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TATACAP posted a decent quarter, logging higher than expected AUM growth and asset quality, lower credit cost, and inline PAT (on slightly softer NIM due to strong corporate loan growth). Consol loan book grew ~6%/21% QoQ/YoY to Rs2.74trn (AUM: Rs2.77trn), led by a strong ~Rs500bn disbursement in Q4 (up 12% QoQ/32% YoY). Overall asset quality improved QoQ by ~20bps, with GS3 at 2% as stress in USL and Motor Finance abated; this led to significant improvement in credit cost sequentially. Q4 credit cost stood at ~0.9% vs 1.2% in Q3FY26, down ~30bps – this in turn drove sequential improvement in RoA to 2.3%. The mgmt said it is actively assessing the impact of the ongoing global conflict and has, till date, not seen any stress build-up in USL, SME, or Motor Finance; however, this remains a key monitorable. Also, the mgmt reiterated guidance of 23-25% AUM CAGR over FY25-28, and is confident of higher margin ahead, as share of USL and Motor Finance increases. Also, it expects RoA to expand to 2.5-2.7%, on better margin, moderating opex, and credit cost at sub 1%. Factoring in the current performance and medium-term outlook, we revise estimates which results in ~8-9% rise in our EPS. We retain ADD on TATACAP and raise our TP by 11.4% to Rs390 from Rs350, implying FY28E P/B of ~2.6x.

Strong disbursement and loan growth; sharp improvement in credit cost

TATACAP’s Q4FY26 performance was strong, marked by robust growth and better asset quality/credit cost. PAT rose ~20% QoQ to Rs1.47bn; AUM rose ~6.3% QoQ to Rs2.7trn, driven by its highest-ever quarterly disbursement (Rs500bn) in the product segment. Margin moderated slightly on high growth in corporate book, with ~5.24% NIM (NIM+Fee of ~6.25%). Q4 saw CoF moderate further by ~10bps, while incremental CoF inched up (is expected to stabilize in coming quarters). Credit cost moderated by ~30bps QoQ to 0.9%, as slippages reduced, especially in unsecured retail, driving a ~20bps QoQ improvement in RoA to 2.3%. Asset quality improved, with GNPA/NNPA at ~2%/0.9%.

Growth, profitability, and asset quality outlook reaffirmed

TATACAP maintains growth guidance of 23-25%, led by strong disbursement across the product segment (incl Motor, USL), more product offerings in branches, and geographical expansion. The mgmt said focus will be on increasing share of higher-yield segments like USL (targets ~15% in AUM mix), MFI, and CVs, which will result in margin expansion. It expects growth momentum in the housing segment to continue, along with higher growth in the affordable and near-prime segment. The mgmt expects RoA to expand to 2.5- 2.7%, led by improvement in NIM, ~15bps moderation in opex as it continues to leverage tech, and improving branch productivity along with sub 1% credit cost. With regard to concerns around the ongoing global conflict, the management indicated it is monitoring the situation closely and is not seeing any stress building up in its portfolio, though it remains watchful. Also, it stated that the bounce rate in April has been better vs March.

Maintain ADD; increase TP to Rs390

To reflect the Q4FY26 developments and mgmt commentary, we adjust FY27-28 estimates (Exhibit 2), which results in 8-9% rise in our EPS. We retain ADD on the stock and raise our TP to Rs390 from Rs350, implying FY28E P/B of ~2.6x.

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