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Review By Dilip Davda on September 13, 2024
• The company is first of its kind player in diversified financial services platforms.
• It posted constant growth in its top and bottom lines for the reported periods.
• NACL has created a niche place among the players on financial services platform.
• Based on FY24 earnings, the issue appears reasonably priced.
• Investors may park funds for medium to long term.
ABOUT COMPANY:
Northern Arc Capital Ltd. (NACL) is a diversified financial services platform set up primarily with the mission of catering to the diverse retail credit requirements of the under-served households and businesses in India. Over the last 15 years, its approach has been to create a differentiated and comprehensive play on the retail credit ecosystem in India spread across sectors. Since 2009, when it entered the financial inclusion space, the company has facilitated financing of over Rs. 1.73 trillion that has impacted over 101.82 million lives across India, as of March 31, 2024.
According to the CRISIL Report, it is one of the leading players amongst India's diversified NBFCs in terms of Assets under Management ("AUM") as of March 31, 2024, with a business model diversified across offerings, sectors, products, geographies and borrower categories. Further, it has one of the lowest industry-wide credit costs amongst diversified NBFCs in India, as of March 31, 2024 (Source: CRISIL Report).
It has developed domain expertise in enabling credit across focused sectors in India, namely, micro, small and medium enterprises ("MSMEs") financing, microfinance ("MFI"), consumer finance, vehicle finance, affordable housing finance and agricultural finance. NACL has been operating in the MSME, MFI and consumer finance sectors for over 14 years, 15 years and nine years, respectively. The retail credit market (includes housing finance, vehicle financing, gold loans, education loans, consumer durables, personal loans, credit cards and microfinance) in India was Rs. 75.2 trillion, as of Fiscal 2024 and has rapidly grown at a CAGR of 16.0% during Fiscals 2020 and 2024 (Source: CRISIL Report).
It caters to this retail credit market through a multi-channel approach that includes: (i) extending financing from its balance sheet ("Lending"), to Originator Partners in the form of loans or investment in their debt to enable on-lending to the retail customer ("Intermediate Retail Lending") and directly to under-served households and businesses ("Direct to Customer Lending") either in collaboration with Retail Lending Partners or through branch network to offer rural finance and MSME lending, with AUM of Rs. 117,100.19 million across 671 districts, 28 states and seven union territories in India, as of March 31, 2024; (ii) enabling credit for its Originator Partners through various financing products ("Placements"), with aggregate Placements volume of Rs. 1,019,038.92 million, as of March 31, 2024; and (iii) managing debt funds and providing portfolio management services ("Fund Management"), with aggregate fund deployed of Rs. 120,785.58 million across 10 ice ("PMS") funds, as of March 31, 2024.
It has built an efficient and scalable business model, supported by its proprietary end-to-end integrated technology product suite customized to multiple sectors. Its in-house technology stack consists of: (i) Nimbus, a curated debt platform that enables end-to-end processing of debt transactions; (ii) nPOS, a co-lending and co-origination technology solution based on application programming interfaces ("API"); (iii) Nu Score, a customized machine learning based analytical module designed to assist Originator Partners in the loan underwriting process; and (iv) AltiFi, an points, as of March 31, 2024, on portfolios across multiple sectors that it has assessed throughout journey, and qualitative field-level insights that aid credit assessment and monitoring. According to the CRISIL Report, it had one of the lowest gross non-performing assets ("GNPA") of 0.45% and net non-performing assets ("NNPA") of 0.08%, as of Fiscal 2024.
It has a diverse lender base comprising banks, offshore financial institutions, NBFCs, development financial institutions ("DFIs") and high net-worth individuals ("HNIs"). It was also upgraded to AA- (Stable) credit rating by ICRA and India Ratings in March 2023 and September 2023, respectively, from A+ credit rating for all its long -term facilities and non-Stable) credit rating for all long -term facilities and non-convertible debentures in July 2024. For short-term bank facilities and commercial papers, A1+ rating was re-affirmed by ICRA and CARE Edge in March 2024 and further re-affirmed in July 2024. As of March 31, 2024, it had 2,695 permanent employees on its payroll.
ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo IPO of fresh equity shares issue worth Rs. 500 cr. (approx. 19011407 shares at the upper cap), and an Offer for Sale (OFS) of 10532320 equity shares (worth Rs. 277 cr. at the upper cap). The company has announced a price band of Rs. 249 - Rs. 263 per equity shares of Rs. 10 each. The overall size of the issue will be approx. 29543727 shares worth Rs. 777 cr. The issue opens for subscription on September 16, 2024, and will close on September 19, 2024. The minimum application to be made is for 57 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 18.31% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 150.00 cr. for MSME Finance, Rs. 150.00 cr. for Micro finance, Rs. 150.00 cr. for consumer finance, Rs. 25.00 cr. for vehicle finance., Rs. 20.00 cr. for Agricultural finance. (The amount share be proportionately adjusted after deducting the offer related expenses.
The company has reserved 590874 equity shares for its eligible employees and offering them a discount of Rs. 24 per share. From the rest, it has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors.
The joint Book Running Lead Managers (BRLMs) to this issue are ICICI Securities Ltd., Axis Capital Ltd., and Citigroup Global Markets India Pvt. Ltd., while KFin Technologies Ltd. is the registrar to the issue.
Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 54.45 - Rs. 275 per share, between March 2014, and August 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 4.10, Rs. 26.64, Rs. 48.83, Rs. 121.23, and Rs. 197.02 per share.
Post-IPO, its current paid-up equity capital of Rs. 142.31 cr. will stand enhanced to Rs. 161.33 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 4242.86 cr.
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 916.55 cr. / Rs. 181.94 cr. (FY22), Rs. 1311.20 cr. / Rs. 242.21 cr. (FY23), and Rs. 1906.03 cr. / Rs. 317.69 cr. (FY24). Its debt equity ratio stood at 3.90 as of March 31, 2024.
For the last three fiscals, the company has posted an average EPS of Rs. 29.18 (basic) and an average RoNW of 12.24%. The issue is priced at a P/BV of 1.49 based on its NAV of Rs. 177.06 as of March 31, 2024, and at a P/BV of 1.40 based on its post-IPO NAV of Rs. 187.97 per share (at the upper cap).
If we attribute FY24 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 13.36. Based on FY23 earnings, the P/E stands at 17.52. Thus the issue relatively appears reasonably priced.
The company reported net interest income of 5.53% (FY22), 6.48% (FY23), 8.33% (FY24) and profit margins of 2.60%, 2.73%, 2.97% respectively for the referred periods.
DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has already adopted a dividend policy in July 2021, based on its financial performance and future prospects.
COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Five Star Business, SBFC Finance, CreditAccess Grameen, Fusion Micro, Bajaj Finance, Cholamandalam Investment, Poonawalla Fincorp, and MAS Financial as their listed peers. They are trading at a P/E of 24.3, 33.6, 13.4, 8.9, 31.5, 36.2, 25.5, and 19.4 (as of September 13, 2024). However, they are not truly comparable on an apple-to-apple basis.
MERCHANT BANKER'S TRACK RECORD:
The three BRLMs associated with the offer have handled 74 pubic issues in the past three fiscals, out of which 17 issues closed below the offer price on the listing date.
Review By Dilip Davda on September 13, 2024
DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on the information published here. My reviews do not cover GMP market and operators game plans. Any reader taking decisions based on any information published here does so entirely at their own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.
About Dilip Davda
Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.
Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.
(Dilip Davda -SEBI registered Research Analyst-Mumbai,
Registration no. INH000003127 (Perpetual)
Email id: dilip_davda@rediffmail.com ).
The initial public offer (IPO) of Northern Arc Capital Limited offers an early investment opportunity in Northern Arc Capital Limited. A stock market investor can buy Northern Arc Capital IPO shares by applying in IPO before Northern Arc Capital Limited shares get listed at the stock exchanges. An investor could invest in Northern Arc Capital IPO for short term listing gain or a long term.
Read the Northern Arc Capital IPO recommendations by the leading analyst and leading stock brokers.
Northern Arc Capital IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Northern Arc Capital IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.
Our recommendation for Northern Arc Capital IPO is to subscribe.
As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe to the Northern Arc Capital IPO.
The Northern Arc Capital IPO allotment status will be available on or around September 20, 2024. The allotted shares will be credited in demat account by September 23, 2024. Visit Northern Arc Capital IPO allotment status to check.
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