Northern Arc Capital Ltd. expects to maintain its margins and improve risk-adjusted returns as strong credit demand from the consumer and micro, small and medium enterprises (MSME) segments supports business growth. The company is also confident of meeting its growth requirements through internal accruals, with no immediate need to raise additional capital, Managing Director and CEO Ashish Mehrotra said in an interview with NDTV Profit.
The company's consolidated net profit rose 41% year-on-year to Rs 129.3 crore in the second quarter of fiscal 2027, compared with Rs 91.7 crore in the corresponding period last year. Total income increased 39% to Rs 874 crore from Rs 629 crore.
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Mehrotra indicated that the company generated record quarterly profits, while its lending assets under management (AUM) also grew 34%.
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Northern Arc Capital Confident Of Margin Expansion
Mehrotra said the company expects to protect its margins despite changes in borrowing costs, supported by its diversified funding sources and ability to reprice loans.
Around 30% of Northern Arc Capital's liabilities come from global and domestic multilateral institutions through long-term borrowings. The company follows a strategy of borrowing long and lending short, which helps manage movements in interest rates.
It has also increased its benchmark lending rate by 30 basis points. With around 30% of its book available for repricing, the company expects to offset higher funding costs through incremental lending.
"We should be able to hold our margins. Actually, I'm hoping that we expand our risk-adjusted margin from 7.3% to close to 8%, and that's where we get to return on assets of 3%," Mehrotra said.
However, he also reflected on the company being watchful of inflationary pressures and monsoon-related risks as more than 200 districts had less than average rainfall during the year.
Credit Demand, Alternative Funding To Drive Growth
Looking ahead, Mehrotra sees continued opportunities in consumer and MSME lending, supported by India's consumption-led growth. He also highlighted the growing role of retail participation in the bond market, securitisation, and private credit in expanding funding options for non-bank lenders.
He also stated that Northern Arc Capital has been operating its performing credit business for around a decade and recently completed the first close of a diversified debt fund, with a return range of around 15% to 16%.
On capital requirements, he said the company's capital adequacy ratio is close to 21%, providing sufficient headroom to support growth.
"At least for the next 2.5 years, I don't need incremental capital. The current profit pools will ensure that we are sufficiently able to deploy our assets," he said.
Northern Arc Capital Share Price
Shares of Northern Arc Capital are trading at Rs 280.75 on the NSE, up 1.26%, as of 2:57 p.m. on Nov. 5. The stock opened at Rs 284.10 against the previous close at Rs 277.25 and rose to Rs 287.45 earlier in today's session.
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