Gross Non-Performing Assets (GNPA): 0.90%
Net Non-Performing Assets (NNPA): 0.37%
Provision Coverage Ratio (PCR) for Stage III Assets: 60.2%
Are these super good numbers? I mean 0.37% of Net Npa is better than HDFC and KOTAK. Am I missing something?
It appears Ashish Dhawan has entered the counter. Adds lot of confidence.
Personally, I like this stockâits valuations are attractive, and the topline looks solid. I havenât studied the management yet, but given that the last few quarters have been tough for NBFCs(MFIâs related loans), Iâve stayed away for now.
However, with rate cuts coming in, the overall environment should start favoring NBFCs. Technically, the stock seems to be bottoming out, though itâs still a bit early to say that with confidence.
(Disc: Not invested)
Mgmt has lot of goodwill in the market, esp. as a wholesale lender and intermediator. Never really understood why the stock has been trading below book, been buying since 4 months but only in small quantities. Accumulated only 25% of target holding.
Nbfc risk weights, rate cuts, mfi sector worst already priced in, macro priced in, and now entry of Ashish Dhawan. Planning to make a sizeable allocation.
I liked this company in the road show meeting of the IPO, especially the management, which looks experienced and has high quality liablity franchisee with a cost of funds at 9% in FY-25, its simply great. People are yet to discover this stock I guess thatâs why itâs trading close to book value. ( Itâs my personal view)
NBFC sector fear is still there in market.
Any idea on the Management quality of this company ? If so, please share the details.
Former MD & CEO, Max Bupa
Health Insurance
MD & Retail Bank Head,
Citibank India
Former MD & CEO,
Bank of Baroda
~30 years of experience
Pardhasaradhi Rallabandi
Group Risk Officer & Governance
Head
31+ years of experience in Banking
Previously associated with
Standard Chartered Bank
Gaurav Mehrotra
Chief Technology Officer
26+ years of experience in
technology. Previously associated
with JP Morgan, Goldman Sachs &
Infosys
Management is highly & richly experienced in the money lending domain.
Good read and analysis on the company
Disc: Not Invested, in watchlist
Any view on negative EPS growth & merely 4% EPS growth in last 3 years?
These individuals have an experience in retail/ corporate lending and were brought in to support those pieces. Northern Arcâs larger revenue comes from institutional lending or debt syndication as an intermediary. In my opinion, this team is still in the phase of understanding the dynamics of that business better. Credentials of the team are excellent though.
Disclaimer: I have interacted with this team in the past. And do not hold any Northern Arc shares currently.
We had millions of dairy farmers in rural Gujarat with surplus milk, and we had millions of urban families in Bombay wanting to buy it. But they couldnât meet. The supply was fragmented, the logistics were impossible, and the commodity was perishableâmilk would spoil long before it reached the city.
The solution wasnât just to buy more cows. The solution was Amul .
Amul didnât just trade milk; they built the âCold Chain.â They created the hard infrastructure to collect, pasteurize, process, and distribute a perishable commodity at a scale the world had never seen. They turned a disorganized, risky cottage industry into a standardized, reliable asset class.
Today, India faces a similar paradox in finance.
On one side, you have Global Capital âtrillions of dollars in sovereign wealth funds, mutual funds, and big banksâdesperate for yield.
On the other side, you have Bharatâs Aspirations âthe truck driver in Salem, the kirana store owner in Bihar, the womenâs self-help group in Odisha. They are credit-worthy, hardworking, and hungry for capital.
But just like raw milk, this credit demand is âperishable.â To a big bank in Mumbai, a âš50,000 loan in a remote village looks too small, too costly to service, and too risky to touch. The âspoilage rateâ (risk of default) is perceived to be too high.
Most NBFCs try to solve this by acting like local milkmenâthey lend directly, take all the risk, and hope for the best. When the season turns bad (like the recent Microfinance stress), they suffer.
They have spent the last 15 years building a financial operating system designed to collect ârawâ credit demand from the deepest corners of India, process it, and deliver it to the worldâs most sophisticated investors.
Here is how their âCredit Cold Chainâ works:
The true test of infrastructure is a storm. In FY25, the Indian Microfinance sector faced a crisis of over-leveraging. While many lenders saw their books curdle, Northern Arcâs âCold Chainâ held firm.
Their sensors tripped early. They calibrated their intake, slowing MFI growth to just 6% while ramping up secured MSME lending by 42% .
The result? In a year of industry-wide stress, Northern Arc delivered a 2.6% Return on Assets (RoA) with Net NPAs controlled at just 0.56% .
In this deep dive, we are going to look under the hood of this financial refinery. We will explore how they make money, why their âdiversified wheelâ strategy makes them resilient to shocks, and why they might just be the most important financial institution you havenât looked closely at yet.
If the âAmulâ analogy explains what Northern Arc does (aggregating the fragmented), this deep dive explains why they will win.
Most investors see a lender. A few see a platform. Almost no one sees the data engine hidden underneath.
Northern Arc doesnât just lend money; they underwrite the originatorâs underwriting. Unlike traditional NBFCs which operate on a linear model (Lend $\rightarrow$ Collect), Northern Arc operates on a circular platform model.
The Mechanism is simple but compounding:
It starts with Aggregation. Small partners (MFIs) plug into the Nimbus platform to access capital. This gives Northern Arc granular loan data that big banks never see.
This data feeds the Intelligence layer. Their Nu Score algorithm processes millions of repayment points, allowing them to price âthin-fileâ risk with higher accuracy than any competitor.
The result is Risk Reduction . Better data leads to superior asset quality (~1.15% GNPA vs Industry Avg). Because the book is clean, global giants (like Warburg) trust them with cheaper debt capital. This cheaper capital fuels Scale , which generates more data, making the system smarter with every rupee lent.
The Punchline: Banks see a borrower; Northern Arc sees a pattern .
If we stress-test this thesis through the eyes of investing giants, the picture changes.
The Warren Buffett View (The Toll Bridge)
Buffett loves infrastructure. Northern Arc owns the toll booth (Nimbus & nPOS). Every co-lending transaction between a bank and a partner is a car passing through their toll booth. They earn fees on the flow without always risking their own capital on the loan.
The Peter Lynch View (GARP)
Lynch loved âboringâ growth. Northern Arc is growing AUM at 20%+ while trading at ~1.2x Book. It fits the classic Lynch setup: a boring, essential business (Credit) with a misunderstood growth story and a âGrowth at a Reasonable Priceâ valuation.
The Joel Greenblatt View (Quality)
Greenblatt focuses on capital efficiency. The company is pivoting from low-yield Wholesale lending to high-yield D2C (Direct-to-Customer). This pivot is mechanically forcing ROE Expansion (targeting 17.5%). You are buying improving quality, not static quality.
This is the insight 99% of retail investors will miss.
The RBIâs Co-Lending Directions (2025) introduce a game-changing rule: âSynchronised NPA.â
This mandates that if one partner in a co-lending pair marks a borrower as NPA, the other must automatically do the same immediately. This eliminates the âsovereigntyâ over asset qualityâa partnerâs error becomes Northern Arcâs headache.
Why is this good?
It acts as a survival filter. It will kill âlazyâ aggregators who rely on manual reporting. Only tech-first platforms like Northern Arc, which integrate real-time via APIs, can survive this compliance burden. The moat just got wider.
We donât need to guess. Management has laid out a clear roadmap to FY28. The driver is the D2C Mix shifting to >70%, which expands margins without needing more equity.
We do not predict the future; we price it. Here are the three distinct paths for Northern Arc, defined by specific financial conditions that you can track quarterly.
The Bear Case: âThe MFI Trapâ (Probability: 20%)The Thesis Breaks. Rural stress deepens, and the âPartner Modelâ backfires as contagion spreads from smaller MFIs to Northern Arcâs books.
The Base Case: âThe Execution Playâ (Probability: 60%)Management Delivers. They hit their stated guidance. The pivot to retail continues, but at a measured pace. MFI stress lingers but is contained.
The Bull Case: âThe Platform Re-ratingâ (Probability: 20%)The âAmulâ Moment. The platform (Nimbus) becomes the primary driver. Fee income explodes, decoupling profits from capital requirements.
It is easy to say you have âbetter technology.â It is harder to prove it. The ultimate proof of a lenderâs quality is their Gross NPA (Bad Loans).
If Northern Arcâs âCold Chainâ model truly works, their loan book should be cleaner than the industry average. But it isnât just cleaner than the average; it is cleaner than the giants .
Compare Northern Arcâs asset quality (GNPA) against the heavyweights of Indian Finance over the last few years:
Northern Arc? In FY24, their Gross NPA was just 0.45% . Even in FY25, amidst a sector-wide Microfinance crisis, they held it at 0.93% âstill lower than what most banks aspire to in a good year.
This is the âMoneyballâ moment. Northern Arc is lending to the same âriskyâ rural borrowers as the MFI players, but by using their 15-year data advantage to filter the intake, they are producing asset quality that beats HDFC Bank. They arenât just managing risk; they are engineering it out of the system
Investing in Northern Arc is a bet on the financialization of the invisible Indian.
You are effectively buying a Data Company disguised as a Lender.
Heads, you win 3x. Tails, you donât lose much.
Disclaimer
Analyst report from Ventura Capital.
https://www.venturasecurities.com/blog/northern-arc-capital-what-the-market-is-really-pricing-in/
Disc: Invested
Thanks for sharing this.The last para of the report actually summarizes the crux of the thesis beautifully.
âAt âš259, Northern Arc offers a substantial margin of safety and a free option on a significantly better business than the market currently recognisesâ
Found the source report as well.
Northen Arc Capital Ltd._639003642994585580.pdf (1.9 MB)
Disc: Invested
One more broker upgrade with 30% upside. I personally think the upside over next 12 months will be more than that if we account for PB rerating as well as the underlying business growth. This business, once the trend is proven could be at least 2x PB.
Disc: Invested
