Northern Arc Capital IPO – GMP, Financials & More

adminSeptember 14, 2024

Northern Arc Capital Company will launch a total IPO of Rs 77.7 billion on the 16th, comprising a fresh IPO of Rs 500 crore and an offer for sale of Rs 27.7 billion.^Day September 2024. This issue closes on the 19th.^Day Scheduled to be listed on the exchange on September 24, 2024^Day September 2024. In this article, we will look at Northern Arc Capital IPO review and analyze its strengths and weaknesses. Read on to learn more about the company.

Northern Arc Capital IPO – About Us

The company was founded in 2009. Northern Arc Capital is a diversified financial services platform in India. The company focuses on providing retail credit to marginalized households and businesses. The company operates in multiple sectors including MSME finance, microfinance, consumer finance, vehicle finance, affordable housing finance and agricultural finance. It has facilitated over Rs 1.72 trillion in financing, impacting the lives of over 1.018 billion people across India.

They provide access to debt capital using a multi-channel approach. The three main channels are lending, placement and fund management. They provide direct lending to clients and brokerage partners through their proprietary stack technology. Placement involves structuring and syndicating financing for originator partners. Fund management involves providing debt fund management and portfolio management services.

The company has built a scalable business model supported by proprietary technology. It uses data-driven risk management and credit underwriting processes. The company has achieved consistent growth and has proven resilience through various economic cycles. It has a diverse lending base and has high credit ratings from agencies such as ICRA and India Ratings.

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Northern Arc Capital IPO – Industry Overview

Digital lending has transformed retail credit in India. Lenders use web platforms and apps to quickly register, assess, approve and disburse loans. This improves decision-making through data insights and faster customer onboarding. Customers can easily compare lenders, apply for loans remotely and submit documents digitally. India Stack, including Aadhaar and UPI, has further streamlined the lending process.

The personal loan balance stood at Rs 12.2 trillion in FY24 and could cross Rs 18.5 trillion in FY27. Factors driving this growth include segmented retail lending, technology being used for scale, changing consumption patterns and improving customer income profiles. NBFCs funding personal loans will require around Rs 1.49 trillion between FY25 and FY27.

Despite competition from banks, NBFC profitability is improving. Net interest margins are expanding due to portfolio growth and cost of funds reduction. Operating expenses are expected to decline as efficiency improves. Credit costs may decline based on expected NPA levels. Overall, NBFCs’ return on assets is likely to improve in the next fiscal.

Northern Arc Capital IPO – Financial Highlights and Segments

Northern Arc Capital reported net interest income of Rs 98.572 crore in FY24 and Rs 59.093 crore in FY23. Net profit for FY24 was Rs 31.769 crore and Rs 24.221 crore in FY23. In addition to finance costs, there are fees, other expenses and employee benefits expenses.

Net interest margin for FY24 was 8.42% as against 6.31% in FY23. Basic EPS for FY24 was Rs 34.61 per share as against Rs 25.85 per share in FY23, up from Rs 19.52 per share in FY22. The improvement in EPS indicates increasing value to shareholders.

RoE for FY24 was 13.32% compared to 11.76% in FY23. The increase in RoE was due to increased revenue and improved net profit, which contributed to the increase in earnings. RoA for FY24 was 2.97%, an improvement from 2.60% in FY22.

The capital to risk asset ratio (CRAR) was 18.26% in FY24 and 20.77% in FY23, which is higher than the regulatory requirement of 15%. To understand operational efficiency, consider operating expenses as net total income. This ratio was 43.40% in FY24 and 42.83% in FY23.

Northern Arc Capital recognized revenue from fundraising activities which accounted for 92.14% in FY24, investment management services accounted for 1.77%, portfolio management services accounted for 0.81% and others accounted for 5.26%. The major participating states are Tamil Nadu with 14.59%, Maharashtra with 11.99% and Karnataka with 9.45% and had an AUM of Rs 11,710.01 crore in FY24.

Net Non-Performing Assets (NNPA) in FY24 stood at 1.50% compared to 1.70% in FY23. Gross Non-Performing Assets stood at 4.10% in FY24, down from 5.0% in FY23.

Northern Arc Capital IPO – Major Listed Companies

Northern Arc Capital’s peers include Five Star Business Finance Limited, SBFC Finance Limited, CreditAccess Grameen Limited, Fusion Micro Finance Limited, Bajaj Finance Limited, Cholamandalam Investment and Finance Company Limited, Poonawalla Fincorp Limited and MAS Financial Services Limited.

Northern Arc’s AUM is around 11,710 crores, which is in the lower range compared to its peers. The range is 6.8k crores to 2.4 lakh crores, with Bajaj Finance recording the highest AUM among its peers in FY24 and SBFC Finance the lowest. Northern Arc’s Net NPA is around 1.50% compared to its peers, which is in the range of 0.46% to 2.32%. Northern Arc is in the middle range among its peers in terms of asset quality.

Five Star recorded a high CRAR of around 50.50% in FY24, while Northern Arc recorded 18.26%. The CRAR of its peers ranged between 18.26% and 50.50%. Based on AUM size, Northern Arc recorded a relatively low CRAR among its peers.

When Northern Arc compares operating expenses to total income, MAS Financial outperformed its peers with a margin of 25.04% in FY24. The range was between 25% and 45.74%. Northern Arc is in the upper range of margins, which suggests room for improvement. Overall, Northern Arc underperformed on some parameters and was on par with its peers.

Company Strengths

Presence in rural markets: The company operates in a large, under-penetrated market with strong sector expertise. It leverages India’s low credit penetration and vast untapped potential, particularly in rural areas. The company’s diversified business model and technology portfolio enable it to provide credit across multiple sectors.
Technology and Networking: Northern Arc has built a partner ecosystem and a data-driven technology platform that creates powerful network effects. The multi-channel offering, supported by proprietary technology, provides funding to end customers and helps partners expand their reach and access new pools of capital.
Credit Platform: They are transforming the debt markets ecosystem using proprietary technology products. Their platforms, such as Nimbus, nPOS, AltiFi, and Nu Score, enable end-to-end processing of debt transactions, streamlined lending processes, retail debt investments, and real-time risk assessment for partners.
Risk Management: The company is strong Risk Management Based on domain expertise, proprietary models and extensive data repositories. This approach has resulted in a lower non-performing asset ratio. The company’s diversified presence across India and sectors mitigates regional and sectoral risks.
Loan diversification: Northern Arc maintains diverse sources of funding and practices active liquidity management. It has established relationships with a variety of lenders and investors. The company’s strong credit rating and ability to raise funds through multiple channels provide a stable foundation for growth.

Weaknesses of the company

Increase unsecured credit: The Company invests heavily in unsecured credit facilities and subordinated debt securities, which increases the risk of non-performing assets if these investments are not recovered. This exposure could have an impact on the Company’s business, financial condition and results of operations.
Asset-Liability Mismatch: They face asset-liability mismatches, which expose them to interest rate and liquidity risks. Failure to manage these mismatches can lead to financial difficulties and negatively impact operations and cash flow.
Funding regularity and borrowing costs: This business requires regular funding, and any interruption in the source of funding could have a serious impact on operations. The ability to obtain funding on appropriate terms depends on a number of factors. The average cost of borrowing has also increased in recent years.
High churn rate: Northern relies heavily on key management and senior staff. High attrition rates, especially among permanent staff, can hinder growth. Attracting and retaining qualified professionals remains a challenge for them in a competitive market.
Lender concentration: The Company relies heavily on a small number of major lenders for credit. The loss of these sources of credit or a decline in lending could have an adverse effect on the Company’s business, financial condition, operational difficulties and ability to extend credit to borrowers.