Target: ₹405CMP: ₹306.70Northern Arc (NACL) has steadily evolved from a credit intermediary into a diversified D2C-led financial services franchise. D2C assets have increased from about 19 per cent of lending AUM in FY21 to around 59 per cent in FY26 and should rise further to around 68 per cent by FY28E, expanding the addressable opportunity and strengthening the growth profile.Consumer finance and MSME lending have emerged as the key growth engines, while improving collections should support a calibrated recovery in rural finance. Expansion into adjacent secured products provides further optionality.Improving collections, declining Stage 2 assets, and granular portfolio monitoring reinforce confidence in asset quality. NACL’s transformation into a diversified D2C-led credit platform is steadily strengthening the quality of its growth profile.The combination of multiple lending growth engines, an expanding fee-income business, improving profitability drivers, and a robust risk management framework positions the company to deliver sustainable growth with improving earnings quality. As the D2C franchise gains further scale, NACL appears well placed to compound growth while generating superior risk-adjusted returns. At 1.1x FY27E P/BV, we believe valuations do not fully capture the improving growth and profitability trajectory. Reiterate Buy with a TP of ₹405, based on 1.3x FY28E P/BV.Published on July 20, 2026