Northern Arc Capital shares rise 3% in trade; Motilal Oswal initiates 'Buy'

The brokerage is upbeat on Northern Arc's structural transition toward direct-to-customer (D2C) lending and rising fee income contribution

Northern Arc Capital shares rose 2.9 per cent in trade, logging an intra-day high at ₹253 per share on BSE. At 9:23 AM, Northern Arc's share price was trading 1.97 per cent higher at ₹250.5 per share. In comparison, BSE Sensex was down 0.57 per cent at 82,822.62.  Motilal Oswal Financial Services has initiated coverage on Northern Arc Capital with a ‘Buy’ rating and a target price of ₹360, valuing the stock at 1.2x FY28E P/BV. The target implies 46.5 per cent upside from Monday's close.   The brokerage is upbeat on the company’s structural transition toward direct-to-customer (D2C) lending, rising fee income contribution, and a risk framework that it believes can support a steady expansion in return metrics.

D2C pivot seen as key inflection for profitability

According to Motilal Oswal, a major inflection in the company’s evolution has been its calibrated shift from an intermediate retail (IR)-heavy model to a D2C-led franchise. The D2C portfolio has expanded to around ₹8,500 crore by December 2025 from about ₹1,000 crore in FY21, implying a 57 per cent compound annual growth rate (CAGR) over FY21–9MFY26. With this, D2C now accounts for about 56 per cent of lending asset under management (AUM) (versus 19 per cent in FY21), and the company is targeting 70 per cent by March 2028—a mix shift the brokerage said has structurally lifted yields and profitability while widening customer reach.

Diversified fee income to reduce dependence on lending cycles

Motilal Oswal also highlighted Northern Arc’s broader ecosystem model, built across borrowers, originators and investors. Since its inception in 2009, the company has facilitated about ₹2 trillion of financing and built a pan-India network of 368 branches, 55 digital partners, 357 originator partners, and 1,400+ investor relationships. Northern Arc’s lending AUM stood at about ₹15,100 crore as of December 2025.

 

While D2C is expected to drive growth and net interest margin (NIM) expansion, the brokerage said the IR lending business adds earnings stability through diversified and well-collateralised exposure to originator partners. In addition, the company’s fund management business (AUM ₹3,200 crore) and placement franchise (cumulative credit placement ₹1.2 trillion) provide recurring, largely risk-light fee income, supporting earnings diversity.  CHECK Stock Market LIVE Updates

Risk management framework supports asset quality

Motilal Oswal said Northern Arc’s risk architecture—built on proprietary analytics, disciplined underwriting, and portfolio diversification—has helped it maintain resilient asset quality. Credit costs in the IR business have remained below 40 basis points (bps) over the last 15 years, the brokerage noted.

 

On rural finance stress seen in FY25, it said management responded through calibrated growth, tighter MFIN guardrails, higher CGFMU coverage, and increased collection intensity. With rural consumption trends improving and normalisation underway, asset quality is expected to strengthen gradually, aiding sustainable earnings recovery.

Technology platforms to enable operating leverage

The brokerage pointed to NACL’s proprietary platforms—Nimbus, nPOS, AltiFi, and NuScore—as key enablers for end-to-end credit processing, data-driven risk assessment, and scalability, supporting operating leverage over time.

Valuation and financial outlook

Motilal Oswal noted Northern Arc trades at around 0.9x FY27E P/BV and 7x FY27E P/E, which it considers attractive given the improving business mix and earnings visibility. It models AUM/PAT CAGR of 20 per cent/34 per cent over FY26–28E, with RoA/RoE expanding to 3.2 per cent/15 per cent by FY28E.

 

For FY26E–FY28E, the brokerage estimates:

• PAT: ₹390 crore (FY26E) to ₹700 crore (FY28E)
• RoA: 2.6 per cent (FY26E) to 3.2 per cent (FY28E)
• RoE: 10.6 per cent (FY26E) to 14.8 per cent (FY28E)

Key monitorables

Motilal Oswal flagged execution on the D2C mix shift, asset quality trends (especially in rural-linked portfolios), and the pace of scaling fee-led businesses as key factors to track.

 

Disclaimer: Views and recommendations are those of the brokerage/analyst and are not endorsements. Readers should exercise discretion.