Add Tata Capital Ltd for the Target Rs 410 by Emkay Global Financial Services Ltd
Tata Capital registered a strong operating and financial performance in 1QFY27, with AUM growth and operating profit broadly in line with estimates and the better-than-estimated performance on credit cost driving the PAT beat. The consistent growth, profitability, and asset-quality improvement boosts confidence in the company’s ability to deliver on FY28 guidance:
1) ~23-25% AUM CAGR over FY25-28
2) <1% net NPA and <1% credit cost
3) 2.5- 2.7% ROA/17-18% ROE. Basis the 1Q developments and management commentary, we marginally tweaked our FY27-29 estimates which leads to ~2- 3% increase in earnings. We retain ADD on the stock, while revising up Jun-27E TP by ~5% to Rs410 from Rs390
Good start to FY27
Tata Capital’s strong 1QFY27 performance was marked by sustained AUM growth and stable profitability. PAT rose 3.0% qoq (up ~56% yoy) to Rs15.47bn; consolidated loan book grew ~5% qoq (~22.7% yoy) to Rs2.73trn, driven by a strong 38% yoy disbursal growth across high-margin retail and SME products. The company saw the average cost of borrowings increasing by ~20bps qoq in 1Q to 7.3%, while operating efficiency improved with cost-to-income dropping to 36.4%. Annualized credit cost saw a slight uptick of ~10bps qoq to 1.0%, but remained well within the guidance of <1%. Asset quality continued to improve, with GNPA/NNPA moderating to 1.9%/0.8% compared to 2.0%/0.9% in 4QFY26. ROA and ROE for 1Q stand at 2.3% and 13.7%, respectively.
Higher-yield portfolio mix to support margins and returns
Tata Capital maintains its medium-term AUM growth guidance of 23-25%, driven by sustained disbursement momentum, geographic expansion, and the strategic entry into the secured gold loan segment via the Yogloans acquisition. The management emphasized clear focus on scaling higher-yield portfolios, specifically unsecured retail, microfinance, and micro-housing, which is expected to drive margin expansion (~10bps in FY27) and offset incremental funding costs. Growth momentum in the housing finance subsidiary is expected to remain robust, anchored by an aggressive scale-up in the affordable and micro-housing categories. Further, the management expects consolidated ROA to steadily expand toward its 2.5-2.7% target by FY28, mainly led by NIM improvement and supported by operating leverage as enterprise-wide AI and digital initiatives drive productivity gains across verticals. Regarding macroeconomic headwinds and geopolitical uncertainties, Management indicated it is closely monitoring inflation and energy prices but has observed no material stress in vulnerable segments like MSME and commercial vehicles. Additionally, portfolio health remains exceptionally resilient, with bounce rates consistently improving on mom basis (including Jul-26), granting Management the confidence to maintain credit costs within the guided sub-1% range.
We maintain ADD; increase TP by ~5% to Rs410
To reflect the 1QFY27 developments and management commentary, we adjust FY27-29 estimates (Exhibit 2) which results in 2-3% rise in our EPS. We retain ADD on the stock and raise our TP by ~5% to Rs410 from Rs390, implying FY28E PBV of ~2.8x.
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
