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    Northern ARC

    NORTHARC
    Financial Services·8 May 2026
    Management Summary

    Northern Arc Capital delivered a strong Q4 FY26, reporting its highest ever quarterly profit of INR 133 crores, contributing to an FY26 profit of INR 406 crores. This performance was driven by a 22% YoY growth in AUM to INR 16,594 Cr, significant NIM expansion to 9.4%, and improved asset quality with credit costs declining. The company's direct-to-customer business, particularly MSME and consumer finance, continues to be a key growth driver, while management remains cautious about macroeconomic and geopolitical risks.

    Highlights

    7

    • Highest ever quarterly profit of INR 133 crores in Q4 FY26, increasing 251% YoY and 32% QoQ.

    • Overall profit for FY26 reached INR 406 crores, growing at a 5-year CAGR of 43%.

    • Assets Under Management (AUM) grew by 22% YoY and 10% QoQ to INR 16,594 Cr.

    • Net Interest Margin (NIM) expanded by 380 basis points from 5.6% to 9.4% in FY26.

    • Full-year credit cost declined from 6.7% to 4.9% in FY26, with Q4 FY26 credit cost at 1.3%.

    • Return on Assets (ROA) for FY26 grew by 34 bps YoY to 2.8%, and for Q4 FY26 by 66 bps QoQ to 3.3%.

    • Return on Equity (ROE) for FY26 increased by 110 bps YoY to 11.1%, and for Q4 FY26 by 326 bps QoQ to 14%.

    Concerns

    3

    • Management remains watchful of evolving risks including geopolitical tension in West Asia.

    • Potential impact on weather and monsoon is a watch item.

    • Possibility of RBI increasing rates in the next couple of quarters.

    Key financials

    Metrics

    9

    Periods

    3

    Headline

    3
    • AUM
      ₹16,594 Cr
      YoY+22%QoQ+10%
    • Total Borrowings
      ₹12,900 Cr
    • Capital Adequacy
      22.6%

    Q4 FY26

    1
    • PAT
      ₹133 Cr
      YoY+2.5%QoQ+32%

    FY26

    5
    • PAT
      ₹406 Cr
      YoY+33%
    • NIM
      9.4%
    • Credit Cost
      4.9%
    • ROA
      2.8%
    • ROE
      11.1%

    Segment breakdown

    AUMAUM Growth
    Direct-to-Customer (D2C)₹9,800 Cr39%
    Consumer Finance₹5,000 Cr—
    MSME Lending₹3,691 Cr43%
    Rural Finance₹1,009 Cr8%
    Credit Solutions (Fee-based)——
    Heatmap· 2 shared metrics

    Capital allocation

    2
    high confidence
    CategoryHeadline
    Debt

    Gross ₹12,900 crores

    Cost 8.5%

    Liquidity

    Liquidity disclosed

    Surplus of close to INR 1,250 crores with a good mix of cash and bank balance and undrawn sanctions from various banks and institutions as of March 31st.

    Guidance & targets

    9
    CategoryTargetPriority
    Credit Growth
    Loan Growth
    22-25%
    		High
    Profitability
    Return on Assets (ROA)
    3%+
    		High
    Profitability
    Return on Equity (ROE)
    mid-teens and late-teens
    		High
    Credit Cost
    Credit Cost
    2.7-2.8%
    		High
    NIM
    NIM Expansion
    some bit of expansion
    		Medium
    Cost of Funds
    Cost of Funds
    8.5-8.6%
    		High
    Business Strategy
    MSME Growth
    disciplined, risk-calibrated growth
    		Medium
    Business Strategy
    Rural Business Scaling
    calibrated and prudent manner
    		Medium
    Business Strategy
    Affordable Housing Product Launch
    launch when network matures
    		Low

    Loan Growth

    next quarter
    Current22% YoY (FY26 AUM growth)
    Target22-25% growth for FY27

    Why it matters

    To assess if the company is on track to achieve its stated growth target for the next fiscal year.

    Our sense is we should be able to grow business at about three times of GDP, so look at anywhere between 22% to 25%, and that's our commitment to the Street on a forward-looking basis unless we see something massive.

    How to verify

    key_financials.metrics[label='AUM'].yoy_growth

    Risks & concerns

    4
    RiskSeverity

    Geopolitical tension in West Asia

    Potential impact on macroeconomic environment, company created a management overlay for potential unforeseen events. — Management acknowledged

    medium

    Weather and monsoon impact

    Potential impact on business, especially rural finance. — Management acknowledged

    medium

    Rising interest rates by RBI

    Possibility of RBI increasing rates in the next couple of quarters, impacting cost of funds. — Management acknowledged

    medium

    Competition and stress in MSME sector

    Larger number of players wanting to participate, higher stress in some segments, requiring careful risk underwriting. — Management acknowledged

    medium

    Q&A highlights

    8

    “Our sense is we should be able to grow business at about three times of GDP, so look at anywhere between 22% to 25%, and that's our commitment to the Street on a forward-looking basis... my objective is to get to 3 plus return on assets and like we said over the next 8 to 10 quarters, get to mid-teens and late-teens ROE.”

    Analyst sought specific forward guidance on key growth and profitability metrics, which management provided with clear targets and timelines.

    asked by Digant Haria

    2 min read6 chapters

    Detailed Narrative

    01

    Q4 FY26 Performance Overview

    Northern Arc Capital reported its highest ever quarterly profit of INR 133 crores in Q4 FY26, marking a 251% YoY and 32% QoQ increase. This contributed to an overall FY26 profit of INR 406 crores, demonstrating a 5-year CAGR of 43%. The company navigated multiple macroeconomic challenges to deliver consistent growth and profitability, underscoring the resilience of its business model.

    02

    Assets Under Management (AUM) Growth & Mix

    The company's AUM grew by 22% YoY and 10% QoQ, reaching INR 16,594 Cr by March 31, 2026. This growth was primarily driven by the direct-to-customer (D2C) segment, which now accounts for 59% of the total AUM, up significantly from 19% in FY21. This strategic shift has led to a substantial expansion in Net Interest Margin (NIM) from 5.6% to 9.4% in FY26.

    03

    Direct-to-Customer (D2C) Business Performance

    The D2C business, encompassing consumer finance, MSME lending, and rural finance, grew by 39% YoY, reaching over INR 9,800 crores. Consumer finance AUM exceeded INR 5,000 crores, while MSME AUM grew by 43% YoY to INR 3,691 Cr, supported by 17 new branches. Rural finance AUM reached INR 1,009 crores with Q4 disbursements of INR 305 crores, and collection efficiencies improved across all D2C segments.

    04

    Asset Quality and Credit Costs

    Asset quality showed significant improvement, with full-year credit cost declining from 6.7% to 4.9% in FY26, and Q4 FY26 credit cost at 1.3%. GNPA and NNPA stood at 1.2% and 0.6% respectively. The company noted that 84% of its MFI book is covered under CGFMU, providing strong risk protection, and the ECL coverage optically improved due to RBI guidelines on FLDG benefits.

    05

    Funding and Capital Adequacy

    Total borrowings stood at INR 12,900 crores, with the incremental cost of funds in Q4 FY26 at 8.6%, down from 9.3% last year. The company has diversified its funding mix, increasing fixed-rate instruments to 40% and reducing bank borrowings to 52% from 65% in March 2025. Capital adequacy remains strong at 22.6%, providing ample headroom for future growth, and the debt-equity ratio improved to 3.1x from 3.9x in March 2024.

    06

    Strategic Outlook and Risk Management

    Northern Arc aims for 22-25% loan growth and 3%+ ROA with mid-to-late teens ROE in the next 8-10 quarters, maintaining credit costs at 2.7-2.8%. The company emphasizes disciplined, risk-calibrated growth, leveraging AI and machine learning for underwriting. Management remains watchful of geopolitical tensions, weather impacts, and potential RBI rate increases, but is confident in its ability to sustain growth.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.