Pick of the week - Northern Arc Capital Ltd

Authored By Prime Research | Last Modified: Oct 6, 2025 03:16 PM IST

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Buy Northern Arc Capital in the price range of Rs 284-290. Add on dips in Rs 257-263 price band. Last traded price (LTP) : Rs 286. Base case fair value: Rs 315. Bull case fair value: Rs 340. Time horizon: 2-3 quarters.

Industry	LTP	Recommendation	Base Case Fair Value	Bull Case Fair Value	Time Horizon
BFSI – NBFC	Rs 286	Buy in Rs 284-290 band and add on dips in Rs 257-263 band	Rs 315	Rs 340	2-3 quarters

Our Take:

Established in 2009, Northern Arc Capital Ltd. (NACL) is a diversified financial services platform catering to the diverse retail credit requirements of the underserved households and businesses in India. It has developed domain expertise and focused on lending to MSME, microfinance and consumer segments. Additionally, it provides finance to its partners for onward lending and fulfils the funding needs of these partners through the placements business and fund management business. The business is backed by its proprietary end-to-end technology product suite like Nimbus, nPos, NuScore and Altifi.

Over the last few quarters, NACL has faced several macro and sectoral headwinds – including stress in the MFI sector, heightened regulatory scrutiny and tightening liquidity conditions. It is now emphasising building a resilient D2C book with a target of 70% mix by FY28, focusing on MSME, consumer, and rural segments. It is well-positioned to capitalize on the growing credit needs of the underserved segment. It is rebuilding its MFI book which should help in improving yields and the reduction in cost of funds would aid margin expansion. With its domain expertise, advanced technology platforms, comprehensive data infrastructure and extensive distribution network, the Company is strategically poised for growth and innovation centered around customer need.

Valuation & Recommendation:

Management has highlighted improving macro indicators, including RBI rate cuts and a favorable monsoon, as tailwinds for H2FY26. An increased share of D2C lending and higher placement volumes would enhance fee income, driving an expansion of RoA. We believe that investors can buy NACL in the band of Rs 284-290 and add on dips in Rs 257-263 band (0.95x FY27E ABV) for the base case fair value of Rs 315 (1.15x FY27E ABV) and bull case fair value of Rs 340 (1.25x FY27E ABV) over the next 2-3 quarters.

Disclaimer : This content is only for informational purpose. Do not make any investment based solely on this recommendation as this recommendation is not based on your unique risk tolerance, time horizon and investment objectives.

To see the detailed report & disclaimer, click on : https://static.hdfcsec.com/research/reports/0199b7850cb9786988d151ab2542af55.pdf

Source: HDFC Securities Prime Research

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