TATACAP Q3 FY26 earnings call.
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Tata Capital delivered a robust Q3 FY26 with PAT of Rs. 1,257 crore (up 15% QoQ including motor finance), driven by highest-ever quarterly AUM growth of Rs. 16,800 crore. Excluding motor finance, AUM reached Rs. 2.34 lakh crore with 26% YoY growth and PAT of Rs. 1,285 crore (up 39% YoY). Credit costs declined 10bps to 1.2% (consolidated) with Net NPA stable at 0.6-1%, reflecting improving asset quality trends. NIM expanded 14bps to 6.6% while cost-to-income improved to 38.4%. Housing finance subsidiary delivered 30% AUM growth with best-in-class credit costs of 0.1%. Motor finance broke even in Q3 with non-Tata OEM share rising to 19%, indicating successful portfolio reorientation. The company remains on track to meet FY26 guidance of 18-20% AUM growth with credit costs approaching 1%. Digital adoption remains industry-leading with 97% digital onboarding and 99% digital collections. Risks include competitive intensity in housing/ LAP, seasoning of rapidly grown unsecured book, and motor finance transformation execution.
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Guidance to track
- Company is on track to meet full-year AUM growth guidance driven by strong Q3 momentum across retail, housing, and improving unsecured disbursements.
- Credit costs expected to decline from current 1.2% toward 1% target driven by improvement in motor finance and continued reduction in unsecured retail slippages.
- Cost-to-income ratio expected within guided range for FY26; 129bps improvement vs Q2 driven by operating leverage and technology investments.
- Business achieved break-even in Q3 FY26; progressive ROA improvement expected in FY27 with target ROA by FY28 as portfolio transformation matures.
Risks flagged
- Housing finance faces high competitive pressure in prime segment with rate transmission and market share competition from banks. Management indicated margins have been stable but competitive dynamics could intensify.
- Analyst Abhijit raised question about whether stress in unsecured business loans is converting to LAP (win-win for lender and borrower) or if this is organic LAP demand. Management did not directly address this concern, deflecting to general improving trends in unsecured slippages.
- Motor finance AUM declined 6% sequentially as company reorients portfolio from captive Tata OEM model. Disbursement momentum is building but growth resumption expected only from H1 FY27. Execution risk on multi-OEM strategy and used CV expansion remains.
- Management noted some moderation in two-wheeler disbursements during Q3, which is relevant given this was previously a growth area. Impact on overall portfolio mix and asset quality needs monitoring.
Key quotes
- We will never chase volume at the cost of asset quality and this will be our strategy going forward too. If we find in any segment there is a challenge we will pull back, set things right rather than chase growth.
- We were early investors in GenAI and underwriting ahead of the broader industry adoption. Today, AI underwriting co-pilots and AI-generated credit memos are used across business segments, improving credit manager productivity while enhancing speed, consistency, and risk governance.
- We are not chasing near-term AUM growth but are instead focused on strengthening the fundamentals of underwriting and process discipline. With these actions in place, we expect growth to resume from the first half of financial year 27.
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