<p>Asset Reconstruction Company (India) Ltd</p>

Asset Reconstruction Company (India) Ltd

ARCIL is a decent company operating in the Asset Reconstruction industry which is prone to delayed and partial recovery. Post FY19 the industry has seen slower growth because of lower corporate stress as bank gross NPAs fell from INR 9,33,610 Cr in FY19 to INR 4,31,630 Cr in FY25 with the GNPA ratio at 1.8% by March 2026 and because banks can now resolve directly under the IBC instead of selling to an ARC. Industry AUM went from INR 1,34,161 Cr in March 2025 to about INR 1,33,000 Cr in March 2026, suggesting that the Industry is not growing at this point in time.

Though ARCIL is one of the 5 ARCs eligible to act as a resolution applicant under the IBC and one of the 9 out of 27 ARCs meeting the RBI's Net Owned Fund requirement and has the 2nd largest market share at 13%, we'd avoid it as ARC itself is a poor quality business compared to AMCs because it may look like the management fee is recurring but the fee is linked to the recovery ratings on the security receipts and the ARC can't charge fee if the vintage crosses 8 years, at which point the receipts must be written off as loss assets in investors' books. 35% of ARCIL's AUM i.e INR 7,040 Cr of total INR 20,150 Cr has already crossed the vintage and is not earning any fee. ARCIL's retail AUM grew from INR 1,942 crore to INR 4,745 crore in two years a 56% CAGR taking retail from 13% of AUM in FY24 to 24% in FY26 however, the pivot still lags the industry opportunity. Corporate stress in banks has been flat to falling at a 0.3% CAGR between FY22 and FY26 when retail stress grew at 12.3% CAGR to INR 6,96,400 crore but corporate is still 69% of ARCIL's AUM against retail at 24% meaning two-thirds of the book still sits in the pool that is shrinking.

At IPO price of INR 139 the company is valued at 4,516 crore M. Cap and 12.85x consolidated FY26 EPS of INR 10.82, which looks cheap but 35% of profit before tax came from an unrealised fair value mark on security receipts. If we take that out and EPS drops to INR 6.36 and the multiple goes to 21.9x. The IPO is also completely OFS of INR 733 Cr and the company would not be getting any funds.
