Emkay retains ‘Add’ rating with ₹410 target as Tata Capital’s loan growth, asset quality, credit costs and profitability remain broadly aligned with management guidance

Shares of Tata Capital Ltd traded lower on September 21 despite a positive assessment from brokerage firm Emkay, which said the non-banking financial company continues to execute well nearly a year after its market debut.

Tata Capital shares declined during morning trading even as the broader market remained positive. At 10:34 AM, the stock was quoted at ₹342.70, down 2.46 per cent, after touching an intraday low of ₹341.20. The stock has traded between ₹296 and ₹390.20 over the past 52 weeks.

Following a recent management meeting, Emkay retained its ‘Add’ rating on Tata Capital with a target price of ₹410. The brokerage said the company’s growth, asset quality, credit costs and profitability are broadly tracking management guidance.

Loan growth remains a key driver

According to Emkay, Tata Capital continues to benefit from healthy credit demand across its retail, small and medium enterprise (SME), and corporate lending businesses.

The company has maintained its FY25-FY28 AUM growth guidance of around 23-25 per cent. Emkay expects growth to strengthen further as the Tata Motors Finance loan book returns to growth from the third quarter.

The diversified lending mix remains an important part of Tata Capital’s growth strategy, allowing the company to participate in multiple segments of India's credit market rather than depending on a single category.

The company’s retail and SME businesses together accounted for 85.4 per cent of net AUM at the end of June, highlighting the increasing importance of these segments within its overall lending portfolio.

Q1 FY27 profit jumps 56 per cent

Tata Capital reported strong financial performance in the April-June quarter of FY27.

Consolidated net profit rose 56 per cent year-on-year to ₹1,547 crore, supported by continued loan growth. Net interest income increased 25 per cent year-on-year to ₹3,571 crore, while total income rose 23 per cent to ₹4,455 crore.

Gross loans stood at ₹2.86 trillion at the end of June, representing 23 per cent year-on-year growth. Assets under management increased 22 per cent year-on-year to ₹2.90 trillion.

The numbers indicate that the company has continued to expand its balance sheet while maintaining profitability momentum.

Margins could benefit from higher-yielding products

Margin performance remains another key factor for Tata Capital.

Emkay expects the benefits of stronger growth in higher-yielding products to begin flowing through during the second half of the financial year. The brokerage expects second-quarter margins to remain broadly similar to the preceding quarter.

A gradual improvement in the product mix could therefore become an important contributor to earnings growth if higher-yielding segments gain a greater share of incremental disbursements.

For a diversified NBFC, maintaining an appropriate balance between loan growth, borrowing costs, credit quality and lending yields will remain critical to sustaining profitability.

Operating leverage and credit costs remain supportive

Emkay also highlighted the company’s experience with operating leverage and credit costs.

According to the brokerage, actual operating performance and credit costs have been better than management's earlier expectations. Lower-than-anticipated credit costs can provide meaningful support to profitability, particularly when a lender is simultaneously expanding its loan book.

However, credit costs remain an important variable for NBFC earnings because rapid loan growth can eventually result in higher delinquencies if underwriting standards weaken or borrowers face pressure.

Tata Capital's ability to maintain asset quality while expanding its retail and SME exposure will therefore remain closely watched by investors.

RBI draft directions could affect the NBFC lending landscape

Another issue discussed by Emkay was the Reserve Bank of India's Draft Amendment Directions concerning revolving credit facilities and the broader NBFC lending ecosystem.

The brokerage believes NBFCs and fintech companies could continue to play an important role in providing revolving credit to SMEs.

Emkay pointed out that a significant portion of SMEs currently receive revolving credit lines from NBFCs without having comparable facilities from banks. NBFCs and fintech companies also have established origination capabilities and deeper reach in certain customer segments.

The regulatory treatment of undrawn overdraft facilities in liquidity and capital requirements is another factor considered by the brokerage.

The final regulatory framework and its implementation could nevertheless influence the economics of this business for lenders and borrowers.

Tata Motors Finance integration remains important

The performance of the Tata Motors Finance portfolio is another factor investors are monitoring.

Emkay expects the book to return to growth from Q3, which could provide an additional source of loan expansion for Tata Capital.

The integration and performance of the vehicle-finance business could influence the company's overall growth trajectory, product mix and asset-quality profile. A recovery in this segment would potentially complement growth in Tata Capital's retail, SME and corporate businesses.

Stock performance and valuation remain in focus

Despite the positive brokerage commentary, Tata Capital shares came under selling pressure during the September 21 session.

The stock's movement highlights the difference between company fundamentals and short-term market performance. A stock can decline even when analysts maintain positive views if investors are booking profits, broader market sentiment changes, valuations are reassessed or expectations are already reflected in the price.

Emkay's ₹410 target and ‘Add’ rating represent the brokerage's assessment following its management interaction and should be viewed as an attributed analyst opinion rather than a guaranteed future price outcome.

What investors will watch next

Investors are likely to track several factors over the coming quarters, including loan growth across retail and SME segments, the recovery in Tata Motors Finance, net interest margins, borrowing costs, credit costs and asset-quality trends.

The company's ability to maintain strong growth without a corresponding deterioration in asset quality will remain particularly important.

Regulatory developments involving NBFC lending practices could also influence the company's business model and competitive positioning.

Market Outlook

Tata Capital's latest performance highlights the broader opportunities and challenges facing India's NBFC sector. Strong credit demand and expansion in retail and SME lending can support sustained AUM growth, while higher-yielding products could provide additional margin support.

At the same time, investors will need to monitor funding costs, asset quality, credit costs and regulatory changes as the company continues to expand.

The September 21 decline in the share price, despite Emkay maintaining a positive view, also underlines the importance of separating short-term market movements from underlying operating performance. Tata Capital's forthcoming quarterly numbers and management commentary on growth, margins and credit quality are likely to remain key indicators for assessing the company's financial trajectory.