Northern Arc Capital Limited IPO: Check IPO Date, Lot Size, Price & Details

Introduction of Northern Arc Capital Limited IPO:

Founded in 2009, Northern Arc Capital Limited provides retail loans to underserved households and businesses across India. As a middle-layer NBFC, it operates with a broad and diverse business model spanning various sectors, products, and borrower categories. By March 31, 2024, Northern Arc had facilitated over Rs. 1.73 trillion in financing, impacting more than 101.82 million individuals across 29 states and 9 union territories, with a presence in 671 districts.

The company excels in sectors including micro, small, and medium enterprise (MSME) finance, microfinance (MFI), consumer finance, vehicle finance, affordable housing finance, and agriculture finance. It has extensive experience, with over 14 years in MSME finance, 15 years in MFI finance, and 9 years in consumer finance, underscoring its deep expertise and significant market presence.

IPO Details:

IPO Date

16th Sept-2024 to 19th Sept-2024

Face Value

₹ 10/- per share

Price Band

₹ 249 to ₹ 263 per share

Lot Size

57 shares and in multiples thereof

Issue Size

₹ 777 crores

Fresh Issue

₹ 500 crores

OFS

₹ 277 crores

Employee Discount

₹ 24/- per share

Expected Post Issue Market Cap (At upper price band)

₹ 4,242.85 crores

Objects of Issue:

  • Net Proceeds from the Fresh Issue will be used to form the capital base to meet future lending business requirements of the Company.
  • To enhance the brand name of the company.
  • General corporate purposes

Key Strengths:

Wide segment presence:  Northern Arc Capital stands out in the NBFC sector by focusing on underserved segments like micro-financing and small business loans. This strategic focus positions the company to capitalize on the anticipated expansion of retail credit, projected to grow significantly by 2025.

Broad and Diverse Portfolio: The company's assets under management (AUM) are well-diversified, with the top 10 states contributing 70% of the portfolio. Northern Arc’s exposure to various sectors, including personal, gold, and housing finance, enhances its operational ability and ensures long-term stability.

Technological Advancement: The company leverages advanced technology to streamline its lending operations, reduce costs, and broaden its customer base. This technological edge not only boosts operational efficiency but also strengthens its competitive position in the market.

Threats

Regulatory Challenges: Operating as an NBFC, It is exposed to regulatory changes, particularly within the microfinance sector. Potential adverse policies from the Reserve Bank of India could impact its lending operations and overall business performance.

Intense Competition: The increasing participation of mainstream banks and fintech companies in microfinance and personal loans heightens competitive pressures. This competition may compress margins and impact profitability.

Funding Dependence Risks: The NBFC’s reliance on borrowed funds for financing its lending operations poses a risk and it may lower the Net interest margins. Any disruptions in liquidity or increases in borrowing costs could adversely affect its financial health and profitability.

Default Risk: The company is focused on lending to customers with low income who may have less creditworthiness. Individuals in the low and middle-income category face potential defaults due to factors such as business failure, insolvency, lack of liquidity, unemployment, or personal emergencies, posing challenges to the company's loan portfolio.

Financial Snapshot:

Metrics

Financial Year ended March 31, 2024

Financial Year ended March 31, 2023

Financial Year ended March 31, 2022

AUM

117,100.19

90,086.93

71,083.17

Gross NPA

0.45%

0.77%

0.50%

Net NPA

0.08%

0.40%

0.21%

Net Worth

23,143.49

19,553.90

17,390.42

Interest income

17,121.12

11,483.88

7,808.45

Profit after tax

3,176.93

2,422.14

1,819.38

Average cost of Borrowing (%)

9.23%

8.84%

8.55%

Net Interest Margin (%)

8.42%

6.31%

4.64%

Total revenue from operations

18,900.84

13,049.71

9,095.39

Unsecured exposures as a percentage of Total AUM

42.55%

39.73%

33.12%

Net asset value per Equity Share

177.06

150.01

133.54

                                                                                                                                   (Rs in Millions)

As per the CRISIL report the company had one of the lowest gross non-performing assets (GNPA) of 0.45% and net non-performing assets (NNPA) of 0.08%, as of Fiscal 2024.

Top 5 State-wise Geographical Diversification of Total AUM

Tamil Nadu

14.59%

Maharashtra

11.99%

Karnataka

9.45%

Gujarat

5.99%

Rajasthan

5.29%

Conclusion:

With a strong track record of facilitating substantial financing and with expertise in various financial sectors, the company is well-positioned to benefit from the growing demand for retail credit. However, potential investors should consider the regulatory and competitive risks inherent in the NBFC landscape. Overall, Northern Arc's growth and innovative approach to technology offers a compelling investment proposition for those seeking exposure to India’s underserved financial segments.

Considering the company’s growth potential and low valuations, we suggest our investors subscribe to this IPO for the long term.

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