Building a scalable tech-driven credit ecosystem
D2C transition, diversified fee income, and risk management to aid RoA expansion Northern Arc Capital (NACL) has created a technology-driven, diversified financial services ecosystem catering to the credit needs of underserved households and businesses across India. Since its inception in 2009, NACL has facilitated ~INR2t of financing and built a strong pan-India presence with 368 branches, 55 digital partners, 357 originator partners, and 1,400+ investor relationships. NACL’s lending AUM was ~INR151b as of Dec’25. With deep expertise across its core segments, NACL has developed end-to-end in-house capabilities, creating a holistic ecosystem for borrowers, originators, and investors.
Structural pivot towards D2C lending: A key inflection in NACL’s evolution has been its calibrated yet decisive transition from an Intermediate Retail (IR)-heavy model to a Direct-to-Customer (D2C)-led lending franchise. The D2C portfolio has scaled to ~INR85b by Dec’25 from ~INR10b in FY21, translating into ~57% CAGR over FY21-9MFY26. Consequently, D2C now accounts for ~56% of lending AUM (vs. ~19% in FY21), with the company targeting to raise it to ~70% by Mar’28. This portfolio rebalancing has structurally lifted yields and improved profitability while expanding customer reach.
Balanced business model with earnings stability: While D2C will drive growth and NIM expansion, the IR lending business continues to provide stability through diversified, well-collateralized exposures to originator partners across sectors. In addition, NACL’s fund management (with AUM of ~INR32b) and placement businesses (~INR1.2t credit placement to date) contribute recurring, largely risk-free fee income, enhancing earnings diversity and reducing dependence on interest income across cycles.
Robust risk architecture supports asset quality: NACL’s risk framework, anchored in proprietary analytics, disciplined underwriting, and portfolio diversification, has consistently delivered resilient asset quality. Credit costs in the IR business have remained below ~40bp over the last 15 years. While rural finance exhibited sectoral stress in FY25, management responded with calibrated growth, tighter MFIN guardrails, higher CGFMU coverage, and enhanced collection intensity. With improving rural consumption trends and normalization underway, asset quality is expected to strengthen gradually, supporting sustainable earnings recovery.
Diversified funding and technology-led scalability: A well-diversified funding base will provide balance sheet flexibility. Proprietary technology platforms such as Nimbus, nPOS, AltiFi, and NuScore enable end-to-end credit processing, data-driven risk assessment, and operating leverage, reinforcing NACL as an integrated credit solutions ecosystem.
Attractive valuation with strong earnings visibility: NACL currently trades at ~0.9x FY27E P/BV and ~7x FY27E P/E, which we view as attractive given the company’s improving business mix, strong AUM and PAT growth visibility, and diversified earnings profile. We model an AUM/PAT CAGR of ~20%/34% over FY26-28E, with RoA/RoE expanding to ~3.2%/15% by FY28E
