At a Glance
Northern Arc Capital – the credit lifeline for India’s underserved – had a shaky Q1 FY26. Net Profit ₹78 Cr (-16% YoY) on revenue of ₹605 Cr (+4.7% YoY). While loan disbursements remained healthy, rising interest costs and narrowing spreads punched profitability. The stock trades at a P/E of 13.9 and P/B of 1.15, cheap versus NBFC peers, but investors are questioning growth quality post-IPO.
1. Introduction
Imagine running a credit platform for those who banks ghost – that’s Northern Arc. It’s the fintech-NBFC hybrid promising impact and profits. But Q1 numbers show the cost of money isn’t cheap, and neither is the path to scale. Profit dropped despite revenue growth, raising doubts: can this social lender keep its margins while chasing underserved markets?
2. Business Model (WTF Do They Even Do?)
- Core: Provides retail and small business loans to segments ignored by traditional banks.
- Portfolio: Microfinance, affordable housing, vehicle finance, SME lending.
- Model: Uses a diversified financial platform – origination, securitization, co-lending.
Roast: They claim to empower the underserved, but their profit just got underserved this quarter.
3. Financials Overview
Q1 FY26 Performance
- Revenue: ₹605 Cr (+4.7% YoY)
- EBITDA/Operating Profit: ₹323 Cr (OPM 53%)
- Net Profit: ₹78 Cr (-16.3% YoY)
- EPS: ₹5.02
Commentary: Revenue growth is meh, profits hit by rising funding costs.
4. Valuation
- P/E: 13.9x – attractive compared to big NBFCs.
- P/B: 1.15x – priced close to book.
- Fair Value Range: ₹210 – ₹280.
Market values it as a mid-tier NBFC – low risk, low reward (for now).
5. What’s Cooking – News, Triggers, Drama
- IPO proceeds fully utilized as per plan – no funny business.
- Q1 profits under pressure, but assets under management (AUM) grew.
- FIIs stake doubled to 9.16% – smart money sniffing potential.
- No dividend – they’re hoarding cash for growth.
6. Balance Sheet
| (₹ Cr) | Mar 2024 | Mar 2025 |
|---|---|---|
| Total Assets | 11,707 | 13,638 |
| Borrowings | 9,130 | 9,860 |
| Net Worth | 2,231 | 3,434 |
Auditor-Style Remark: Strong capital base post-IPO, but leverage remains high.
7. Cash Flow – Sab Number Game Hai
| (₹ Cr) | Mar 2023 | Mar 2024 | Mar 2025 |
|---|---|---|---|
| Operating Cash | -1,296 | -2,134 | -1,047 |
| Investing Cash | -115 | 36 | -388 |
| Financing Cash | 928 | 2,045 | 1,586 |
Comment: Operating cash is negative – NBFCs live on borrowings.
8. Ratios – Sexy or Stressy?
| Ratio | 2023 | 2024 | TTM |
|---|---|---|---|
| ROE | 13% | 11% | 10.6% |
| ROCE | 10% | 10% | 9.9% |
| NIM (OPM) | 68% | 52% | 51% |
| D/E | 4.2x | 3.9x | 2.9x |
Verdict: Leverage is high, profitability trending down – needs margin repair.
9. P&L Breakdown – Show Me the Money
| (₹ Cr) | FY23 | FY24 | TTM |
|---|---|---|---|
| Revenue | 1,306 | 1,891 | 2,369 |
| EBITDA | 888 | 1,152 | 1,209 |
| Net Profit | 242 | 318 | 286 |
Observation: Growth in revenue but profits tapering – cost of funds rising.
10. Peer Comparison
| Company | P/E | ROE | NIM/OPM |
|---|---|---|---|
| Bajaj Finance | 32 | 19% | 68% |
| Shriram Finance | 14 | 15% | 72% |
| Northern Arc | 14 | 11% | 51% |
Comment: Northern Arc is cheaper, but lacks Bajaj-level growth.
11. Miscellaneous – Shareholding
- Promoters: NIL (professionally managed)
- FIIs: 9.16% (rising)
- DIIs: 6.89% (down)
- Public: 83.9%
12. EduInvesting Verdict™
Northern Arc is a unique NBFC catering to underserved segments – a niche that can scale. However, Q1 FY26 reveals cracks: shrinking margins, high cost of funds, and profit drop despite revenue growth. Post-IPO, the stock trades near book value, giving some cushion.
SWOT Analysis
- Strengths: Diversified credit model, strong capital, FIIs increasing stake.
- Weaknesses: No dividend, low ROE, rising funding costs.
- Opportunities: Expanding MSME lending, co-lending with banks, fintech tie-ups.
- Threats: Higher NPAs, interest rate spikes, competition from big NBFCs.
Final Word: Northern Arc is still stitching its growth fabric. For now, it’s an NBFC with promise but not a Bajaj Finance wannabe yet.
Written by EduInvesting Team | 29 July 2025
SEO Tags: Northern Arc Capital, Q1 FY26 Results, NBFC Stocks, Financial Inclusion
