NORTHARC - Northern Arc Capital Ltd. Share Price

In the earnings conference call for Q4 FY26 held on May 8, 2026, management provided an optimistic outlook for Northern Arc Capital's growth trajectory. They reported a significant 22% year-on-year increase in Assets Under Management (AUM), reaching Rs.16,594 crores. This growth strategy is largely attributed to the shift towards the direct-to-customer segment, which now contributes 59% of total AUM, a notable increase from 19% in FY21.

Key forward-looking points include:

• Management is targeting a business growth rate of 22-25% for FY27, aiming to achieve a return on assets (ROA) of over 3% and a return on equity (ROE) in the mid to high-teens (approximately 15%-17%) within the next 8-10 quarters.
• The direct-to-consumer sector is expected to continue driving profitability, with aims for risk-adjusted yields of 15% or above.
• The MSME financing sector is anticipated to remain a growth engine, with a year-on-year portfolio increase of 43%, reaching Rs.3,691 crores.
• Rural finance disbursements peaked at Rs.305 crores in Q4 FY26, signaling strong quarterly growth, supported by a robust collection efficiency improvement from 98.7% in September 2025 to 99.6% by March 2026.
• The company maintains a prudent approach to risk management, with net non-performing assets (NNPA) consistently below 1% and credit costs projected to stabilize between 2.7% to 2.8% in FY27.
• Management is focused on diversifying their funding mix, aiming to reduce their reliance on bank borrowings while increasing fixed-rate instrument usage to capitalize on favorable market conditions.

Overall, the management remains confident in navigating current macroeconomic challenges while prioritizing disciplined growth across all segments.

Major Questions and Answers from the Earnings Transcript

Question 1:
What kind of guidance would you like to give for FY27 for loan growth and ROAs?

Answer:
We expect to grow our business at about three times the GDP, targeting a growth rate of 22% to 25%. For ROA, my objective is to get above 3% in the next eight to ten quarters, aiming for mid-teens to late-teens ROE. Our strategies are well-defined, focusing on risk management and disciplined execution while enhancing our direct-to-customer segments.

Question 2:
Is there any risk building up in the MSME, especially the merchant lending part and the consumer finance that has grown significantly this year?

Answer:
On the consumer finance side, we underwrite about 25,000 loans a day with a strong focus on risk-adjusted returns. Our risk strategy is robust, ensuring quality customer flows. In the MSME segment, we are cautious with the average ticket size and maintain high collateral standards. This focused approach helps us to manage risks while still benefiting from market opportunities.

Question 3:
Do you plan to launch any new products in the next one to two years, like vehicle finance or affordable housing finance?

Answer:
In consumer finance, we aim to build capabilities to offer convenient financing solutions. For affordable housing, while we have board approval, we want to ensure our loan against property business reaches significant scale first. Our priority remains on business loans, maintaining sharp focus on our core offerings before expanding further.

Question 4:
Why has the ECL coverage been coming down?

Answer:
The decline in ECL coverage, especially for Stage-2 assets, is attributed to the recent RBI guidelines permitting us to factor in DLG benefits. This significantly reduced our ECL requirement as a large portion of Stage-2 assets is now supported by FLDG. The change reflects our improving portfolio mix and the collateral backing our loans, contributing to lower expected losses.

Question 5:
What are your targets for credit costs going forward?

Answer:
We project credit costs to remain in the range of 2.7% to 2.8% for the upcoming year. The current year's credit cost of 2.8% is after adjusting for the DLG benefit and potential prudential provisions. We believe that the improvements in asset quality will further help us maintain these targets moving forward.

These questions cover key aspects of the company's strategy, performance, and outlook, providing insights into their operational execution and market positioning.