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Motilal Oswal Report
Motilal Oswal has initiated coverage on Northern Arc Capital Ltd. with a 'Buy' rating and a target price of Rs 360, citing a structural business transformation, improving profitability metrics, and attractive valuations.
According to the brokerage, Norther Arc has undergone a strategic portfolio shift over the past few years, transitioning from an IR-led book (~81% in FY21) to a significantly more yield-accretive D2C portfolio (~56% currently). The company aims to take this mix to ~70% over the next two–three years, which Motilal Oswal expects will continue to lift yields, margins, and overall profitability.
The brokerage highlights that Northern Arc's disciplined risk management framework—including field-level oversight, FLDG structures, CGFMU guarantees, and stringent partner onboarding—should help keep credit costs contained, especially as rural finance trends normalize.
Motilal Oswal also points to the company's proprietary technology platform as a key competitive advantage. It supports sourcing, underwriting, and collections at scale while preserving asset quality. Additionally, fee-based income streams from fund management and placement activities are helping diversify revenues, improving earnings stability and return ratios.
On the valuation front, Northern Arc currently trades at 0.9x FY27E price/book value and ~7x FY27E P/E, levels the brokerage considers undemanding given the strengthening business mix and improving visibility on growth and profitability.
Motilal Oswal models an AUM CAGR of ~20% and PAT CAGR of ~34% over FY26–28E, with return metrics expected to improve to ~3.2% RoA and ~15% RoE by FY28E.
Given this positive backdrop, the brokerage believes Northern Arc is well-positioned for a multi-year growth cycle, supported by structural improvements, technology-led efficiencies, and a rising share of high-yield retail business.
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