Northern Arc Capital: What the Market Is Really Pricing In

By Ventura Research Team 3 min Read Dec 4, 2025

Northern Arc Capital Share Valuation Analysis

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 16–20%, 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 high yields on the small 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 stated	FY21	FY25	FY28E (Ventura)	Base Case FY28E
Assets Under Management	5,221	13,634	24,710	23,500
On-book retail loans	~1,000	~7,100	~17,000	16,000
Net Interest Income	318	1,513	3,035	2,850
Credit cost (% AUM)	1.20%	1.00%	1.30%	1.40%
Cost-to-income ratio	23%	36%	~28%	34%
PAT	74	301	793	720
Book value	~1,800	~3,900	~7,000	6,800
ROE	<5%	10.6%	16.5%	15.5%

Key Drivers Behind the ROE Expansion Story

Retail yield at 17.4%

Funding cost compressed to ~8% through higher bank + DFI share and heavy floating-rate borrowings

Operating leverage emerging — cost-to-income ratio improves

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

Northern Arc is currently trading at a 0.8x Price to Adjusted Book Value (P/Adj. BV) of FY28, highlighting its undervaluation relative to its strong growth prospects. With AUM growth projected at 21.9% CAGR and a strategic focus on high-yield Direct-to-Customer (D2C) lending, NACL is set to deliver consistent improvement in its Net Interest Margin (NIM) and Return on Assets (RoA). Furthermore, the company is expected to achieve ROE recovery to 16.5% by FY28, making its stock an attractive opportunity for investors. The combination of strong financial performance, a diversified portfolio, and a promising growth outlook positions NACL for a 33% upside, with a target price of INR 344 over the next 24 months, offering a substantial margin of safety

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

Regulatory volatility — NBFCs remain highly sensitive to RBI circulars

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 3rd Dec 2025 and publicly available company filings. For educational purposes only. Not investment advice. All investors must conduct independent due diligence.