Synopsis:
Northern Arc shares are in focus after the DAM Capital projects an upside of 36 percent, citing an attractive valuation, improvement in profit margins, and strong growth expected in its segments
The shares of this leading loan provider are in focus after DAM Capital expressed its bullishness in its business. In this article, we will try to understand the rationale behind this uptick.
With a market capitalization of Rs 4,325 crore, the shares of Northern ARC Capital Ltd are currently trading at Rs 266.30 per share, representing a decline of 24 percent from its 52-week high of Rs 351 per share. In the last six months, the stock has provided a robust return of 59 percent.
Analyst Comments
Leading brokerage, DAM Capital, has assigned a Buy call on the stock with a target price of Rs 335 per share, signalling an upside potential of 36 percent from its Friday’s closing price of Rs 246.42 per share.
The brokerage cited that Northern ARC Capital shares are currently trading at a discount, which is around 0.9x of their expected book value for FY27 and 6.8x of their estimated earnings for the same year. It added that the firm is likely to see an improvement in profit margins as it extends its direct-to-customer lending and takes advantage of the lower interest rates.
Besides this, the fund management and placement business is going to grow, thereby generating more fee income and contributing to the increase in return on assets (RoAs). The brokerage also mentioned that the problematic asset quality in the microfinance (MFI) segment is anticipated to improve from the second half of FY26, with a turnaround getting there by FY27.
In general, these factors together are anticipated to lead the company to robust earnings growth and improved return ratios. The earnings CAGR during FY26–FY27 is predicted to be 39 percent.
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Financial Highlights
The company’s revenue for Q1 FY26 came in at Rs 605 crore, up by 5 percent from Rs 578 crore in the same quarter last year. However, on a sequential basis, revenue grew slightly by 0.33 percent from Rs 603 crore in Q4 FY25.
Its total Assets Under Management (AUM) under D2C lending grew by 13 percent to Rs 7,142 crore in Q1 FY26, as compared to Rs 6,313 crore in Q1 FY25. Amongst this large AUM base, the majority of the AUM is concentrated in its consumer finance segment with Rs 3,502 crore, followed by MSME with Rs 2,687 crore and Rural Finance with Rs 953 crore.
Also, it’s Intermediate Retail Partners AUM grew by 12 percent to reach Rs 6,209 crore in Q1 FY26 as compared to Rs 5,556 crore in Q1 FY25. Over the years (FY21-FY25), its AUM in this category has grown with a CAGR of 12 percent.
Its Gross Transaction Value (GTM) declined by 3 percent to Rs 7,411 crore in Q1 FY26 from Rs 7,643 crore in Q1 FY25, and declined significantly by 35 percent from its previous quarter figure of Rs 11,473 crore.
Coming to its profitability, the company reported a net profit decline of 17 percent to Rs 78 crore in Q1 FY26 as compared to Rs 94 crore in Q1 FY25. However, on a QoQ basis, it recorded a growth of 105 percent from Rs 38 crore.
The company has delivered an ROE and ROCE of 10.75 percent and 9.87 percent respectively, and is currently trading at a high P/E of 14.87x as compared to its industry average of 23.60x.
Northern Arc Capital Limited is a non-banking financial company (NBFC) that provides various loans such as credit for personal use, Micro, Small, and Medium Enterprises (MSME), housing, agriculture, and corporate finance etc. It has a total of 369 branches across India, with 54 strong leading partners.
In addition, the company offers various debt products, securitization, and fund management services. It is a multi-channel lender that embraces digital technologies to achieve its mission. The company facilitates digital lending and investment products through platforms such as Altifi, Nimbus, nPOS, and NuScore, which together cater to retail, rural, SME, corporate, and institutional sectors.
Written by Satyajeet Mukherjee
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