Motilal Oswal Maintains 'Buy' Rating for Northern Arc Capital, Targets Rs 390

Northern Arc Capital Posts Strong Q4 Earnings, Beats Estimates

Northern Arc Capital (NACL), a leading non-banking financial company, has reported strong earnings for the fourth quarter (4QFY26) of the fiscal year. The company's profit after tax (PAT) grew by approximately 250% year-over-year (YoY) to INR 1.3 billion, beating estimates by 13%.

The company's net interest income (NII) rose by 26% YoY to INR 4.4 billion, exceeding expectations by 10%. Other income also grew by 16% YoY to INR 649 million. However, operating expenses (Opex) increased by 34% YoY to INR 2.4 billion, in line with estimates. Profit per share (PPoP) grew by 17% YoY to INR 2.7 billion, beating estimates by 11%.

For the full fiscal year (FY26), NACL's PAT grew by 34% YoY to INR 4 billion. The company's asset under management (AUM) growth is being driven by the increasing share of the higher-yielding direct-to-consumer (D2C) portfolio, which has improved from 19% in FY21 to 56% in FY26. This growth is supported by strong momentum in consumer finance and MSME lending.

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Key Highlights

The company's credit costs in 4Q stood at INR 872 million, in line with estimates, with an annualized credit cost of 2.3%. NACL's AUM growth is being driven by expansion in physical distribution, addition of new lending partners, and high repeat customer engagement of approximately 70%.

Outlook

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We model an AUM/PAT compound annual growth rate (CAGR) of 21%/34% over FY26-28E, with return on assets (RoA)/return on equity (RoE) of 3.2%/15% in FY28E. Based on these estimates, we reiterate our BUY rating with a target price of INR 390, based on 1.2x FY28E price-to-book value (P/BV).