NBFC Northern Arc Capital Raises Rs 229 Crore From Anchor Investors, IPO Subscription To Open Soon

Northern Arc Capital Limited, a non-banking financial company, is set for its Initial Public Offering (IPO) on Monday, September 16, 2024. Ahead of its public debut, the Chennai-based company has successfully raised Rs 229 crore from anchor investors, for a subscription period that will remain open for bidding until Thursday, September 19, 2024.

In the lead-up to the IPO subscription opening, Northern Arc Capital allotted 87.02 lakh equity shares to 15 anchor investors at Rs 263 per share, which represents the upper limit of the IPO's price band. This strategic move brought in Rs 229 crore and secured backing from some of the most respected names in the financial industry. Prominent anchor investors include SBI General Insurance Company, SBI Life Insurance Company, Reliance General Insurance Company, Kotak Mahindra Life Insurance Company, Goldman Sachs (Singapore) Pte, Societe Generale, and Quant Mutual Fund.

The Northern Arc Capital IPO has an issue size of Rs 777 crore, of which Rs 500 crore comes from a fresh issue of equity shares. The remaining Rs 277 crore is being raised through an Offer for Sale (OFS) by existing investor shareholders, including major institutional players such as Leapfrog Financial Inclusion India (II) Ltd, Accion Africa-Asia Investment Company, and Sumitomo Mitsui Banking Corporation, among others.

The price band for the IPO has been fixed between Rs 249 and Rs 263 per share, with the lot size starting at 57 equity shares and thereafter in multiples of 57. At the upper end of the price band, the price-to-earnings (P/E) ratio based on the company's diluted earnings per share (EPS) for fiscal 2024 stands at 11.24x. This P/E ratio compares favourably to the industry average P/E of 23.28x, giving Northern Arc Capital a potential valuation advantage in the market.

The IPO will allocate no more than 50% of shares to Qualified Institutional Buyers (QIB), at least 15% for Non-Institutional Investors (NII), and 35% for retail investors. There is also a special provision for employees, who will be eligible to receive a discount of Rs 24 per share, with up to 5,90,874 equity shares reserved for them.

The subscription period for Northern Arc Capital's IPO is scheduled from September 16 to September 19, 2024. Once the subscription phase closes, the company is expected to finalize the basis of allotment on Friday, September 20, 2024. Refunds will be initiated by Monday, September 23, 2024, with shares being credited to the demat accounts of successful allottees on the same day. The IPO is expected to make its debut on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) on Tuesday, September 24, 2024.

Northern Arc Capital plans to deploy the funds raised through the IPO to meet its future capital requirements, particularly in its lending business. As a leading player in the financial inclusion space, the company's primary mission is to extend credit to underserved households and businesses, either directly or indirectly through its Originator Partners.

Registered with the Reserve Bank of India (RBI) as a systemically important non-banking financial company (NBFC), Northern Arc Capital has been in operation for over a decade. The company's business model is diversified, covering a wide range of sectors, products, geographies, and borrower segments. By providing access to credit for underserved segments of the population, Northern Arc has established itself as a critical player in India's retail credit ecosystem.

Since its inception in 2009, Northern Arc has facilitated financing amounting to over Rs 1.73 trillion, impacting over 101.82 million people across India. Northern Arc Capital's financial performance in recent years has been strong. Between March 31, 2023, and March 31, 2024, the company's profit after tax (PAT) surged by 31%, while its revenue grew by 45%. This robust growth trajectory has positioned Northern Arc favourably against its industry peers.

According to the red herring prospectus (RHP), Northern Arc Capital's key competitors include Five-Star Business Finance Ltd, SBFC Finance Ltd, CreditAccess Grameen Ltd, Fusion Micro Finance Ltd, Bajaj Finance Ltd, Cholamandalam Investment and Finance Company Ltd, Poonawalla Fincorp Ltd, and MAS Financial Services Ltd. Among these, the company's P/E ratio of 11.24x at the upper end of the price band is lower than many of its peers, which could make it an attractive option for investors seeking growth at a reasonable price.