For Tata Capital, narrowing profitability gap with Bajaj Finance is a tough task (opens original article in a new tab)

Tata Capital faces challenges in narrowing its profitability gap with Bajaj Finance despite growth ambitions, as higher-yield lending increases credit risk and valuation limits are in place.

• Tata Capital's profitability lags behind Bajaj Finance with a lower return on assets (1.8% vs 3.8%)
• Tata Capital needs to expand higher-yield SME loans to narrow the profitability gap, but this increases credit risk
• Tata Capital's valuation at 17x FY28 earnings is lower than Bajaj Finance's 20x, limiting potential for relative re-rating
• Tata group must reduce its stake by 11 percentage points by October 2028 to meet Sebi norms