Northern Arc Capital IPO - Issue Details, Financials, Peer Comparison, Strengths, Risks And More: DRChoksey

Deven Choksey Research Report

Northern Arc Capital Ltd. launched its initial public offering today and the offer closes for subscription on Sept. 19. The diversified financial services platform has fixed a price band of Rs 249-263 per share. The minimum lot size for bidding will be 57 shares.

The Rs 776 crore. crore IPO is a combination of a fresh issue of equity shares valued at Rs 500 crore and an offer for sale of 1.05 crore shares worth Rs 276 crore.

Object of the issue

• Utilize the net proceeds to meet future capital requirements towards onward lending

• Receive the benefits of listing of the equity shares on the stock exchanges, enhancement of its brand name and creation of a public market for equity shares in India.

Strengths:

• Large addressable and underpenetrated market with strong sectoral expertise

• Large ecosystem of partners and data and technology platform creating strong network effects.

• Proprietary technology product suite transforming the debt market ecosystem.

• Robust risk management based on domain expertise, proprietary risk models and data repository driving asset quality.

• Diversified sources of funding for its own deployment and proactive liquidity management.

• Professional management team supported by an experienced Board and marquee investors driving high standards of Governance.

• Strong ESG framework integrated into the business model with focus on creating sustainable impact and climate-smart lending.

Outlook and Valuation

Northern Arc Capital has built a solid foundation supported by its expansion in business, strong alliances, and efficient operations. Consequently, the NBFC has experienced a strong 33.7% CAGR growth in its Profit After Tax and a 38.1% CAGR growth in operating profit from FY22 to FY24.

Northern Arc Capital is focused on establishing a future-ready organization that offers customers convenient and cost-effective solutions by automating a considerable portion of its current business operations.

The way company has set up its organization, invested in new capabilities, and pursued data and digital initiatives has been strategically planned to drive its upcoming growth phase.

Favorable macroeconomic conditions, regulatory stability, and an improved operating environment support the promising prospects of the NBFC sector. Well-capitalized companies such as Northern Arc Capital, with robust provisioning norms and sufficient liquidity, are well-positioned to outperform the industry in the near future.

Asset classes such as microfinance, MSME finance, housing loans, and vehicle finance are expected to see increased demand. Moreover, consumer loans such as personal and gold loans are projected to gain traction, which is advantageous for Northern Arc Capital.

The NBFC plans to utilize the net proceeds from its recent Rs 5,000 million issue to strengthen its capital base and expand its lending capabilities.

At the upper end of the price band, Northern Arc Capital's price-to-book value multiple stands at 1.5 times for the post-IPO book value of Rs 174.5 per share as of March 31, 2024 (FY24), which is reasonable compared to its peers. The average priceto-book value for the peers is 3.5 times. We have a positive outlook on Northern Arc Capital's future as it is strategically enhancing its ecosystem through cultivating and strengthening partnerships while expanding its technology products to improve customer experience and operational efficiency.

Additionally, the company is diversifying into new sectors, which presents exciting growth opportunities. Therefore, we recommend rating Northern ARC Capital Ltd.'s IPO as 'Subscribe'

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