, housing finance, AIFs, wealth management, and distribution. Despite its diversified structure, it benchmarks itself against NBFCs like Bajaj Finance and Shriram Finance, as 95% of its revenue comes from lending.

“The bulk of our money will go into the lending business,” Tripathy said, adding that the AIF business does not consume much capital and past returns are sufficient to be “reinvested as our contribution”. “The wealth management business, which we believe is quite related to what we do, our whole objective will be to grow the franchise over a period of time,” he said, adding that the non-lending businesses are “very scalable”.

Tata Capital’s lending arm comprises a recently merged motor finance and cleantech unit, with home finance handled by a wholly owned subsidiary. Sabharwal said all segments are growing, but the focus remains on retail and small business loans. Corporate loans, including cleantech, make up around 10% of the portfolio.

Mumbai: Amid concerns around a significant drop in the price of unlisted shares of Tata Capital and a lower-than-expected IPO price band, MD and CEO Rajiv Sabharwal told Mint that the board of the company met for the first time to decide on the pricing on Sunday and that the price band is based on investor feedback and to incentivise retail participation.

The ₹15,500-crore initial public offering (IPO), which will be open for subscription from 6 October to 8 October; comprises fresh issue of up to 210 million shares, and an offer for sale of up to 266 million shares—of which 230 million will be sold by promoter Tata Sons and up to 36 million shares by investor International Finance Corporation (IFC). The price band for the public offer has been set at ₹310-326.

“Yesterday (Sunday) was the first time the board decided on the price,” Sabharwal told Mint, adding that the company’s board has officially come out with a price only once, which has been the current price band. “The only difference is that compared to the last rights (issue) price, the upper band of this price range is 5% lower. And we consciously did it because the board felt that at this point of time in the IPO, it is the best time for us to get more retail investors,” he said.

In July, Tata Capital raised ₹1,752 crore through a rights issue, with a price band of ₹343 per share. Prior to that, the company had raised ₹1,504 crore through another rights issue at ₹281 per share.

Reason for discount

On the sharp drop in the company’s unlisted shares since reaching a peak of ₹1,075 in June, Sabharwal stated that the price band has been set based on feedback from investors and book-lead managers. Following the announcement of the price band today, unlisted shares fell by more than 27% to ₹326.

“The unlisted grey market I don't track, and honestly, I have no clue how that operates. Our pricing for the issue is decided based on the feedback which we get from investors, which our book lead managers tell us. And then the board takes all that in mind and then decides on the pricing,” he said

“It is only for retail investors that the Tata Group wants to put something on the table, and that is the reason why we are pricing it 5% lower than the rights issue,” said Sandeep Tripathy, head, strategy and investor relations at Tata Capital.

During the IPO analyst meeting, Sabharwal stated that the company has been working on several digital and technological initiatives to reduce credit costs and improve operational efficiencies for customers. The aim, he said, is to keep credit costs at the pre-merger level of less than 1%. In May, Tata Motors Finance merged with Tata Capital.

Tata Capital’s gross non-performing assets (NPAs) rose to 2.62% as of 30 June, up from 2.33% in the previous quarter and 1.96% a year ago. Net NPAs increased to 1.24% from 0.98% and 0.70% over the same periods. Management attributed the deterioration in motor loan quality to a past reliance on a single product and original equipment manufacturer (OEM), Tata Motors, and expects diversification to improve credit costs.

Digital push

The third-largest NBFC, in terms of assets under management (AUM), has consolidated assets of ₹2.3 crore. The public issue is the largest IPO from the Tata Group and the largest ever among NBFCs in the country.

Tata Capital reported a return on equity (RoE) of 13%, a return on assets (RoA) of 2%, and a net interest margin (NIM) of 5% as of 30 June.

Asked about the lower valuation compared with peers such as HDB Financial—which has an RoE of 15% and RoA of 3% respectively, Saurabh Agrawal, group chief financial officer of Tata Sons, said that while he will “not comment on the valuation”, Tata Capital’s strengths and the investments being made in both digital offerings and distribution branch network, will ensure that the cost to income ratio comes down. This, combined with an improvement in margins through a focus on high-yielding products such as affordable housing loans, means that “RoAs will be on an increasing trend”.

“At the lower end of the price band, they will be trading at HDB Financial Services’ current valuation…HDB’s RoA trajectory is better than Tata Capital, though the growth for the latter is better,” said Suresh Ganapathy, managing director and head of financial services research at Macquarie Capital.

“And as has been the case in many recent listings of financials, there is no connection with the unlisted market price and what the eventual IPO price is. The losses, be it in options or for that matter in this unlisted market, are continuously being borne by the retail,” he said in a note to clients.

Benchmarking

Tata Capital, classified as an ‘upper layer’ NBFC by the Reserve Bank of India (RBI), is a holding company spanning lending, housing finance, AIFs, wealth management, and distribution. Despite its diversified structure, it benchmarks itself against NBFCs like Bajaj Finance and Shriram Finance, as 95% of its revenue comes from lending.

“The bulk of our money will go into the lending business,” Tripathy said, adding that the AIF business does not consume much capital and past returns are sufficient to be “reinvested as our contribution”. “The wealth management business, which we believe is quite related to what we do, our whole objective will be to grow the franchise over a period of time,” he said, adding that the non-lending businesses are “very scalable”.

Tata Capital’s lending arm comprises a recently merged motor finance and cleantech unit, with home finance handled by a wholly owned subsidiary. Sabharwal said all segments are growing, but the focus remains on retail and small business loans. Corporate loans, including cleantech, make up around 10% of the portfolio.