Northern Arc Capital IPO analysis

Northern Arc Capital 's IPO will open on September 16, 2024, and close on September 19, 2024. We break down the NBFC's strengths, weaknesses, and growth prospects to help investors make an informed decision. Northern Arc Capital IPO in a nutshell Quality: It reported a three-year average ROE of nearly 12 per cent during FY22-24. Also, its average gross NPA (non-performing assets) stood at 0.6 per cent over the same period. Growth: During FY22-24, its AUM (assets under management) and profit after tax grew 28 per cent and 32 per cent annually. Valuation: The stock is valued at a P/E and P/B ratio of 13.3 and 1.5 times, respectively, compared to its peers' median P/E and average P/B of nearly 24 and 3 times, respectively. Overview: Rising demand for credit and the ongoing shift towards more organised lenders in the underpenetrated Tier 2 and rural markets should drive growth. However, the lending industry is rife with competition, which may pose considerable threats going forward, given Northern Arc operates on a smaller scale compared to several peers. About Northern Arc Capital Founded in 1989, Northern Arc Capital is a non-deposit-taking NBFC focused on lending to retail and MSME customers. It also acts as an intermediary and guarantor for loans through a network of financial institutions. As of FY24, 60 per cent of its loan book comes from direct lending, with the rest from its role as an intermediary. The company has also developed platforms for facilitating debt-based investments via private placements. Strengths of Northern Arc Capital Robust asset quality: Its diversified loan book has helped ensure healthy asset quality over the years. Between FY22-24, its three-year average gross non-performing assets (GNPA) stood at 0.6 per cent. Moreover, its provision coverage ratio (PCR) was over 80 per cent as of March 2024, underscoring its solid financial health. Weaknesses of Northern Arc Capital Competitive threats: While Northern Arc operates 316 branches across India, it operates at a significantly smaller scale compared to larger NBFCs such as Bajaj Finserv. In the long run, competition from bigger NBFCs and banks may prove fatal to its growth plans. Northern Arc Capital IPO details Total IPO size (Rs cr) 777 Offer for sale (Rs cr) 277 Fresh issue (Rs cr) 500 Price band (Rs) 249 - 263 Subscription dates September 16-19, 2024 Purpose of issue to fund capital expenditure Post-IPO M-cap (Rs cr) 4,243 Net worth (Rs cr) 2,814 Promoter holding (%) Nil Price/earnings ratio (P/E) 13.3 Price/book ratio (P/B) 1.5 Financial History Key financials 2Y CAGR (%) FY24 FY23 FY22 NII (Rs cr) 63.2 986 591 370 PAT (Rs cr) 32.2