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This financial services company, with a 44 per cent CAGR in total income and 32 per cent in net profit, boasts one of the lowest non-performing assets in the industry.

About the Issue 

Northern Arc Capital Ltd is preparing to launch its Initial Public Offering (IPO) for equity shares. Below are the issue details. 

Objects of the Issue  

The offering includes both a fresh issue and an offer for sale. It's important to highlight that the company will not receive any proceeds from the offer for sale. The net proceeds from the fresh issue will be utilised by the company to meet future capital requirements for onward lending.

Promoter holding  

The company states that it is professionally managed and does not have any identifiable promoter.

Company profile  

The company is a diversified financial services platform, established with the primary goal of addressing the varied retail credit needs of underserved households and businesses in India.

Since its inception in 2009, the company has facilitated financing worth over Rs 1.73 trillion, positively impacting more than 101.82 million lives across the country, as of March 31, 2024.

As per the CRISIL Report, it ranks among the leading diversified NBFCs in India by Assets under Management (AUM) as of March 31, 2024. Its business model is diversified across a range of offerings, sectors, products, geographies, and borrower categories.

The company has specialized expertise in providing credit to key sectors in India, including micro, small, and medium enterprises (MSMEs), microfinance (MFI), consumer finance, vehicle finance, affordable housing finance, and agricultural finance.

Its three main operational channels—Lending, Placements, and Fund Management—are delivered through a proprietary technology platform that enables efficient and seamless digital financing solutions, granting access to credit for underserved segments across its focus sectors.

Financials  

The company has demonstrated steady growth in interest income, total income, and profitability over the past few years. Between FY22 and FY24, the company recorded a Compound Annual Growth Rate (CAGR) of 44 per cent in total income and 32 per cent in net profit.

According to the CRISIL Report, the company registered the lowest gross non-performing assets (GNPA) at 0.45 per cent and net non-performing assets (NNPA) at 0.08 per cent as of FY24. 

The company has maintained a three-year average RoE of around 12 per cent, showcasing its capability to deliver consistent returns while preserving solid asset quality. Additionally, as of March 31, 2024, the company has one of the lowest credit costs in the industry among diversified NBFCs in India.

Valuation and outlook  

The issue is priced with a P/BV ratio of 1.49 times, calculated using its Net Asset Value (NAV) of Rs 177.06 as of March 31, 2024. At the upper price cap, it is priced at a P/BV ratio of 1.40 times, considering its post-IPO NAV.

When we calculate the PE ratio for the company by considering the FY24 earnings relative to the fully diluted paid-up equity capital, the resulting PE ratio stands at 11. Hence, the issue appears to be reasonably priced.

With the growing demand for financial inclusion and the expansion of digital lending platforms, the future of NBFCs remains highly optimistic. Their ability to cater to diverse credit needs across sectors, particularly in underserved regions, positions them as key players in driving economic growth and financial empowerment in India.

With a strong track record in financing and maintaining one of the lowest NNPA ratios in the industry, the company demonstrates robust asset quality and delivers attractive returns. Coupled with an appealing valuation and its proven ability to serve diverse sectors effectively, we recommend subscribing to the issue with a long-term investment outlook for its promising growth prospects.