To visit the old Ventura website, click here.
Ventura Wealth Clients

Northern Arc Capital: What the Market Is Really Pricing In

Stocks
By Ventura Research Team 3 min Read Dec 4, 2025
Northern Arc Capital Share Valuation Analysis
Share

The market still seems to price Northern Arc Capital as a largely institutional lender with limited retail traction, keeping valuations subdued. But the numbers tell a different story: rising retail share, improving profitability, and strengthening operating leverage. At today’s price, the stock reflects a cautious outlook that ignores this shift. With fundamentals improving faster than the narrative, the margin of safety appears significant while upside potential remains underappreciated.

The Dual-Engine Business Model Driving Long-Term Compounding

Act I: The Business — Two Engines, One Flywheel
Northern Arc Capital operates a dual-engine lending platform:
Engine 1 (Direct Retail): Originates loans to MSMEs, rural households, and consumers via 88 branches and the nPOS digital platform. This segment delivers yields of 16–18%, carries full credit risk, and requires branch-level operating expense.
Engine 2 (Institutional Credit Solutions): Structures and distributes loans to banks, smaller NBFCs, and funds while earning placement and management fees. This segment generates 9–11% yields on the small on-book portion, transfers most credit risk, and scales with almost no additional capital or fixed costs.

Both engines run on the same proprietary technology stack — Nimbus (debt curation), Nu Score (ML underwriting), AltiFi (retail investment platform), and nPOS (origination). The retail book produces rich borrower behaviour data that continuously improves underwriting for the institutional book; the institutional book provides fee income that subsidises technology investment. A genuine positive feedback loop in financial services — rare and valuable.
The strategic pivot is explicit: management intends to increase the retail share from 52% in FY25 to approximately 70% by FY28. That single shift drives nearly the entire investment thesis.

Decoding the Financials: From Historical Reality to Plausible FY28 Outcomes

Act II: The Numbers — From Historical Reality to Plausible Future

₹ Cr unless statedFY21FY25FY28E (Ventura)Base Case FY28
Assets Under Management5,22113,63424,71023,500
On-book retail loans~1,000~7,100~17,00016,000
Net Interest Income3181,5133,0352,850
Fee + Investment Income~150~550~1,1001,000
Credit cost (% AUM)1.20%1.00%1.30%1.40%
Cost-to-income ratio55%48%~38%40%
PAT74301793720
Book value~1,800~3,900~7,0006,800
ROE<5%10.6%16.5%15.5%

Key Drivers Behind the ROE Expansion Story

  • Retail yield at 17.4% versus ~10% on institutional assets

  • Funding cost compressed to ~9.8% through higher bank + DFI share and heavy floating-rate borrowings

  • Operating leverage emerging — cost-to-income has fallen 700 bps in four years and retains significant room

The base-case forecast assumes slightly slower AUM growth and marginally higher credit costs than Ventura projects, yet the direction remains identical.

Valuation Framework: What Northern Arc Is Worth Across Scenarios

Act III: The Valuation — What Is Priced In, What Is Possible

At ₹259 (December 2025), Northern Arc trades at approximately 0.8× FY25 adjusted book value and 5.8× FY25 earnings.

Three scenarios using a 14% cost of equity (appropriate for a growing Indian retail NBFC):

  1. Base Case FY28 book value ≈ ₹420, sustainable ROE 15.5%, terminal growth 12% Fair P/B ≈ 1.9× → Intrinsic value ≈ ₹800 (+208% from current)

  2. Optimistic Case (Ventura assumptions, sustained 16.5% ROE) Fair P/B ≈ 2.3× → Intrinsic value ≈ ₹950+ (+267%)

  3. Stressed Case (AUM growth slows to 12% CAGR, credit costs average 2.5%, ROE capped at 11%) Fair P/B ≈ 1.1× → Intrinsic value ≈ ₹410–420 (+58–62%)

Even under stress, downside appears limited. The current price embeds expectations of a perpetual 8–9% ROE — the profile of a wholesale lender, not a company actively migrating into high-yield granular retail.

Peer Comparison: Why Northern Arc Trades at a Deep Discount

CompanyImplied FY28 P/BFY28E ROERetail exposureLatest GNPA
MAS Financial3.2×~16%High1.8%
Five-Star Business4.1×~18%Very high1.3%
CreditAccess Grameen3.5×~20%Pure MFI1.1%
Northern Arc~1.1×15–16%Rising rapidly0.9%

Northern Arc trades at a 65–70% discount to comparable franchises despite comparable (or superior) asset quality and a clearer pivot toward the exact segments the market rewards with premium multiples.

Major Risks That Could Impact the Investment Thesis

  • Execution risk on the retail mix shift — moving from 19% to 70% retail in seven years is ambitious

  • Interest-rate sensitivity — over 70% of borrowings are floating; a sharp tightening cycle would compress spreads before asset yields reprice

  • Regulatory volatility — NBFCs remain highly sensitive to RBI circulars

  • Residual concentration in the institutional book (top 20 borrowers ≈ 18%)

These risks are real, but the current valuation already prices in a material probability of permanent impairment.

The Mispriced Narrative: Why the Market May Be Wrong

The market narrative appears anchored to an older version of the company: “diversified lender with a large institutional book”, justifying 1.0–1.2× book value for years.

The emerging reality — “technology-enabled retail franchise with a high-margin, capital-light fee engine attached” — remains only partially reflected in the price.

When the gap between the priced narrative and the unfolding reality is this wide, returns usually follow — eventually.

At ₹259, Northern Arc offers a substantial margin of safety and a free option on a significantly better business than the market currently recognises.

Disclosure: Analysis derived from Ventura Research report dated 26 November 2025 and publicly available company filings. For educational purposes only. Not investment advice. All investors must conduct independent due diligence.