Tata Capital: profit up 56%, but AUM up only 22%

Tata Capital Limited (NSE: TATACAP) reported Q1 FY27 profit of ₹1,547 crore, up 56.3%. Its loan book grew far slower, 22% to ₹2,90,502 crore. What happened Net interest income rose 25% to ₹3,571 crore. Return on assets improved to 2.3% from 1.8%, and return on equity to 13.7% from 12.5%. The cost to income ratio fell to 36.4%. Credit cost dropped to 1.0%, down 60 basis points in a year. Net NPA was 0.8%. Excluding the motor finance book, AUM grew 28%. Housing finance AUM rose 24% to ₹89,416 crore. The company is entering gold loans through an acquisition. Why it matters Banks have stepped back from unsecured and small ticket lending. Large NBFCs with cheap funding are taking that space. Tata Capital is AAA rated and 85.4% owned by Tata Sons, so it borrows cheaper than most rivals. My view Trace where the profit came from. Credit cost fell 60 basis points. On an average book near ₹2.7 lakh crore, that saving is worth roughly ₹400 crore in the quarter, before tax. Profit rose ₹557 crore. So more than half the jump is lower provisioning, not faster lending. That is not a criticism, but it sets the bar. Provisions cannot keep falling. From here, profit growth converges on loan growth, which management guides at 23% to 25% for FY27. On price, the stock is near ₹356, roughly 3.3 times book, for a 13.7% return on equity. The premium rests on the Tata name and funding cost. It works only if return on equity keeps climbing towards 15%. What I am watching Q2 FY27 results in October, credit costs near 1%, and return on equity moving up. On the chart, ₹380 is the 52-week high and ₹320 is support. My stance: Hold. Add near ₹320. A quality lender, priced like one. Disclosure: I do not hold a position in Tata Capital Limited at the time of writing. This is not investment advice.