Want to Join the Journey of Northern Arc Capital Ltd IPO? Read this First
The Indian IPO market seems to be on a roll with companies across industry verticals looking to raise funds and get listed on exchanges. Tamil Nadu-based diversified financial services platform, Northern Arc Capital Ltd is the latest in the pipeline, all set to launch its IPO on September 19. The IPO consists of a fresh issue and an offer for sale.
About Northern Arc Capital Ltd
Northern Arc Capital Ltd is a diversified financial services platform established primarily to cater to the diverse retail credit requirements of underserved households and businesses in India. Since 2009, when it entered the financial inclusion space, it has facilitated the financing of over ₹1.73 trillion, impacting over 101.82 million lives across India as of March 31, 2024.
According to CRISIL, the company is one of the leading players among India’s diversified NBFCs in terms of assets under management (AUM) as of March 31, 2024.
Business model of Northern Arc Capital Ltd
Northern Arc Capital Ltd is registered as an NBFC and is a financial services platform set up to cater to the retail credit requirements of underserved households and businesses in India. The company caters to the retail credit market in India through a multi-channel approach (see image).
IPO details
The IPO of Northern Arc Capital Ltd opens on September 16 and closes on September 19. Here are the other key IPO details:
| Particulars | Lot size, price and other details |
|---|---|
Size of fresh issue | ₹500 crores |
Equity shares in offer for sale | Up to 10,532,320 equity shares |
Face value | ₹ 10 |
Price range | ₹249 to ₹263 |
Lot size | 57 |
IPO size | ₹777 crores in the upper price band |
Minimum investment | ₹14991 |
IPO registrar | KFin Technologies Ltd |
The following entities will offload their stake through offer for sale:
| Name of selling shareholder | Number of equity shares offered |
|---|---|
LeapFrog Financial Inclusion India (II) Ltd | Up to 3,844,449 equity shares |
Accion Africa-Asia Investment Company | Up to 1,263,965 equity shares |
Eight Roads Investments Mauritius II Limited | Up to 1,746,950 equity Shares |
360 ONE Special Opportunities Fund | Up to 1,408,918 equity shares |
DVRA Trust | Up to 1,344,828 equity Shares |
Sumitomo Mitsui Banking Corporation | Up to 923,210 equity shares |
Use of IPO proceeds
The company intends to utilise the net proceeds to meet future capital requirements towards onward lending in the following sectors:
- MSME finance
- MFI
- Consumer finance
- Vehicle finance
- Affordable housing finance
- Agriculture
Offer structure
Here’s how the offer is allotted for different category of investors:
| Qualified institutional bidders | Not more than 50% of the net offer |
|---|---|
Non-institutional bidders | Not less than 15% of the net offer |
Retail individual bidders | Not less than 35% of the net offer |
Group company of Northern Arc Capital Ltd
Finreach Solutions Private Limited is the group company of Northern Arc Capital Ltd. It is engaged in business consultancy services. It provides facilitation services to various entities, including companies, trusts, special purpose vehicles, banks, financial institutions, body corporates, etc.
Management of Northern Arc Capital Ltd
The company has an experienced leadership team that has played a pivotal role in building its business and brand. Its management comprises:
| Name | Designation | Brief profile |
|---|---|---|
P.S.Jayakumar | Chairman and non-executive independent director | He has approximately 30 years of work experience covering both the financial and real estate sectors. He is a chartered accountant and holds a master’s degree in commerce from the University of Madras and a postgraduate diploma in business management from Xavier Labour Relations Institute, Jamshedpur. |
Ashish Mehrotra | MD and CEO | He holds a master's degree in business administration from the Institute of Management Studies, DAVV, Indore, Madhya Pradesh, India, and has also successfully completed the senior executive leadership program offered by Harvard Business School. |
Dr. Kshama Fernandes | Non-executive, non-independent director and vice chairperson | She holds a bachelor’s degree in science from Goa University, a master’s degree in management studies from Goa University, and a PhD in management studies from Goa University. She has over 25 years of experience in management, risk advisory, and academia. |
Michael Jude Fernandes | Non-executive nominee director | He holds a bachelor’s degree in science from the University of Calcutta and a post-graduate diploma from the Indian Institute of Management, Calcutta. |
Vijay Nallan Chakravarthi | Non-executive nominee director | He holds a master of business administration degree from the J. L. Kellogg School of Management, Northwestern University, a master’s degree in science from the Ohio State University and a bachelor of engineering degree from the University of Madras. |
Trikkur Seetharaman Anantharaman | Non-executive nominee director | He holds a bachelor’s degree in commerce from the University of Kerala (Faculty of Commerce) and is a member of the Institute of Chartered Accountants of India. |
Anuradha Rao | Non-executive independent director | She holds a bachelor’s degree in science from Osmania University and a master of science degree in physics from the University of Hyderabad. She has approximately 36 years of experience in banking and finance. |
Ashutosh Arvind Pednekar | Non-executive independent director | He holds a bachelor’s degree in commerce from H.R. College of Commerce and Economics, University of Bombay. He has been a practising chartered accountant for over 30 years. |
Arunkumar N.T. | Non-executive independent director | He holds a bachelor’s degree in science from St. Joseph’s College, Bharathidasan University, Tiruchirapalli, Tamil Nadu and a postgraduate honours diploma in personnel management and industrial relations from XLRI Jamshedpur. |
Financial snapshot
The table captures key financials of Northern Arc Capital Ltd across financial years:
| Particulars | FY 24 | FY 23 | FY 22 |
|---|---|---|---|
Total equity and liabilities ( in ₹ crores) | 11707.659 | 9371.572 | 7974.116 |
Total income (in ₹ crores) | 1906.033 | 1311.200 | 916.545 |
Total expenses (in ₹ crores) | 1484.825 | 988.102 | 668.156 |
Return on net worth (in %) | 13.32 | 11.76 | 9.92 |
AUM growth (in %) | 29.99 | 26.73 | 36.15 |
Northern Arc Capital Arc: Comparison of key accounting ratios with listed industry peers
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 are the listed peers of Northern Arc Capital Ltd.
Here’s how Northern Arc Capital Ltd.'s key accounting ratios compared to its peers as of FY 24.
| Company | Revenue from operations (in ₹ crores) | Face value (in ₹ per share) | P/E | Return on Net Worth (RoNW) in % |
|---|---|---|---|---|
Northern Arc Capital Ltd | 1890.084 | 10 | NA | 13.32 |
Five-Star Business Finance Limited | 2182.847 | 1 | 26.76 | 16.09 |
SBFC Finance Limited | 1018.640 | 10 | 36.64 | 8.53 |
CreditAccess Grameen Limited | 5166.670 | 10 | 13.12 | 5.01 |
Fusion Micro Finance Limited | 2316.730 | 10 | 6.21 | 17.74 |
Bajaj Finance Limited | 54969.490 | 2 | 30.93 | 18.84 |
Cholamandalam Investment and Finance Company Limited | 19139.620 | 2 | 36.22 | 17.46 |
Poonawalla Fincorp Limited | 3109.010 | 2 | 17.81 | 20.60 |
MAS Financial Services | 1279.160 | 10 | 18.55 | 14.08 |
Industry overview
The retail credit market in India was ₹ 75.2 trillion, as of fiscal 2024 and has rapidly grown at a CAGR of 16% during fiscals 2020 and 2024. This market comprises housing finance, vehicle financing, personal loans, gold loans, education loans, microfinance, credit cards and consumer durables, among others.
The market is expected to grow further at a CAGR of 17-18% between Fiscal years 2024 and 2026 to reach ₹ 100.9 trillion by fiscal year 2026. The moderation of retail credit growth is due to normalisation in the unsecured segment, which had witnessed exuberant growth in the past, and the impact of RBI’s risk weight circular.
Wrapping it up
Northern Capital Arc Ltd believes that the projected growth of the retail credit market presents it with an opportunity to capitalise on the large potential of the market, particularly in the rural and semi-urban areas.
It also presents the company with an opportunity to broaden its investor base and reach out to new classes of investors, both domestic and overseas. The company plans to continue to focus on expanding its direct-to-customer lending channel to capitalise on the growing retail credit market in India.
That said, every company is exposed to some risks or others. Go through the red herring prospectus to be aware of them before investing.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.
Investments in securities market are subject to market risks, read all the related documents carefully before investing. Please read the SEBI prescribed Combined Risk Disclosure Document prior to investing. Brokerage will not exceed SEBI prescribed limit.
