Northern Arc Capital IPO: Key strengths, risks and financials from the RHP to consider before subscribing

Northern Arc Capital IPO got subscribed 17.27 times on the third day of bidding on Wednesday. The part reserved for non-institutional investors (NIIs) received 41.97 times subscription, while the retail investors' portion got subscribed 16.92 times. The category meant for qualified institutional buyers (QIBs) fetched 22% subscription. As the bidding closes on September 18, here's a look at the company's strengths, risks and financials.

Northern Arc Capital IPO: Strengths

• The company has solid sectoral expertise and a large underpenerated rural market, which received just 9% of the overall baking credit as of March 31, 2024.
• As of the financial year 2023-24, it has a large ecosystem of partners, including 328 originator partners (OPs), 50 retail lending partners, and 1,158 investor partners.
• The proprietary technology product suite includes nPOS, AltiF, Nimbus, and Nu Score, which earned the 'Best Digital NBFC of the Year' award in 2020.
• Diversified sources of funding
• Strong ESG framework integrated into the business model as over 43% of the total underlying borrowers of its OPs comprised women as of December 31, 2023.

Northern Arc Capital IPO: Risks

• A substantial portion of its investments are in credit facilities and unsecured debt instruments, comprising 42% of the total AUM in FY24.
• The company's total outstanding borrowing stands at ₹9,047 crore as of FY24, which subjects it to certain conditions and restrictions regarding its financing arrangements as it has not complied with certain of these covenants in the past.
• Operates in a highly competitive industry. It faces competition from other banks, non-banking financial companies (NBFCs), microfinance institutions (MFIs), commercial banks and informal money lenders.
• Has consistently experienced negative cash flows from operating activities in FY22, FY23 and FY24.
• Business operations involve direct and indirect exposures to high-credit-risk borrowers in underserved households and businesses.
• Financial performance is vulnerable to interest rate risk.

Northern Arc Capital IPO: Financials

The ₹777 crore IPO is a mix of a fresh issuance of equity shares worth ₹500 crore and an offer for sale (OFS) of ₹277 crore by investor shareholders.

The money raised will be used to meet future capital requirements towards onward lending.