Tata Capital’s Impairment Skyrockets 310%: IPO Dreams Face Profit Hurdles

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Tata Capital, the financial services subsidiary of Tata Group, is facing increasing asset quality pressures even as it prepares for one of India's biggest-ever IPOs. The impairment on financial instruments by the company increased by a whopping 310% in FY25 to ₹3,072 crore from ₹748 crore in the last year. This rise in impairments has hugely affected the company's standalone profit growth, which rose by only 4% to ₹2,594 crore, even as interest income and overall revenues surged considerably.

While the overall revenue from operations of Tata Capital surged 64.5% to ₹21,866 crore and interest income increased 67% to ₹19,203 crore in FY25, the aggressive increase in stressed assets has put a shade on its profitability path. The March 2025 quarter alone witnessed standalone net profit decline 15.7% to ₹655 crore, while sales increased 46% to ₹5,666 crore.

The timing is crucial: Tata Capital has filed a confidential draft red herring prospectus (DRHP) with SEBI for an IPO expected to raise around ₹15,000 crore, valuing the company at approximately $11 billion. The IPO, mandated by RBI’s requirement for ‘Upper Layer’ NBFCs to list by September 2025, will consist of a fresh issue and an offer for sale by existing shareholders. The action comes on the heels of a strategic reorganisation, which involves the consolidation of Tata Motors Finance Ltd with Tata Capital to rationalise operations and bolster its balance sheet.

While the short-term pressure on profits, the interest of investors continues to be strong with the Tata Group stocks rallying in expectation of the historic IPO. The issue is to be the biggest in India's financial sector this year, marking a notable milestone for the Tata Group following the success of Tata Technologies' listing recently.

Important Highlights:

Impairment on financial instruments rose 310% at ₹3,072 crore in FY25.

Standalone profit growth slowed to 4% at ₹2,594 crore, despite a 64.5% jump in revenue.

March 2025 quarter standalone net profit declined 15.7% to ₹655 crore.

Tata Capital filed a confidential DRHP for a ₹15,000 crore IPO, likely to be India’s largest in the sector this year.

IPO is required to meet RBI’s listing mandate for ‘Upper Layer’ NBFCs by September 2025.

Recent consolidation involves the merger of Tata Motors Finance Ltd with Tata Capital.

Robust investor interest in evidenced in Tata Group share rallies before the IPO.

Source: Business Standard, Angel One, Univest