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MRF Q1 FY26: Revenue Up, Profits Down on Margin Pressures
Business, Equities, Market News, Markets - August 30, 2024

Pioneer to Expand Partnerships With Indian Automakers For Growth.

Pioneer to Expand Partnerships With Indian Automakers For Growth.

Pioneer, the Japanese car audio and entertainment system manufacturer, has announced its intention to pursue partnerships with Indian automakers as part of its growth strategy. Historically, Pioneer has focused on the aftermarket sector in India, but the company is now shifting its focus towards original equipment manufacturing (OEM).

Aniket Kulkarni, Managing Director of Pioneer India, noted this strategy change, pointing out that the business has not previously focused on the Indian OEM sector. However, moving forward, establishing a presence in this sector will be a key growth objective for the company.

Kulkarni stated that Pioneer is already in talks with a number of automakers, but he did not provide any specifics. Potential partnerships on items like cameras, infotainment systems, and amplifiers are being discussed, and it is anticipated that new products will soon hit the market.

To further localisation, Pioneer plans to collaborate with local contract manufacturers for production. The company’s initial focus will be on forming partnerships with well-known companies in several product categories, such as speakers, infotainment systems, and dashcams.

Based in Tokyo, Japan, Pioneer Corporation, also simply known as Pioneer, is a multinational corporation with a focus on digital entertainment devices. The company was founded by Nozomu Matsumoto in Tokyo on January 1, 1938, originally as a store for repairing radios and speakers. At the moment, Shiro Yahara is the president.

Future Growth: Pioneer’s strategic pivot towards partnering with Indian automakers for original equipment manufacturing (OEM) marks a significant shift in its growth trajectory. Traditionally, Pioneer has been a dominant player in the aftermarket sector, but this move into the OEM space suggests a broader ambition to capture a more substantial share of the growing automotive market in India. By collaborating directly with automakers, Pioneer can integrate its cutting-edge technology into vehicles from the ground up, ensuring that its products are a standard feature in new vehicles rather than an afterthought.

This strategy aligns with the increasing demand for advanced in-car entertainment and connectivity systems in India, a market that is rapidly expanding due to rising consumer expectations and the overall growth of the automotive industry. As India continues to be one of the world’s largest automotive markets, Pioneer’s ability to establish strong OEM partnerships could significantly enhance its market position and drive long-term growth.

Industry experts are generally optimistic about Pioneer’s decision to enter the OEM market in India. By shifting focus towards OEM partnerships, Pioneer is poised to leverage the substantial growth potential of the Indian automotive market. This move is seen as a natural progression for the company, allowing it to tap into a new revenue stream while also reinforcing its brand presence among Indian consumers. Moreover, the strategy of localizing production through partnerships with local manufacturers is expected to reduce costs and improve product relevance, catering to the specific needs of the Indian market.

Challenges and Considerations: The transition to the OEM space may come with challenges. Establishing OEM relationships requires significant investment in both time and resources, and the competitive landscape is already dominated by established players. Pioneer will need to demonstrate its value proposition convincingly to automakers, who may already have long-standing partnerships with other suppliers. Additionally, the localization of production, while beneficial, might also pose challenges in maintaining consistent quality and managing supply chain complexities.

Overall, while Pioneer’s entry into the OEM sector is viewed as a positive and forward-thinking move, its success will depend on the company’s ability to navigate these challenges and build strong, mutually beneficial partnerships with Indian automakers. The upcoming years will be crucial as Pioneer works to solidify its position in this new market segment.

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Diversification Strategy: IOC’s Foray into Petrochemicals and Renewable Energy
Business, Equities, Market News, Markets - August 30, 2024

JSW Neo Energy Expands Renewable Capacity with 200 MW Hybrid Project

JSW Neo Energy Expands Renewable Capacity with 200 MW Hybrid Project

JSW Neo Energy Limited has been awarded a 200 MW wind-solar hybrid power project by the Maharashtra State Electricity Distribution Company Ltd. (MSEDCL). This project, part of MSEDCL’s Phase III initiative, was secured through a competitive tariff-based bidding process. It marks a significant enhancement to JSW Neo Energy’s renewable energy portfolio and aligns with India’s broader green energy objectives.

The 200 MW Wind-Solar Hybrid Power Project will harness both wind and solar energy resources, leveraging their complementary nature. Wind energy will be utilized during evenings and nights, while solar power will be captured during the day. This dual approach ensures a more reliable and continuous energy supply, improving efficiency and power generation reliability.

With the addition of this 200 MW project, JSW Neo Energy’s total generation capacity now reaches 17.2 GW. The company’s hybrid generation capacity has also expanded to 2.9 GW, underscoring its strategic focus on hybrid renewable projects. The total capacity is diversified across wind, solar, thermal, and hydro sources.

Of the 17.2 GW, 7.5 GW have already been commissioned, and another 2.3 GW are under development in wind, thermal, and hydro projects. Additionally, JSW Neo Energy has secured approvals for power purchase agreements for an extra 2.3 GW of renewable projects. This expansion supports the company’s goal of increasing its installed generation capacity to 20 GW by 2030.

JSW Neo Energy aims to achieve 10 GW of installed generation capacity by FY25, up from the current 7.5 GW. The new 200 MW wind-solar hybrid project is crucial to reaching this target. The company’s growth in the renewable sector reflects its commitment to sustainable energy solutions and its strategic shift towards becoming a diversified, integrated energy products and services provider.

In tandem with expanding its renewable generation capacity, JSW Neo Energy is making strides in energy storage. The company has increased its energy storage capacity ninefold to 4.2 GWh through battery energy storage systems and hydro-pumped storage projects. These storage solutions are vital for balancing renewable energy supply and ensuring a stable power supply.

By 2030, JSW Neo Energy plans to expand its energy storage capacity to 40 GWh, positioning itself as a leading provider of energy storage solutions in India. This focus on storage will help balance supply and demand as the nation grows its reliance on renewable energy.

The integration of wind and solar energy with battery storage represents a significant technological advancement in energy diversification. This project will facilitate more efficient and reliable electricity production at a lower cost compared to traditional methods. Combining these green energy sources optimizes land and infrastructure use, further reducing carbon emissions associated with power generation.

The wind-solar hybrid project will contribute to lowering greenhouse gas emissions and supports India’s national emissions reduction targets.

JSW Neo Energy is committed to achieving carbon neutrality by 2050. The restructuring of its power generation with hybrid renewable projects is integral to reducing the company’s carbon footprint. The expansion of renewable energy and innovative storage capacities are key components of JSW Neo Energy’s strategy to reach carbon neutrality and contribute to India’s green energy transition.

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Microfinance sector recorded surge in NPAs to Rs. 50000 crore
Business, Equities, Market News, Markets - August 29, 2024

Navigating Challenges Small Finance Banks Brace for 26% Slower Credit Growth

Navigating Challenges Small Finance Banks Brace for 26% Slower Credit Growth

By offering fundamental banking services to people with restricted access to traditional banking institutions, Small Finance Banks were founded to promote financial inclusion. SFBs were established with the primary goal of providing services to underbanked and unbanked segments of the population as well as micro, small, and medium-sized companies (MSMEs). Usually designed to satisfy the specific requirements of their customer base, their product offerings include of savings accounts, microloans, and small loans.

Small Finance Banks (SFBs) in India have experienced significant growth in recent years, emerging as key players in the financial sector by catering to the underserved segments of the population. However, the robust expansion that has characterized the sector is expected to decelerate this fiscal year, with credit growth projected to slow down to approximately 26%. This expected slowdown is indicative of both the evolving dynamics within the financial sector and the broader economic landscape of India.

Several factors are contributing to the anticipated slowdown in credit growth for SFBs this fiscal year. These factors include regulatory changes, increased competition, and macroeconomic uncertainties that are affecting the financial services industry as a whole.

The Reserve Bank of India (RBI) has implemented stringent regulatory norms for SFBs, aimed at ensuring financial stability and protecting depositors’ interests. These regulations require SFBs to maintain higher capital adequacy ratios and adhere to stricter lending guidelines, which can limit their ability to extend credit. The increased compliance costs associated with these regulations also affect the profitability of SFBs, leading to a more cautious approach in credit disbursement.

As the Indian economy continues to grow, traditional banks and NBFCs are increasingly entering the market segments that SFBs have historically dominated. These larger financial institutions often have better resources and more extensive networks, allowing them to offer competitive rates and services that can attract customers away from SFBs. This heightened competition forces SFBs to rethink their strategies and could lead to a more conservative lending approach.

Additionally, inflationary pressures can affect the repayment capacity of borrowers, especially those in the lower-income segments, leading to a potential rise in non-performing assets (NPAs) for SFBs. To mitigate this risk, SFBs may adopt a more prudent lending approach, contributing to the slowdown in credit growth.

Over the past few years, some SFBs have experienced an increase in NPAs due to the challenging economic conditions brought about by the COVID-19 pandemic and other factors. In response, many SFBs are focusing on strengthening their balance sheets by improving asset quality and reducing NPAs. This shift in focus may result in a more conservative lending strategy, with banks prioritizing risk management over rapid expansion.

Despite the expected slowdown in credit growth, the outlook for SFBs remains positive in the long term. The slowdown provides an opportunity for these banks to consolidate their operations, improve risk management practices, and focus on sustainable growth. Several strategies could help SFBs navigate the current challenges and continue to play a vital role in promoting financial inclusion.

One of the key strategies for SFBs to maintain growth is by leveraging technology and digital platforms to enhance their service offerings. By adopting digital banking solutions, SFBs can reduce operational costs, improve customer experience, and reach a broader audience. The use of data analytics and artificial intelligence can also help in assessing credit risk more accurately, enabling SFBs to make more informed lending decisions.

Collaborating with fintech companies, NBFCs, and other financial institutions can provide SFBs with access to new technologies, markets, and customer segments. Strategic partnerships can also help SFBs enhance their product offerings and improve operational efficiencies, contributing to sustainable growth.

In Conclusion, While the projected slowdown in credit growth may seem concerning, it also presents an opportunity for Small Finance Banks to reassess their strategies and focus on sustainable growth. By leveraging technology, diversifying products, strengthening risk management practices, and building strategic partnerships, SFBs can continue to thrive and play a crucial role in promoting financial inclusion in India. The evolving landscape will require SFBs to adapt and innovate, ensuring that they remain competitive and resilient in the face of new challenges.

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LG Electronics’ India unit IPO: valuation, strategy and sector implications
Business, Equities, Market News, Markets - August 29, 2024

LG ‘s IPO Launch in India to help reach its $75 Billion goal

LG ‘s IPO Launch in India to help reach its $75 Billion goal

LG Electronics Inc. is exploring the possibility of an initial public offering (IPO) for its India business, aiming to capitalize on the country’s thriving stock market to help achieve its ambitious target of $75 billion in electronics revenue by 2030. CEO Cho disclosed that joining the Indian market is one of several strategies being considered to renew the company’s consumer durables business. It marks the first time in the South Korean electronics giant, a direct competitor to Samsung Electronics Co., has publicly addressed the prospect of an Indian IPO, a topic that has been the subject of persistent market speculation and media attention.

William Cho, LG’s CEO since 2021 and a 30-year company veteran, has set an ambitious goal for the electronics business. His goal is to reach an annual revenue of 100 trillion won ($75 billion) by 2030, marking a significant expansion for the tech giant. This target represents a significant increase from the company’s overall revenue of approximately $65 billion in 2023. To achieve this growth, LG plans to focus on increasing its revenue from enterprise clients, aiming to derive about 45% of sales from other companies by the end of the decade, up from the current 35%. While acknowledging the increased interest among global investors in a potential IPO in India, Cho emphasized that nothing has been confirmed at this stage, stating, “It is one of many options we can consider.”

The contemplation of an Indian IPO comes at a time when LG is experiencing rapid growth in the country. In the first half of this year, revenue at LG’s Indian unit surged by 14% to a record 2.87 trillion won, while net income saw an impressive 27% increase to 198.2 billion won. The robust activity in India’s capital markets is evident in this impressive showing. A total of 189 companies are set to raise $5.6 billion through initial public offerings this year, positioning India as one of the most vibrant markets for equity fundraising globally. The surge in demand, driven by domestic investment, has prompted at least 30 additional companies to explore potential listings. LG’s Korean counterpart Hyundai Motor Co. is also eyeing a major Indian IPO, with plans to raise up to $3.5 billion.

Cho disclosed that LG is closely tracking Indian market trends, especially concerning IPOs and comparable industry situations. However, he noted that the company has not yet calculated potential valuations for its Indian unit. This cautious approach underscores the strategic importance of the decision and the need for thorough evaluation before proceeding with any public offering.

Beyond the potential Indian IPO, Cho outlined his vision for nurturing new businesses that can each generate more than 1 trillion won in annual revenue. A key focus area is the heating, ventilation, and air-conditioning (HVAC) sector, where LG already operates 11 production sites globally. The company’s chillers, which are large air conditioners designed for buildings, have become particularly crucial for artificial intelligence data centers that are proliferating worldwide in response to the growing demand for generative AI capabilities. Over the past three years, LG has seen its overseas sales of chillers grow by an impressive 40% annually on average.

Another significant initiative is the expansion of LG’s subscription service for home appliances. In Korea, consumers can now rent products such as washing machines and laptops for periods ranging from three to six years by paying a monthly fee. The subscription model has proven popular, with 35% of consumers choosing this option. Building on this success, LG has launched subscriptions in Malaysia and aims to expand to Thailand, Taiwan, and India this year, with future plans for the US and Europe. The company projects that revenue from the subscription business will surge by 60% to about $1.3 billion in 2024.

LG is also setting its sights on the digital content and advertising space, with plans to invest 1 trillion won by 2027 to grow its webOS-based advertising and content business. This includes the expansion of free ad-supported streaming services, leveraging the company’s expertise in consumer electronics to create new revenue streams in the digital media landscape.

Reflecting on his career and vision for LG, Cho, who has worked with the company across North America, Germany, and Australia, emphasized the importance of understanding customers and creating innovative business models tailored to their needs. His global experience has shaped his approach to leading LG into new markets and business areas, positioning the company for growth in an increasingly competitive and rapidly evolving technology landscape.

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Bosch Ltd Q2 FY26: Auto Demand Boosts Sales, Profit Inches Up Despite Higher Costs
Business, Equities, Market News, Markets - August 29, 2024

Rising Inventory Faces Dealer Dispatches To Slow Down

Rising Inventory Faces Dealer Dispatches To Slow Down

The stock levels of passenger cars have risen to dangerous levels, posing a serious inventory Situation for the Indian automotive sector. As of May 2024, inventory levels have reached between 55 to 60 days’ worth, translating to an estimated 550,000 to 600,000 unsold vehicles. This rise in inventory has become a pressing concern for auto dealers, who are already under pressure from extended high inventory levels.

The Inventory Challenge : The situation has been increased since the previous festive season when inventory levels exceeded 60 days. In response, the Federation of Automobile Dealers’ Associations (FADA) made an urgent request to Original Equipment Manufacturers (OEMs) and the Society of Indian Automobile Manufacturers (SIAM) to reduce stock dispatches. Despite these efforts, the inventory situation has not significantly improved, and dealerships continue to struggle with the financial strain caused by these high levels of unsold vehicles.

Financial Strain on Dealerships: The extended inventory holding periods are having a considerable impact on dealership finances. High inventory levels directly affect cash flow and increase interest costs, making it challenging for dealers to maintain their financial health. Dealerships rely on a steady turnover of vehicles to manage their finances effectively, but the current excess in inventory has disrupted this balance, leading to increased financial pressure.

FADA’s Response and Strategic Interventions: Recognizing the severity of the situation, FADA is planning to once again approach SIAM, advising its members on the need to moderate stock inflow and address the growing inventory surplus. This proactive stance by FADA highlights the urgency of the situation and the need for coordinated efforts between OEMs and dealers to stabilize the market.

The high inventory levels, combined with market uncertainties such as election-related delays and adverse weather conditions, are expected to dampen immediate sales performance. Though cautiously optimistic, there’s a chance that the impending holiday season could bring about a much-needed surge in demand, relieving some of the strain on inventories and stabilising the market.

The Road Ahead : The imbalance between supply and demand is highlighted by the present inventory levels in the Indian automotive industry. In addition to increasing dealership holding costs, the huge inventory of unsold cars indicates possible changes in the supply chain and market dynamics. To lessen these difficulties, OEMs and dealers must strategically coordinate their inventory management efforts. The proactive measures being taken by FADA, including seeking intervention from SIAM, underscore the urgency of the situation. Successfully managing and reducing inventory levels will be crucial for maintaining dealer profitability and ensuring overall market stability. Looking ahead, while the festive season may offer some relief through increased consumer demand, sustained efforts in inventory management and market adaptation will be necessary. The automotive sector must navigate these challenges carefully to balance stock levels and support the health of the industry. By doing so, the industry can mitigate the risks associated with high inventory levels and pave the way for a more stable and profitable future.

Regarding the large levels of inventory in the Indian automotive sector, sentiments range from cautious optimism to worry. Experts in the field praise FADA for taking the initiative to address the problem by interacting with SIAM and pushing OEMs to limit stock dispatches. The financial burden this inventory accumulation places on dealerships, especially in light of rising holding costs and cash flow issues, is a major source of worry. While it is hoped that the holiday season would increase demand and aid in the reduction of excess stock, the scenario highlights the necessity of improved communication and adaptable production techniques between dealers and manufacturers in order to avoid such problems in the future.

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Battery Storage Win Powers Acme Solar’s Stock Surge
Business, Equities, Market News, Markets - August 28, 2024

India Hits Record 15 GW Solar Capacity in H1 2024

India Hits Record 15 GW Solar Capacity in H1 2024

India’s renewable energy sector has witnessed a remarkable surge in the first half of 2024, with the country adding a record 15 gigawatts (GW) of solar capacity between January and June. This milestone underscores India’s commitment to accelerating its transition towards a sustainable energy future and highlights the growing importance of solar power in the nation’s energy mix.

India has been progressively working towards expanding its renewable energy capacity over the past decade, with a strong focus on solar power. The country has ideal conditions for solar energy generation, including abundant sunshine, vast land availability, and a growing demand for electricity. These factors have made solar power a key pillar of India’s renewable energy strategy.

The addition of 15 GW of solar capacity in just six months is a testament to India’s aggressive push towards achieving its renewable energy targets. This new capacity marks a significant increase compared to the 10 GW added during the same period in 2023, reflecting a year-over-year growth rate of 50%. The rapid growth in solar installations can be attributed to a combination of favorable government policies, technological advancements, and increased private sector investment.

The Indian government has been proactive in promoting renewable energy, especially solar power, through various policy measures. Initiatives such as the National Solar Mission, which aims to achieve 100 GW of solar capacity by 2022, and the extension of this target to 280 GW by 2030, have created a robust framework for the sector’s growth. Additionally, the implementation of favorable policies, including subsidies, tax incentives, and low-cost financing options, has made solar power more accessible and attractive to investors and developers.

Innovations in technology have brought down the price of solar panels and related equipment considerably. In India, the cost of producing solar electricity has decreased by more than 80% in the last ten years, making it one of the most economical energy sources available. Both smaller-scale residential and commercial installations and large-scale utility projects have used solar power more frequently as a result of the falling prices.

The private sector has played a crucial role in the expansion of India’s solar capacity. Major domestic and international companies have invested heavily in solar projects, attracted by the sector’s growth potential and supportive regulatory environment. Public-private partnerships have also been instrumental in driving large-scale solar installations, particularly in states like Rajasthan, Gujarat, and Maharashtra, which have abundant solar resources and supportive state policies.

India has seen a remarkable increase in solar capacity; however, maintaining this pace would not be easy given various obstacles. One of the primary challenges is the availability of land for large-scale solar projects. While India has vast land resources, acquiring suitable land for solar installations can be a complex and time-consuming process, often involving regulatory hurdles and local community resistance.

The national grid’s incorporation of solar electricity presents another difficulty. Due to its intrinsic variability, which is influenced by the weather and time of day, solar energy can cause problems with grid stability. In order to secure the dependable and effective integration of solar power, India must make investments in energy storage technology, smart grid infrastructure, and grid infrastructure enhancements.

The solar manufacturing sector in India needs to be strengthened to reduce dependence on imports of solar panels and other components. Although the government has introduced initiatives to boost domestic manufacturing, such as the Production Linked Incentive (PLI) scheme, more efforts are needed to build a competitive and self-sufficient solar manufacturing ecosystem.

In Summary, India’s addition of 15 GW of solar capacity in the first half of 2024 is a landmark achievement in its renewable energy journey. This record growth not only reinforces India’s commitment to combating climate change and reducing its carbon footprint but also sets a positive example for other nations to follow. However, to maintain this growth trajectory, India must address the challenges of land acquisition, grid integration, and domestic manufacturing. With continued government support, technological advancements, and increased private sector participation, India is well-positioned to achieve its renewable energy ambitions and pave the way for a sustainable future.

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KPI Green Energy Secures Approval for 13.30 MW Solar Projects

KPI Green Energy Secures Approval for 13.30 MW Solar Projects

KPI Green Energy, a prominent player in the renewable energy sector, has recently made significant strides in its business operations and financial performance.

Sun Drops Energia Private Limited, a fully-owned subsidiary of KPI Green Energy, has reached a significant milestone by obtaining approval to develop solar power installations totaling 13.30 MW in capacity. These projects fall under the company’s ‘Captive Power Producer (CPP)’ business segment, highlighting KPI Green Energy’s commitment to expanding its renewable energy portfolio. The company has outlined plans to complete these projects in various tranches during the 2024-25 financial year, adhering to the terms specified in the order.

This development comes on the heels of KPI Green Energy’s impressive financial performance for the first quarter of the 2024-25 fiscal year. The company reported a remarkable two-fold increase in its consolidated net profit, which rose to ₹66.11 crore, up from ₹33.26 crore in the corresponding period of the previous fiscal year.

The company’s financial success extends beyond its bottom line, as evidenced by the significant uptick in its total revenue. The company experienced a substantial boost in its quarterly earnings, with figures nearly doubling from ₹190.56 crore to ₹349.85 crore year-over-year. This robust top-line growth of approximately 84% year-on-year demonstrates the company’s expanding market presence and its effectiveness in monetizing opportunities within the green energy sector.

Further analysis of KPI Green Energy’s financial metrics reveals impressive improvements in its operational efficiency. The company’s earnings before interest, tax, depreciation, and amortization (EBITDA) experienced a substantial increase of 91% on an annual basis, reaching ₹131.7 crore in Q1FY25, compared to ₹69 crore in Q1FY24. This growth in EBITDA was accompanied by an expansion in the EBITDA margin, which improved by 150 basis points to reach 38% in Q1FY25, up from 36.5% in the previous year’s corresponding quarter.

In a move that reflects confidence in its financial stability and commitment to shareholder value, The company’s leadership has declared a temporary shareholder payout of 0.20 paisa for each stock unit, valued at ₹5, applicable to the current fiscal period ending in 2025. The company set August 21, 2024, as the record date for the payment of this interim dividend, marking its first such distribution for the fiscal year.

KPI Green Energy’s recent successes and strategic moves reflect its deep-rooted expertise and long-standing presence in the renewable energy sector, built over years of specialized operations and market engagement. Founded in 2008 as a subsidiary of the KP Group, the company has positioned itself as a comprehensive solution provider in the solar and wind solar hybrid power project domain. KPI Green Energy’s business model encompasses the entire lifecycle of renewable power facilities, including development, construction, ownership, management, and maintenance services.

The company operates under two primary business segments: as an Independent Power Producer (IPP) and as a service provider for Captive Power Producers (CPPs). Through its ‘Solarism’ brand, KPI Green Energy has cultivated a reputation for delivering high-quality renewable energy solutions tailored to meet the diverse needs of its clientele.

As of the latest market data, KPI Green Energy boasts a market capitalization of approximately ₹12,010.33 crore, positioning it within the small-cap segment of the Indian stock market. The company’s shares have demonstrated significant volatility over the past year, with a 52-week high of ₹1,116 and a 52-week low of ₹255.46 per share, reflecting the dynamic nature of the renewable energy sector and investor sentiment.

The recent uptick in KPI Green Energy’s share price, following the announcement of the new solar power plant project, indicates positive market reception to the company’s growth initiatives. As of the most recent trading session, the company’s shares were trading at ₹915 per share, representing a modest increase of 0.78% during early market hours.

In conclusion, KPI Green Energy’s recent achievements, including the acquisition of new solar power projects and its strong financial performance, underscore the company’s growing prominence in India’s renewable energy landscape. As the nation continues to prioritize sustainable energy solutions, KPI Green Energy appears well-positioned to capitalize on emerging opportunities and contribute to the country’s green energy transition. Investors and industry observers will likely continue to monitor the company’s progress closely, as it navigates the evolving dynamics of the renewable energy sector and strives to maintain its growth trajectory in the coming quarters.

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Jindal Steel & Power Q1 FY26: Profits Surge on Operational Gains and Strategic Growth
Business, Equities, Market News, Markets - August 28, 2024

ICRA Highlights Potential Profit Decline for Steel Sector For New Mining Cess.

ICRA Highlights Potential Profit Decline for Steel Sector For New Mining Cess.

The Indian steel industry is likely to face tougher times due to a new mining tax being considered by some states, following a recent Supreme Court decision. This tax is expected to reduce profits for steel producers. Impact on Steel Producers. According to ICRA projections, primary steel companies’ profits could drop by 0.6% to 1.8% as a result of the new levy. Secondary steel producers, who already have thinner profit margins, could see their profits drop by 0.8% to 2.5%, depending on how high the tax rate goes (between 5% and 15%).

Girish Kumar Kadam from ICRA noted that while exact tax rates are still unknown, any significant increase could hurt secondary steel producers the most, as they will bear the brunt of higher costs from suppliers. Odisha’s Key Role Odisha, The Orissa Rural Infrastructure and Socio-Economic Development Act, 2004 (ORISED Act) was introduced by Odisha and allows a fifteen percent cess on coal and iron ore. A major maker of minerals, is considering a charge of up to 15% on iron metal and coal. If fully implemented, this could raise the cost of iron ore by about 11%, making it more expensive for steel makers.

Jharkhand has already increased its tax by Rs 100 per tonne on iron ore and coal. This will only slightly impact profits, reducing them by about 0.3% to 0.4%. Other states might follow, but the overall effect may be small. Retrospective Tax and Broader Effects If states decide to apply the new tax retroactively, steel companies could face additional financial pressure from past taxes. However, the Supreme Court has allowed companies to pay these taxes over 12 years without extra charges, offering some relief. The tax could also affect other industries.

The power sector might see a cost increase of 0.6% to 1.5%, potentially raising electricity prices. Aluminium producers, who use a lot of power, might see their costs go up by about Rs 1,200 to Rs 1,300 per tonne, which is about 0.6% of current aluminium prices. Summary The impact of the new mining tax will depend on how different states implement it. Steel and other industries need to watch these developments closely and plan how to manage the financial challenges ahead.

Here are some potential opinions on the impact of the new mining cess: Positive for Government Revenue: The new mining cess could boost state revenues, helping fund local infrastructure and development projects. This is particularly relevant for states rich in minerals, which could see significant financial benefits.

Challenges for Steel Industry: The steel industry, especially secondary producers with already tight margins, might struggle with increased costs. This could lead to higher steel prices or reduced competitiveness, affecting the broader economy.

Uncertainty for Businesses: The possibility of retrospective taxation adds uncertainty, which could impact business planning and financial stability. Businesses may have unforeseen expenses and administrative workloads.

Potential for Broader Impact: Beyond steel, other sectors like power and aluminium could also face higher costs. This could translate into higher consumer prices, affecting households and potentially slowing economic growth. Need for Balanced Implementation: While the tax aims to generate revenue, its design and implementation will be crucial. States need to strike a balance to avoid stifling key industries while still achieving fiscal goals.

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The growing role of private equity in defence: a $150bn rethink for the U.S. Army
Business, Equities, Market News, Markets - August 27, 2024

Akasa Air Set to Plan IPO, Targets Profitability by 2028

Akasa Air Set to Plan IPO, Targets Profitability by 2028

One of the newest airlines in India, Akasa Air, plans to go public as part of its long-term expansion strategy. The airline, which started flying in 2022, has ambitious goals to grow and become a significant force in the highly competitive Indian aviation industry. “Going public is clearly a milestone for Akasa Air,” Dube stated. “The company aims to be profitable by 2028, and listing on the stock exchange is a natural step in our growth journey.”

The launch of Akasa Air was facilitated by the COVID-19 pandemic. CEO Vinay Dube admitted that he would not have considered starting the airline if not for the unique opportunities created by the pandemic. The drop in aircraft leasing prices and the availability of skilled pilots, cabin crew, and engineers allowed Akasa to quickly assemble a fleet of 24 aircraft in just two years. Dube declared, “The pandemic was the only time I would have started an airline.” Having the proper aircraft at the right price and in the right quantity was crucial, as these account for over 70% of an airline’s costs.

In its first two years, Akasa has gained attention with its new aircraft and popular in-flight menu. However, the airline has faced challenges, including losses exceeding ₹2,400 crore. These losses are primarily due to the lack of profitable metro routes and rising costs from hiring pilots who cannot be utilized due to delays in Boeing’s aircraft production. Despite these challenges, Dube remains positive. He sees the losses as part of the process of building a strong foundation for the future. Importantly, the initial investment of ₹250 crore from the family of the late stockbroker Rakesh Jhunjhunwala is still intact. “Initial business losses are common for startups. However, we have expanded our fleet, hired 4,000 new employees, secured significant agreements, invested in technology, and preserved our initial investment,” Dube said.

By 2028, Akasa hopes to become profitable and go public. Co-founder Belson Coutinho emphasized the airline’s focus on using technology to understand customer preferences and offer personalized services to build loyalty. Chief Commercial Officer Praveen Iyer noted that Akasa’s strategy of focusing on underserved destinations like Dehradun and Srinagar has been profitable, and international routes are also performing well. The airline is also working to increase its aircraft utilization, which is now over 13 hours a day. Akasa Air’s journey has had its ups and downs, but with a clear plan and strategic investments, the airline is determined to achieve profitability and become a major player in the aviation industry.

Vinay Dube further added that all startups experience financial losses initially. However, Akasa has secured two aircraft deals and long-term vendor agreements, achieved a fleet of 25 aircraft, hired 4,000 people, and invested in technology. Recently, a group of family offices, reportedly led by Azim Premji of Wipro and Ranjan Pai of Manipal Group, are in discussions to invest around $125 million.

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Business, Equities, Market News, Markets - August 27, 2024

Sugar Industry Fears New Norms May Stifle Growth and Innovation

Sugar Industry Fears New Norms May Stifle Growth and Innovation

The Indian sugar industry is currently facing a significant challenge as it grapples with a draft amendment to the nearly six-decade-old regulation governing production, storage, and pricing of sugar. Industry players fear that the proposed changes may reintroduce some of the controls that have been gradually phased out over the years, contradicting the recommendations of the Rangarajan Committee.

The Ministry of Consumer Affairs, Food, and Public Distribution has proposed the draft “The Sugar (Control) Order,2024,” citing technological advancements in sugar production as a reason to update the existing Sugar (Control) Order,1966. However, the sugar industry is concerned that the new regulations may stifle growth, innovation, and competition within the sector.

The National Federation of Cooperative Sugar Factories (NFCSF) has planned a national-level brainstorming session with other industry associations to discuss the draft and formulate a joint response before the September 23 deadline. One of the key contentious points is a provision that empowers the Centre to direct producers to package sugar in jute bags. This provision is seen as a direct contradiction of the Rangarajan Committee’s recommendations for a gradual phasing out of mandatory jute packaging for the sugar sector.

In addition to the packaging requirement, the draft was formed by merging the Sugar Control Order of 1966 and the Sugar Price Control Order of 2018. The latter empowers the Central government to set the minimum selling price (MSP) of sugar.While some industry executives view this as a positive development, as it simplifies the Act, others express concerns about the potential for exploitation and misuse.

The provision that empowers the Centre to ask for information in a digital format from sugar producers or dealers and requires them to integrate their digital systems with the Centre’s system for data authenticity and compliance could give the government real-time information on sugar production and by-products. However, some industry players worry that this could also open the door for exploitation and misuse of data.

The draft also includes a provision that grants the central government the authority to regulate the price of sugar.The draft states that the Centre will consider the Fair and Remunerative Price (FRP) plus the average and approximate conversion cost for sugar production and revenue from by-products when issuing pricing orders. This is seen as a departure from the old method, which included interest and depreciation in the calculation of sugar pricing.

The draft also states that the FRP will be taken into consideration for pricing orders, potentially putting mills that follow the state-fixed Advised Price (SAP) at a disadvantage. These mills, primarily located in states such as Uttar Pradesh, Haryana, and Punjab, frequently have SAPs that exceed the FRP.

While the draft has some positive aspects, such as bringing the unorganized ‘gur’ and ‘khandsari’ sectors under the ambit of the sugar control order, industry players also express concerns about provisions that could hinder new product development or create unfair competition. For instance, the provision that brings under the Control Order any other alternative product affecting sugar production from sugarcane could potentially limit innovation and product diversification.

The sugar industry is wary of the potential consequences of these amendments.While some provisions may be beneficial, others are seen as a step backward in terms of deregulation and market-oriented policies. The industry is urging the government to carefully consider the concerns raised by stakeholders and make necessary modifications to ensure a balanced approach that promotes growth, efficiency, and fair competition within the sugar sector.

The Potential Consequences of New Regulations

The proposed regulations could have far-reaching consequences for the sugar industry in India.If these regulations pass, they could:-

Stifle Innovation: The industry fears that the new regulations could hinder innovation and product development, limiting the ability of sugar producers to adapt to changing market conditions and consumer preferences.

Create Unfair Competition: Some provisions in the draft could create an uneven playing field for sugar producers, potentially favoring larger companies or those with stronger political connections.

Reduce Exports: The new regulations could make it more difficult for Indian sugar producers to compete in the global market, reducing exports and limiting foreign exchange earnings.
Increase Costs for Consumers: If the new regulations lead to higher production costs, they could ultimately result in higher prices for consumers.

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