Is Northern Arc Capital IPO Good or Bad - Detailed Review
13 September 2024
9 min read
00:00 / 00:00
Northern Arc Capital Limited is setting off its initial public offering which will be open from September 16, 2024, to September 19, 2024. While considering applying for this IPO, certain questions may arise in your mind, including whether Northern Arc Capital IPO is good or bad, whether it is worth investing in it, and so on.
In this article, we'll provide a comprehensive Northern Arc Capital IPO review, diving into its business operations and fundamental analysis to help you make a well-informed investment decision.
Northern Arc Capital IPO - Company Overview
Northern Arc Capital Limited was founded in the year 2009 as a financial institution that offers retail loans to underserved households and small-scale businesses in India. Northern Arc is one of India's leading non-banking financial companies (NBFCs) in terms of Assets Under Management (AUM), boasting a well-diversified portfolio across multiple sectors, including MSME financing, microfinance (MFI), consumer finance, vehicle finance, affordable housing, and agricultural finance.
Its subsidiary entities like Northern Arc Investment Managers (NAIM), the Northern Arc steer debt funds that focus on a few Originator Partners and mid-market enterprises. Until March 31, 2024, it had raised Rs. 37,450 million from investors across 10 Alternative Investment Funds (AIFs) and 3 Portfolio Management Service (PMS) funds. Furthermore, it launched PMS funds after obtaining SEBI registration in fiscal year 2023.
As of March 31, 2024, Northern Arc has facilitated financing amounting to over Rs. 1.73 trillion, impacting 101.82 million lives across India. The company's business model is diversified in terms of offerings, sectors, products, geographies, and borrower categories.
Northern Arc Capital IPO - Geographical coverage
Spread of AUM (direct and indirect)
Particulars | As of FY24 |
Number of states | 28 |
Number of union territories | 7 |
Number of districts | 671 |
Exposure in top 10 States / Union Territories (based on total AUM)
From the below table, we can understand that the company has a diversified customer segment across all the states in the country and has the most number of customers from the state of Tamil Nadu with 14.59%, followed by Maharashtra with 11.9%. Along with all other states it has secured a total of Rs. 11,710.02 Cr as Assets under Management.
States | Contribution % |
Tamil Nadu | 14.59% |
Maharashtra | 11.99% |
Karnataka | 9.45% |
Gujarat | 5.99% |
Rajasthan | 5.29% |
Uttar Pradesh | 5.05% |
Telangana | 4.92% |
Andhra Pradesh | 4.76% |
Delhi | 4.63% |
Madhya Pradesh | 3.55% |
Others | 29.78% |
Total | 100.00% |
AUM (Rs. Cr ) | 11,710.02 |
Northern Arc Capital IPO - Customer Base
Segment | Intermediate Retail Lending Disbursement | Direct to Customer Lending Disbursement | Total Disbursements | |
FY24 (Rs, in Cr) | 6061.97 | 8823.12 | 14885.08 | |
FY24 (%) | 4.07 | 5.93 | 10 | |
FY23 (Rs, in Cr) | 5363.24 | 6425 | 11788.24 | |
FY23 (%) | 4.55 | 5.45 | 10 | |
FY22 (Rs, in Cr) | 5992.55 | 3389.81 | 8982.36 | |
FY22 (%) | 6.23 | 3.77 | 10 | |
The company’s revenue has increased considerably in FY 24 through both their segments. But if we look in detail, we can see that almost Rs. 6061.97 Cr was disbursed through their intermediate channel which focuses on segments like financial institution partners, fintech platforms, and other business correspondents. In the case of direct-to-customer lending, this segment includes retail customers such as individuals, small businesses, etc. In FY24, the company disbursed Rs. 8,823.12 Cr through this channel.
Northern Arc Capital Limited IPO - Financial Overview
Key Performance Indicator | FY 2024 | FY 2023 | FY 2022 |
GTV(Rs. In Cr) | 29,323.68 | 27,385.16 | 19,896.43 |
GTV growth (%) | 7.08 | 37.64 | 52.42 |
AUM(Rs. In Cr) | 11,710.02 | 9,008.69 | 7,108.32 |
AUM growth (%) | 29.99 | 26.73 | 36.15 |
Net Worth(Rs. In Cr) | 2,314.35 | 1,955.39 | 1,739.04 |
CRAR (%) | 18.26 | 20.77 | 22.79 |
Tier I Capital Ratio (%) | 18.07 | 20.15 | 22.08 |
Gross Stage 3 – Loans and Investments (%) | 0.45 | 0.77 | 0.5 |
Provision coverage ratio - Stage 3 assets (%) | 82.67 | 47.84 | 57.32 |
Net Stage 3 (%) | 0.08 | 0.4 | 0.21 |
Credit cost / Average Total Assets (%) | 1.18 | 0.47 | 0.55 |
Interest income(Rs. Cr) | 1,712.11 | 1,148.39 | 780.85 |
Profit for the year attributable to Owners of the holding company(Rs. Cr) | 308.33 | 230.01 | 172.5 |
Yield on assets minus Average Cost of Borrowings (Spread) (%) | 7.53 | 5.89 | 5.34 |
Earnings per equity share – Basic (Rs.) | 34.61 | 25.85 | 19.52 |
Net Asset Value per Equity Share (Rs.) | 177.06 | 150.01 | 133.54 |
Debt/Equity ratio (Times) | 3.9 | 3.4 | 3.27 |
Return on Asstes (%) | 2.97 | 2.73 | 2.6 |
From the above table, we can see that the company has a robust financial performance. Over the past three years, the company has consistently increased its AUM from Rs. 7108.32 Cr in FY22 to Rs. 11710.02 Cr in FY24. This AUM refers to the total value of loans the company has on its books through which it will earn its interest income.
Along with the rising AUM, the company has also managed to increase its interest income every year and this value was reported at Rs.1712.11 Cr during FY24. Similarly, its profits have also increased every year and after accounting for all the expenses, the company has reported a net profit of Rs. 308.33 Cr. From the total revenue, the company earns its major portion of the revenue from the consumer finance segment.
Furthermore, the company has reported increasing return ratios every year. For FY24, the company has reported a healthy ROA of 2.97%, indicating efficient use of its assets to generate profits.
Over the past three years, the company has reported a low GNPA, and the GNPA during FY24 was reported at 0.45%. Additionally, the NNPA was 0.08% after accounting for provisions set aside by the company.
The company also maintained a healthy Provision Coverage Ratio which was reported at 82.7%. These strong metrics show the company has enough reserves to cover potential losses from bad loans and a capital buffer that exceeds regulatory requirements.
Northern Arc Capital - Revenue Segment from Various Sectors
Here is a table showing revenues from each segment of the company:
Sectoral Mix – GTV | FY24 (Rs. Cr) | FY23 (Rs. Cr) | FY22 (Rs. Cr) |
MSME | 8,161.02 | 7,607.77 | 7,076.41 |
Microfinance (MFI) | 7,622.99 | 8,133.75 | 5,265.87 |
Consumer Finance | 10,117.49 | 8,574.28 | 3,206.73 |
Vehicle Finance | 1,901.26 | 2,076.09 | 3,463.63 |
Affordable Housing | 1,015.45 | 663.27 | 479.7 |
Agriculture | 505.57 | 330 | 404.09 |
Northern Arc Capital Limited has demonstrated strong overall performance, with significant growth in its core consumer finance and MSME segment.
Northern Arc Capital IPO - Industry Overview
The Indian retail credit market is growing towards a consistent CAGR of 17-18% between Fiscal 2024 and 2026 to eventually amount to Rs. 100.9 trillion by the fiscal year 2026. The skyrocketing demand for loans in MSMEs, consumer finance, and vehicle financing is the significant reason for this growth which has been fuelled by increasing spending patterns among consumers and an increase in financial inclusion initiatives. The market growth is indicative of strong economic recovery from the after effects of the pandemic amidst increasing access to credit for individual persons and enterprises throughout India.
Meanwhile, Non-Banking Financial Companies (NBFCs) are likely to experience different levels of growth across various loan types. For instance, MSME loans are anticipated to grow at a CAGR of 13-15%, microfinance at 23-25%, consumer finance at 17-20%, vehicle loans at 12-14%, and affordable housing respectively at 14-16% while agriculture loans would get only 9-10%. It is worth noting that although rural areas contribute about 47% towards the total GDP of India on March 31st 2024 they received only 9% of total banking credits thus presenting huge opportunities for banks as well as NFBCs to venture into lending in rural settlements.
Northern Arc Capital IPO - Peer Comparison
Northern Arc Capital Limited has 8 listed industry peers as Cholamandalam Investment and Finance Company Limited, Bajaj Finance Limited, CreditAccess Grameen Limited, Poonawalla Fincorp Limited, Fusion Micro Finance Limited, Five-Star Business Finance Limited, MAS Financial Services Limited, and SBFC Finance Limited.
The detailed comparison is as follows :
Name of Company | Revenue from operations (Rs. in Cr) | EPS (in Rs) - Basic | NAV (in Rs, per share) | RoNW (%) |
Northern Arc Capital Limited | 1890.08 | 3.46 | 17.71 | 1.33 |
Cholamandalam Investment and Finance Company Limited | 19139.62 | 11.45 | 20.23 | 1.75 |
Bajaj Finance Limited | 54969.49 | 29.95 | 123.9 | 1.88 |
CreditAccess Grameen Limited | 5166.67 | 9.09 | 180.99 | 0.5 |
Poonawalla Fincorp Limited | 3109.01 | 2.16 | 10.54 | 2.06 |
Fusion Micro Finance Limited | 2316.73 | 5.03 | 28.19 | 1.77 |
Five-Star Business Finance Limited | 2182.85 | 2.86 | 17.77 | 1.61 |
MAS Financial Services Limited | 1279.16 | 1.53 | 10.87 | 1.41 |
SBFC Finance Limited | 1018.64 | 0.24 | 2.59 | 0.85 |
As you can see from the above table, Northern Arc Capital Limited, has earned a total revenue of Rs. 1890.08 Cr. When compared to their peers it stands at the 7th position in terms of revenues.
In the case of earnings per share (EPS), Northern Arc Capital Limited has reported a positive figure with a basic EPS of Rs. 3.46 reflecting profitability. In contrast, Cholamandalam Investment and Finance Company Limited, and Bajaj Finance Limited have higher earnings per share which is 11.45 and 29.95 respectively.
The objective of Northern Arc Capital IPO
The company has planned to raise Rs. 500 Cr through fresh issues in this IPO.
A portion of this amount will be set aside to cover the expenses related to the issuance of shares, this cost hasn't been finalized yet.
The net proceeds, after deducting the above expense would be used mainly for two purposes by the company:
1) To provide loans and financial assistance to small businesses(MSMEs), microfinance institutions, individuals, housing projects, and farmers.
2) To ensure they have adequate capital requirements directed by the Reserve Bank of India, for the year 2025, which ensures the company is financially stable.
Additionally, the IPO will strengthen the company's visibility and brand by listing its equity shares on stock exchanges.
Northern Arc Capital IPO Details
Northern Arc Capital IPO Date
The IPO of Northern Arc Capital Limited is open to subscription from September 16, 2024, to September 19, 2024. The shares will be allocated to investors on Thursday, September 20, 2024, and the company will be listed in the NSE and BSE on Tuesday, September 24, 2024.
Northern Arc Capital IPO Issue Price
Northern Arc Capital Limited is offering its shares in the price band of Rs. 249 to Rs. 263 per share apiece. This means you would require an investment of Rs. 14,991 per lot (57 shares) if you bid for the IPO at the upper price band.
Northern Arc Capital IPO Size
The company is offering a total of 29,543,727 shares, amounting to Rs. 777.00 Cr. Out of these, 19,011,407 shares worth Rs. 500.00 Cr are offered through a fresh issue, and 10,532,320 shares worth Rs. 277.00 Cr are offered through an offer for sale.
Northern Arc Capital IPO GMP
As of September 16th, 2024, the latest Grey Market Premium (GMP) for Northern Arc Capital IPO stands at Rs 158, with an estimated listing price of Rs 421, indicating a potential gain of 60.08% per share.
Apply for Northern Arc Capital IPO
Is Northern Arc Capital IPO a Good or Bad Investment? Final Thoughts
Northern Arc Capital IPO Review: The company has showcased strong financials and growth potential over the years, both in the form of revenues as well as profitability. The company has operations in all the country's states showcasing their diversity in customer bases and segments. However, it is a small company compared to most of its peers in the industry which can be a potential risk for the company's future.
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