The initial public offering (IPO) of Northern Arc Capital kicks-off for bidding today, that is, Monday, September 16. The financial services player shall be offering its shares in the fixed price band of Rs 249-263 apiece, where investors can apply for a minimum of 57 equity shares and its multiples thereafter. The issue can be subscribed until Thursday, September 19.
Chennai-based Northern Arc Capital was founded in 2009 and offers retail loans to underserved households and businesses in India. Its business model is diversified across different offerings, sectors, products, geographies, and borrower categories. It has facilitated over Rs. 1.73 lakh crore worth of financing, reaching out to over 10.18 crore people across India, as of March 31, 2024.
The Rs 777 crore-IPO of Northern Arc Capital includes a fresh share sale of Rs 500 crore and an offer-for-sale (OFS) of up to 1,05,32,320 equity shares by its existing shareholders- Leapfrog Financial Inclusion India, Accion Africa-Asia Investment, 360 ONE Special Opportunities Fund, Eight Roads Investments, Dvara Trust and Sumitomo Mitsui Banking Corporation.
The company has reserved 5,90,874 equity shares for its eligible employees, who will get a discount of Rs 24 per share. 50 per cent of the net offer shall be reserved for qualified institutional bidders, while non-institutional investors will have 15 per cent of the allocation in the net offer. Retail investors will have 35 per cent of the net offer reserved for them.
At the upper end of the price band, Northern Arc Capital is looking to raise a total of Rs 775.58 crore via IPO. The net proceeds from the issue shall be utilized to meet future capital requirements toward onward lending. Anchor book for the issue will open on Friday, September 13.
Northern Arc Capital has expertise in lending across various focus sectors in India, especially in micro, small, and medium enterprise (MSME) finance, microfinance, consumer finance, vehicle finance, affordable housing finance and agriculture finance. It has been active in MSME finance for over 14 years, MFI finance for 15 years and consumer finance for nine years.
Northern Arc Capital reported a net profit of Rs 317.69 crore with a revenue of Rs 1,906.03 crore for the financial year ended on March 31, 2024. The company had clocked a bottomline of Rs 242.21 crore with a revenue of Rs 1,311.2 crore for the fiscal year 2022-23.
ICICI Securities, Axis Bank and Citigroup Global Markets India are the book running lead managers of the Northern Arc Capital IPO, while Kfin Technologies is the registrar for the issue. Shares of the company shall be listed on both BSE and NSE, with September 24, Tuesday as the tentative date of listing. Here's what brokerage firms say about the IPO of Northern Arc Capital:
Nirmal Bang Securities Rating: Subscribe Northern ARC is well-positioned for growth, leveraging sector expertise, digital platforms, and a strong partner ecosystem to access India’s underpenetrated credit markets. Its diversified funding sources and improved credit rating support sustainable expansion, despite high operational costs, said Nirmal Bang Securities.
"Northern Arc has respectable ROA and ROE along with loan growth of 28 per cent CAGR over FY22-24. Its asset quality is impressive with low GNPA and NNPA. The price-to-book value (1.8 times) indicates the company is undervalued compared to peers. Thus, we recommend subscribing to the issues," it said.
SBI Securities Rating: Subscribe for long-term The company is valued at a P/E & P/BV multiple of 13.4 times & 1.5 times respectively based on the upper price band on the post-issue capital. The company is one of India’s leading diversified non-banking financial companies in terms of assets under management (AUM). It has honed its expertise in facilitating credit across targeted sectors in India, said SBI Securities.
"It has a robust ecosystem of 328 originator partners, 50 retail lending partners and 1,158 investor partners. The issue appears to be fairly valued when compared with close peers on most valuation and financial matrices. We recommend subscribing to the issue for a long-term investment horizon," it added.
KR Choksey Finserv Rating: Subscribe NACL's price-to-book value multiple stands at 1.5 times for the post-IPO book value of Rs 174.5 per share as of March 31, 2024, which is reasonable compared to its peers. The average price-to-book value for the peers is 3.5 times. The company is diversifying into new sectors, which presents exciting growth opportunities, said KR Choksey's IPO note.
"We have a positive outlook on NACL's future as it is strategically enhancing its ecosystem through cultivating and strengthening partnerships while expanding its technology products to improve customer experience and operational efficiency. Therefore, we recommend a 'subscribe' rating for Northern ARC Capital IPO," it added.
Canara Bank Securities Rating: Subscribe Northern Arc diversified model and strong technological capabilities position it well for growth in the vast retail credit market. However, it should strategically manage risks related to AIF exposure and competitive pressures. Its diversification in investment strategies and innovation in technology will be crucial for mitigating these risks and sustaining long-term growth, said Canara Bank Securities.
"Regular review and adaptation to market conditions will be essential for maintaining competitive advantage and financial stability. This issue is available at P/BVPS of 1.49 times as of FY24, which appears in line with peers. Hence, we recommend to 'subscribe' this issue for long-term gains," it added.
StoxBox Rating: Subscribe The issue is valued at a P/BV of 1.49 times on the upper price band based on FY24 book value, which is fairly valued, said StoxBox. "We recommend a Subscribe rating for the issue on the back of a differentiated credit underwriting process, which keeps their asset quality strong and risk-adjusted returns consistent across business cycles," it said.