Target: ₹360
CMP: ₹328.85
We initiate coverage on with an Add rating and a target price of ₹360, valuing it at 2.9x FY27E P/B.
Established in 2007, TCL is one of the leading, diversified NBFC in India with the strong backing of the Tata group. The company operates largely in secured business segments (80 per cent secured mix).
TCL has a highly diversified product mix, offering 25+ distinct lending products broadly classified into three businesses: 61 per cent of its loan book comprising retail finance, 26 per cent SME and 13 per cent corporate loans.
With the highest credit rating of AAA/Stable, TCL enjoys easy access to funds at lower interest rates. However, higher share of secured loans and greater competition from banks in TCL’s segments lead to lower-than-peers NIMs of about 5-5.5 per cent which along with lower credit cost, gets translated into RoA of 2.1-2.5 per cent (in FY23/FY24).
In FY25, TMFL merged with TCL to offer synergies in terms of growth and cross-sell opportunities. However, TMFL’s standalone profitability has been underwhelming on account of its captive nature of business and industry wide stress in CV/Auto loans.
The company plans to expand its non-captive book more over the medium term and hence, we expect the merger to result in a gradual turnaround in TMFL book’s. However, we remain watchful on asset quality over the near term.