NORTHARC - Northern ARC

📊 NSE: NORTHARC 🏢 Finance & Investments 📅 Last Updated: 12/14/2025 10:36

💰 Financial Performance

Revenue Growth by Segment

The Direct-to-Customer (D2C) business assets under management grew by 32% YoY, with the MSME segment specifically growing by 42% YoY. Intermediate retail grew by 13% YoY, while performing credit funds increased by 14% YoY. Total AUM reached INR 13,351 Cr as of June 2025, a 12% YoY increase from Q1 FY25.

Geographic Revenue Split

Not disclosed in available documents, though secured business loans are noted to be spread across seven states with 84 branches.

Profitability Margins

Net Interest Margin (NII) stood at 9.0% for H1 FY26. Profit After Tax (PAT) was INR 318 Cr in FY24 and INR 264 Cr in 9M FY25. Return on Managed Assets (RoA) moderated to 2.2% in FY25 and Q1 FY26 from 2.8% in FY24, primarily due to a 205 bps increase in credit costs.

EBITDA Margin

Pre-Provision Operating Profit (PPoP) was 6.1% of quarterly average total assets in H1 FY26, down slightly from 6.3% in H1 FY25. Net Revenue margin stood at 9.7% for H1 FY26.

Capital Expenditure

The company raised INR 500 Cr through an IPO in September 2024, with net proceeds of INR 449.85 Cr fully utilized for onward lending to meet future capital requirements. Additionally, equity funding of INR 3,823 Cr was received in April 2024.

Credit Rating & Borrowing

The company holds a CARE A1+ rating for its INR 500 Cr Commercial Paper. Interest expenses stood at 6.2% of average total assets in H1 FY26, compared to 6.7% in H1 FY25, reflecting a diversified funding profile.

⚙️ Operational Drivers

Raw Materials

Capital is the primary 'raw material' for NACL. Interest expense, representing the cost of this capital, accounts for 6.2% of average total assets, which is approximately 64% of the total net revenue of 9.7%.

Import Sources

Sourced from a network of over 1,000 investor partners including domestic banks, mutual funds, insurance companies, and offshore development finance institutions like the International Financial Corporation (IFC).

Key Suppliers

Key capital providers include the International Financial Corporation (IFC) and various domestic banks and private wealth firms.

Capacity Expansion

Expanded physical infrastructure by adding 15 new branches in H1 FY26 and hiring 100 employees in sales and collection. The branch network for secured business loans reached 84 branches by June 2025.

Raw Material Costs

Interest expense (cost of funds) was 6.2% of average assets in H1 FY26. Procurement strategy involves diversifying the funding base across NCDs, securitization, and bank loans to manage liquidity.

Manufacturing Efficiency

Cost-to-income ratio stood at 37.0% in H1 FY26, compared to 36.5% in H1 FY25, reflecting investments in branch and personnel expansion.

Logistics & Distribution

Operating costs, including distribution and branch expenses, stood at 1.3% of average total assets in H1 FY26.

📈 Strategic Growth

Expected Growth Rate

30%

Growth Strategy

NACL aims to achieve over 30% growth in its direct retail book by expanding its branch network (15 new branches in H1 FY26) and increasing headcount in sales/collections. The strategy focuses on MSME lending (42% growth) to build long-tenured annuity income from secured asset pools.

Products & Services

Microfinance loans, MSME loans, consumer finance, vehicle finance, affordable housing finance, and agricultural supply chain finance. Also provides syndication, structuring services, and fund management through AIFs.

Brand Portfolio

Northern Arc, Nimbus (technology platform), Altifi (retail debt investment platform), Pragati Finserv (MFI subsidiary).

New Products/Services

Secured business loans, started in Q4 FY22, now contribute 9% of AUM as of June 2025. The Altifi platform is expanding into the debt segment with pending stockbroker registrations.

Market Expansion

Expanding direct retail presence through its own branch network and the Pragati Finserv subsidiary, specifically targeting the MSME and rural finance sectors.

Strategic Alliances

Partnerships with smaller NBFCs and digital platforms for retail lending, accounting for 29% of AUM. Pragati Finserv acts as a Business Correspondent for direct MFI lending.

🌍 External Factors

Industry Trends

The industry is shifting from wholesale NBFC lending to direct retail and co-lending models. NACL has repositioned itself with retail exposures increasing from 17% in March 2022 to 52% in June 2025.

Competitive Landscape

Competes with other systemically important NBFCs and digital lending platforms in the MSME and consumer finance space.

Competitive Moat

Durable advantage through the 'Nimbus' platform which has 15 years of credit data and relationships with 1,000+ investors. This network effect facilitates debt placement for over 300 partner institutions.

Macro Economic Sensitivity

Sensitive to interest rate cycles and rural economic health. MFI stress in FY25 was driven by broader sector headwinds, impacting credit costs by over 2%.

Consumer Behavior

Increased demand for digital-first credit and secured MSME loans, prompting NACL to expand its D2C segment by 32% YoY.

Geopolitical Risks

Exposure to offshore investors like IFC makes the company sensitive to international capital flow regulations.

⚖️ Regulatory & Governance

Industry Regulations

Categorized as NBFC-Middle Layer under RBI Scale Based Regulations. Complies with MFIN guardrails for microfinance and RBI capital adequacy norms (CRAR at 26.1% vs regulatory minimum).

Environmental Compliance

Direct exposure to environmental risks is considered low due to the service-oriented nature of the business.

Taxation Policy Impact

Tax expense was 0.8% of average total assets in H1 FY26.

Legal Contingencies

The company spent INR 6.09 Cr on CSR obligations as per Section 135 of the Companies Act. No specific pending court case values were disclosed in the provided text.

⚠️ Risk Analysis

Key Uncertainties

Asset quality in the secured business loan segment is a concern, with 90+ DPD rising to 6.9% in June 2025 from 3.4% in December 2024. Credit costs rose significantly to 3.22% in FY25 due to MFI stress.