Northern Arc Capital IPO Day 3: GMP, Subscription Status, and Should You Apply?

Northern Arc Capital, a leading provider of financial services focused on microfinance and credit solutions, launched its Initial Public Offering (IPO) on September 16, 2024. The IPO is expected to raise ₹777 crore, which includes a fresh issue of ₹500 crore and an offer for sale (OFS) of 1.05 crore equity shares by existing shareholders. The price band for the issue is set between ₹259 and ₹265 per share, and the subscription period will close on September 19, 2024.

Latest Subscription Data (as of 6:00 PM, Day 3)

The subscription figures as of Day 3 show a strong response across most categories:

• Qualified Institutional Buyers (QIBs): 0.31x
• Non-Institutional Investors (NIIs): 50.8x
• Retail Investors: 18.97x
• Employees: 4.32x
• Total Subscription: 20.18x

The IPO has garnered strong interest from retail and non-institutional investors, especially in the NII segment, which was oversubscribed 50.8 times. Retail investors have also shown considerable interest, subscribing 18.97 times, while the QIB segment is expected to pick up as the IPO nears its close.

Grey Market Premium (GMP)

As of September 18, 2024, Northern Arc Capital’s GMP is at ₹203. This indicates a possible listing price of ₹468, which reflects a 76.23% premium over the issue price of ₹265. Although GMP is an unofficial metric, it often serves as an indicator of investor sentiment and expectations for listing-day performance.

Company Overview

Northern Arc Capital is a leading financial services provider with a strong focus on microfinance, small and medium enterprises (SME) lending, and retail finance. The company has built a robust network of lending solutions and is known for its innovative financial products that address the diverse credit needs of its clients.

The company operates with a sectoral focus on microfinance, making it a key player in addressing the financial inclusion needs of underserved segments of the population. With a strategic plan for future growth, Northern Arc aims to strengthen its network and expand its offerings in the financial services market.

Financial Performance

Northern Arc Capital has demonstrated consistent financial growth over the past few years. The company’s revenue has grown steadily, supported by its diversified loan portfolio and strong presence in the microfinance and SME lending sectors. At the upper price band of ₹265, the IPO is asking for a Price-to-earnings (P/E) multiple of 21.8x based on FY24 estimated earnings.

On a Price to Book Value (P/BV) basis, the IPO is valued at 1.83x post-IPO, which analysts believe is reasonable compared to its industry peers.

Use of IPO Proceeds

The ₹500 crore raised from the fresh issue of shares will be allocated to:

• Future capital requirements: The company will utilize the funds to meet its growing capital needs, particularly in expanding its lending portfolio.
• Repayment of borrowings: Part of the proceeds will be used to repay existing debt, reducing the company’s leverage and improving its overall financial health.
• General corporate purposes: A portion of the funds will be used for operational improvements and other corporate initiatives.

Expert Opinions and Brokerage Recommendations

Several analysts and brokerage firms have given positive reviews for Northern Arc Capital's IPO:

• Mehta Equities: Research analyst Rajan Shinde has recommended subscribing to the IPO, especially for long-term investors. He emphasizes the company’s strong financial performance, its focus on microfinance, and its strategic plan to expand in the growing financial services sector. He believes that Northern Arc is well-positioned for sustained growth, particularly with its innovative product offerings and robust lending network.
• Analysts’ View: Most analysts agree that Northern Arc Capital’s valuation is reasonable compared to its peers, especially given its Price to Book Value (P/BV) of 1.83x post-IPO. They believe the company’s focus on microfinance and SME lending offers substantial growth potential, especially in an economy where financial inclusion is becoming a top priority.

Should You Apply?

For investors looking to invest in a company with a strong sectoral focus on microfinance and SME lending, Northern Arc Capital's IPO presents a promising opportunity. The company’s solid financials, reasonable valuations, and long-term growth prospects make it a favourable investment for those with a long-term horizon.

Here are some key reasons to consider subscribing:

1. Strong Market Position: Northern Arc Capital is a leading player in the microfinance and credit solutions space, offering innovative products that address the diverse credit needs of its clients.
2. Growth Potential: The company’s focus on financial inclusion and its ability to cater to underserved segments of the population provide it with a significant growth runway.
3. Reasonable Valuation: The IPO is priced reasonably compared to its industry peers, offering a chance to invest in a high-growth sector at an attractive valuation.
4. Solid GMP: The grey market premium suggests strong demand for the shares, with a potential 76.23% listing gain over the issue price.
5. Expert Endorsements: Analysts have generally given the IPO a "Subscribe" rating, citing the company’s strategic plan, strong network, and robust financials as key drivers of future growth.

Risks to Consider

• Sector-Specific Risks: Being heavily focused on microfinance, Northern Arc Capital is susceptible to risks associated with economic downturns or disruptions in the microfinance sector.
• Competition: The financial services sector is highly competitive, and Northern Arc Capital faces competition from both traditional banks and new-age fintech companies.

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The Northern Arc Capital IPO offers an attractive investment opportunity, especially for those looking to invest in a company with a strong focus on financial inclusion and microfinance. With solid financials, a reasonable valuation, and a positive outlook on the microfinance sector, the IPO is well-positioned for long-term success. Analysts recommend subscribing, particularly for investors with a long-term view.

[Disclaimer: This article is for informational purposes only. Please consult with financial advisors or conduct thorough research before making any investment decisions related to Northern Arc Capital IPO or any other securities.]