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Northern Arc Capital is the latest IPO on the market, sparking curiosity among investors. With multiple IPOs competing for attention, it’s essential to thoroughly analyze each one before making investment decisions.
In this review, we will delve into Northern Arc Capital’s IPO, examining its business model, financial health, and potential for listing gains.
Northern Arc Capital Overview
Northern Arc Capital Limited, founded in 2009, is a prominent finance company in India. The company provides retail loans to underserved households and businesses, targeting micro, small, and medium enterprises (MSMEs), microfinance institutions, and consumers.
Their portfolio includes loans for various sectors, including agriculture, housing, and vehicles. Over the years, Northern Arc has facilitated financing worth over ₹1.73 trillion, reaching more than 100 million people across India.
As a Non-Banking Financial Company (NBFC), Northern Arc Capital cannot accept deposits but raises funds through equity and bonds, which it then lends to its borrowers. This model allows the company to focus on lending to smaller, less risky segments, reducing the likelihood of high Non-Performing Assets (NPA).
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Northern Arc Capital IPO Details
Northern Arc Capital’s IPO will open for subscription from September 16th and close on September 17th or 18th. The issue includes a fresh issuance of shares worth ₹500 crores and an offer for sale (OFS) amounting to ₹36 crores. The total issue size is ₹770 crores. The price band for the shares is set between ₹249 and ₹263, with a lot size of 57 shares.
Financials and Valuation
Analyzing the financials is crucial for assessing the potential of Northern Arc Capital’s IPO. The company has demonstrated a robust business model with significant experience in lending to smaller segments. However, it is essential to scrutinize its financial health, including its NPA ratios.
Northern Arc Capital’s focus on smaller businesses and underserved markets helps in maintaining a relatively low NPA ratio compared to larger corporations. This strategic approach mitigates the risk of substantial defaults and supports the company’s stability.
The valuation of Northern Arc Capital is critical in determining whether to apply for the IPO or avoid it. With the price band set between ₹249 and ₹263, investors need to evaluate if the stock is priced reasonably relative to its financial performance and growth prospects.
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Expected Listing Gains
One of the key factors investors consider before applying for an IPO is the expected listing gain. Given the current market conditions and the interest generated by Northern Arc Capital’s IPO, the potential for listing gains is a subject of considerable speculation.
The oversubscription rate and market demand for Northern Arc Capital’s shares will play a significant role in determining the listing gains. If the IPO is highly oversubscribed, it might lead to substantial listing gains, while a lower subscription rate could result in modest gains or even losses.
Pros & Cons in Northern Arc Capital’s IPO
To help you make an informed decision, here’s a summary of the key advantages and disadvantages of investing in Northern Arc Capital’s IPO:
| Pros | Cons |
| Strong Business Model: Focuses on underserved markets and small businesses, reducing risk and potentially providing stable returns. | Limited Offer For Sale (OFS): Only ₹36 crores of the ₹770 crores issue size is an OFS, which may affect liquidity. |
| Experienced Management: Over 14 years of experience in MSME finance, which enhances credibility and expertise. | Valuation Concerns: The price band of ₹249 to ₹263 needs careful evaluation against the company’s financials to ensure it’s reasonable. |
| Low NPA Ratio: Targeting smaller loans helps maintain a low NPA ratio, minimizing credit risk. | Market Conditions: Market sentiment and IPO performance can impact listing gains; uncertain market conditions may pose a risk. |
| Extensive Reach: Has facilitated financing of over ₹1.73 trillion, reaching more than 100 million people. | Oversubscription Risk: High oversubscription could lead to allotment issues and lower listing gains. |
Apply or Avoid?
When deciding whether to apply or avoid Northern Arc Capital’s IPO, consider the following points:
- Business Model: Northern Arc Capital’s diversified business model targeting underserved segments provides a stable foundation for growth. Their focus on smaller loans helps manage risk effectively.
- Financial Health: Review the company’s financial statements to assess its NPA ratios and overall financial stability. A lower NPA ratio indicates better management of credit risk.
- Valuation: Compare the IPO price band with the company’s financials and growth potential. A reasonable valuation supports a positive investment decision.
- Market Conditions: Evaluate the current market conditions and investor sentiment towards financial sector IPOs. This can influence the IPO’s performance and potential listing gains.
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Conclusion
Northern Arc Capital’s IPO presents a promising investment opportunity for those interested in the financial sector. Its strong business model, low NPA ratios, and extensive experience in retail lending are positive indicators. However, investors should carefully analyze the company’s financial health and the IPO valuation to make an informed decision.
If the IPO is oversubscribed and listing gains are anticipated, it might be worth applying. Conversely, if there are concerns about valuation or financial stability, it may be prudent to avoid the IPO. Ultimately, thorough research and analysis will guide investors in making the right choice regarding Northern Arc Capital’s IPO.
Disclaimer:
This article is for informational purposes only and does not constitute financial advice. Investing in IPOs involves risks, including the potential loss of principal. Always conduct your own research or consult with a financial advisor before making investment decisions.
