Net Profit Surges 56%, Asset Quality Improves and Retail Lending Momentum Remains Robust; Brokerage Retains ₹390 Target Price

Shares of Tata Capital Ltd witnessed strong buying interest on Wednesday after the company reported a healthy set of financial results for the first quarter of FY27, supported by robust loan growth, higher core income and improving asset quality.

The stock surged as much as 6.5% during early trade, touching an intraday high of ₹377.90, as investors cheered the company's strong earnings performance and optimistic growth outlook. Adding to the positive sentiment, Motilal Oswal Financial Services (MOFSL) maintained a constructive outlook on the company, reiterating its 'Neutral' rating with a target price of ₹390, implying an upside potential of around 10% from the previous closing price.

Despite continued pressure on net interest margins (NIMs), analysts believe Tata Capital's diversified lending portfolio, expanding retail franchise and improving operational efficiency position the company well for sustained long-term growth.

Stock Climbs Near 52-Week High Following Earnings

Investor sentiment turned positive immediately after the company announced its June quarter earnings.

The stock opened higher at ₹364.25 and quickly gained momentum to touch an intraday high of ₹377.90, close to its 52-week high of ₹379.95.

More than 5 million shares were traded within the first few minutes of the session, indicating strong institutional and retail participation.

Tata Capital Share Performance

The rally reflects growing confidence in the company's ability to deliver consistent earnings growth despite a challenging interest-rate environment.

Net Profit Jumps 56% on Strong Core Business Growth

Tata Capital delivered a robust financial performance during the June quarter.

Q1 FY27 Financial Performance

The sharp increase in profitability was primarily driven by:

• Strong expansion in the loan book

• Healthy growth in interest income

• Lower credit provisioning

• Better asset quality

• Improved operating leverage

The results indicate that demand for retail and business loans remained healthy during the quarter despite higher borrowing costs.

Retail Lending Continues to Power Growth

Retail finance remained the biggest contributor to Tata Capital's expansion.

The company's retail AUM, excluding the motor finance business, continued to grow steadily.

Retail Business Snapshot

Growth was witnessed across multiple lending categories, including:

• Personal loans

• Home finance

• Consumer durable loans

• SME financing

• Unsecured retail lending

Management believes these businesses will remain the company's key growth engines over the coming years.

Motor Finance Business Remains Under Pressure

Unlike other lending segments, the motor finance portfolio continued to decline.

Motor Finance AUM

The decline reflects Tata Capital's strategic focus on higher-growth and higher-yield lending businesses, rather than aggressive expansion in vehicle financing.

Asset Quality Improves for the Fifth Consecutive Quarter

One of the most encouraging aspects of the quarterly performance was the continued improvement in credit quality.

Gross Stage 3 Ratio

Lower bad loans reduced provisioning requirements and contributed significantly to higher profitability.

Analysts believe improving asset quality also provides greater flexibility for future business expansion.

Gold Loan Business Becomes a New Growth Engine

Tata Capital is aggressively expanding its presence in the gold loan market following a recent acquisition.

The company currently has:

• ₹708 crore gold loan AUM

Management has outlined an ambitious plan to increase this portfolio five times over the next three years.

Gold loans are expected to become an important contributor because they generally offer:

• Higher yields

• Faster loan disbursement

• Lower credit risk

• Better collateral coverage

• Strong rural demand

The segment is likely to play an increasingly important role in the company's retail lending strategy.

MOFSL Remains Positive on Long-Term Fundamentals

Following the quarterly results, Motilal Oswal Financial Services reiterated its 'Neutral' rating while maintaining a target price of ₹390.

Although the brokerage has not upgraded its recommendation, it highlighted several encouraging trends.

MOFSL's Key Positives

• Broad-based AUM growth

• Healthy retail loan expansion

• Strong SME business

• Stable housing finance portfolio

• Improving asset quality

• Lower credit costs

• Strong operating leverage

The brokerage believes Tata Capital remains well-positioned to benefit from India's expanding retail credit market.

Margin Pressure Expected to Ease

The only notable weakness during the quarter was the decline in Net Interest Margin (NIM).

Margins contracted by approximately 15 basis points quarter-on-quarter, primarily due to higher borrowing costs.

However, management expects gradual improvement during FY27 through:

• Expansion of higher-yield lending products

• Better portfolio mix

• Improved operating efficiency

• Lower funding costs over time

The company expects NIMs to improve by around 10 basis points during the current financial year.

AUM Growth Guidance Remains Strong

Management remains optimistic about future business growth.

The company expects Assets Under Management (AUM) to grow by 23–25% during FY27.

Growth is expected across:

• Retail loans

• SME finance

• Housing finance

• Unsecured lending

• Gold loans

This diversified growth strategy is expected to reduce dependence on any single business segment.

Long-Term Financial Outlook Remains Healthy

Motilal Oswal expects Tata Capital to maintain strong earnings growth over the next few years.

FY26–FY28 Growth Estimates

The brokerage also projects:

• Return on Assets (RoA): 2.3%

• Return on Equity (RoE): 15.6% by FY28

These projections indicate confidence in the company's ability to improve profitability while maintaining disciplined risk management.

Key Growth Drivers Going Forward

Several structural factors are expected to support Tata Capital's long-term expansion.

Major Growth Catalysts

• Strong retail credit demand

• Expanding SME financing

• Housing loan growth

• Gold loan business expansion

• Digital lending initiatives

• Better operating leverage

• Improving asset quality

• Diversified lending portfolio

These trends are expected to help the company maintain healthy earnings growth over the medium term.

Risks Investors Should Monitor

Despite the strong outlook, investors should keep an eye on several factors.

Key Risks

• Rising borrowing costs

• Pressure on lending margins

• Credit quality deterioration

• Regulatory changes

• Competitive intensity among NBFCs

• Slower retail credit demand

• Liquidity conditions

Effective management of these challenges will be important for sustaining long-term profitability.

Key Highlights

Market Outlook

Tata Capital's strong June quarter performance underscores the resilience of its diversified lending business, supported by healthy loan growth, improving asset quality and expanding retail operations. While higher funding costs continue to weigh on net interest margins, the company's confidence in delivering 23–25% AUM growth during FY27, coupled with its expansion into higher-yield segments such as gold loans, provides a constructive medium-term outlook. Investors will closely monitor margin recovery, credit quality, execution of growth initiatives and the sustainability of retail lending momentum in the coming quarters.