 "Is Northern Arc your next growth stock? Ambit says 'Buy', 30% upside eyed")
Northern Arc Capital share price: Brokerage firm Ambit Capital has initiated coverage on Northern Arc Capital (NACL), a diversified non-banking financial services company (NBFC), with a ‘Buy’ rating, saying the market is undermining the company’s improving net interest margin (NIM) and return on equity (ROE) prospects despite legacy wholesale exposure and recent high credit costs.
The brokerage noted that since the company pivoted to a retail direct-to-consumer (D2C) model in FY22, spreads and ROE have expanded sharply, and continued transition to high-margin D2C lending is expected to drive ROE to 15.7 per cent by FY28.
Northern Arc’s long experience in finance placement and fund management should support fee income, helping absorb structurally higher credit costs while sustaining ROE above the cost of equity, with valuations of under 1x book value and under 7x one-year forward earnings offering limited downside risk.
NACL is witnessing a structural shift from a wholesale to a retail-focused lending model, with ROE expected to rise to around 15 per cent from about 5 per cent in FY21. The current business model could deliver a 41 per cent EPS CAGR during FY26–28, while longer-term growth opportunities lie in scaling vehicle and affordable home finance.
According to analysts, the stock’s 50–60 per cent valuation discount to peers does not reflect the improving outlook, with fair value based on a 20 per cent AUM CAGR and 15 per cent average ROE over FY26–36, implying valuations of 1.2x FY27 book value and 10x FY27 earnings.
Ambit has set a target price of ₹326 for NACL, implying an upside potential of nearly 30 per cent from the December 24, 2025, closing price of ₹251.55 on the NSE.
At 11:30 AM on Friday, December 26, the Northern Arc stock was trading at ₹257.4, up 2.33 per cent from the previous session's close on the NSE. In comparison, the NSE Nifty50 was down 85.9 points or 0.33 per cent at 26,056.2 levels. The company's total market capitalisation stood at ₹4,158.86 crore.
Here's why Ambit Capital is bullish on Northern Arc Capital:
Lower spreads in intermediate retail hurt ROE: According to analysts, before shifting to retail-focused lending in 2018/19, NACL was primarily engaged in intermediate retail lending, similar to wholesale, and financing placements. Due to competitive pricing in wholesale lending, assets under management grew at a modest 14 per cent CAGR during FY18–21, while an average spread of 3.2 per cent capped average ROE at 7.5 per cent over FY19–21.
D2C pivot for scale: The brokerage said following the retail pivot, the D2C mix increased to 52 per cent in FY25 from 19 per cent in FY21. The company’s small market share across retail segments, diversified geographic presence, and fully integrated platform with distributors and digital channels are expected to support a 34 per cent CAGR in D2C AUM during FY26–28, raising the D2C mix to 64 per cent. It added that expertise in vehicle and affordable home finance through intermediate lending offers optional growth levers, while an expanding NBFC sector and emerging corporates should drive 12–15 per cent CAGR in placement volumes and fund management over FY26–28.
D2C-led margin expansion strengthens credit buffer: Analysts expect higher D2C yields, which are about 920 basis points above intermediate retail, to drive a 70 bps expansion in spreads by FY28, supporting NIMs of 10.7–10.9 per cent. It added that fee income from placements and fund management, projected to grow at a 15 per cent CAGR during FY26–28, should lift operating profit margins to 6.5–7 per cent, increasing the buffer to absorb credit losses while sustaining ROE above 15 per cent, with credit costs easing to around 2.6 per cent by FY27–28 as asset quality pressures subside. (Disclaimer: Target price and stock outlook has been suggested by Ambit Capital. Views expressed are their own.)