Tata Capital Q1 FY27 earnings call

Tata Capital Limited reported a robust Q1 FY27, with consolidated Profit After Tax (PAT) surging 56% year-on-year to INR 1,547 crores. The company's Assets Under Management (AUM) grew by 22% year-on-year to INR 2.91 lakh crores, or 28% excluding the motor finance business. This growth was supported by healthy credit demand across banking and non-banking channels, reflecting sustained economic momentum. Consolidated disbursements rose 33% year-on-year to INR 46,212 crores, driven by strong performance across all businesses.

A key development in Q1 FY27 was Tata Capital's entry into the gold loans business through the proposed acquisition of Yogloans. This acquisition, valued at up to INR 318 crores pre-money equity, includes a primary capital infusion of INR 93 crores and is expected to add approximately 500 branches and INR 4,000-5,000 crores in AUM over the next 2.5-3 years. This move is aimed at further diversifying the retail lending portfolio and leveraging Yogloans' domestic expertise with Tata Capital's brand and technology. The company's core focus remains on Retail and SME lending, which constitutes 85.4% of its portfolio.

Tata Capital continues to prioritize investment in technology and AI, which is significantly enhancing operational efficiency and customer experience. AI-led initiatives have resulted in 98% digital onboarding, 40% productivity gains in operations, and a 25% reduction in operating manpower cost per file. The company expects these AI-driven efficiencies to contribute to a 10-15 basis points improvement in ROA over the next two years and aims for a cost-to-income ratio of 33-34% by FY28. This strategic focus on AI is making processes faster, more error-free, and scalable across the organization.

The company maintained strong asset quality, with consolidated Net NPA declining by 10 basis points sequentially to 0.8% and credit costs for Q1 FY27 at 1%, down from 1.6% in Q1 FY26. The Housing Finance business, a significant contributor, reported an even lower Net NPA of 0.3% and credit costs of 0.05%. Management remains watchful of geopolitical developments, inflationary trends, and monsoon-related risks. However, a conservative approach is maintained, especially in segments like commercial vehicles, construction equipment, and MSMEs reliant on petro-products, to mitigate potential risks.

Tata Capital successfully raised USD 400 million through an international bond issuance, which was oversubscribed four times, diversifying its funding mix and strengthening access to international capital markets. Foreign borrowings now constitute 12.6% of total borrowings. The cost of funds saw a marginal increase to 7.28% from 7.15% in Q4 FY26, with an expected 8-10 bps increase for the year. The company maintains a robust capital adequacy ratio of 18.5% and a stable debt-to-equity ratio of 5.3x, positioning it well for future growth without immediate capital raising needs until Q3 FY28.

The company expects its overall AUM growth to remain on track with its 23-25% guidance. While the Motor Finance book moderated to INR 24,445 crores due to macroeconomic factors, it is anticipated to start growing from Q3 FY27 onwards. Management aims to improve margins by approximately 10 basis points this year, driven by a focus on high-margin products and increasing yields across existing businesses. The unsecured book, currently growing slower than disbursements, is expected to catch up^📎 in the coming quarters^⏳, further contributing to margin accretion.