Industrial & Prudential Investment Company Ltd Management Discussions

INTRODUCTION:

The Company is a Non-Banking Finance Company (NBFC) and primarily engaged in investment in equity markets for long term value creation. Accordingly, the financial performance of the Company is dependent on that of the stock market movements. The majority part of your Companys portfolio consists of investments in diversified companies representing various sectors and balance is invested in fixed income securities. The Company has consistently delivered returns exceeding the benchmark index.

As a key promoter of KSB Limited, which has delivered robust workings and financial performance in the previous year in line with its business plan. The Company is expected to do better in the future in line with the current CAPEX cycle growth. Other investments have also performed better during the year under review. The management believes that the companys investments will continue to do well in future. The portfolio is being managed under the active advice of renowned Investment Banks specialised in investment advisory and changes are being made time to time to seize the long-term opportunities in the market.

PERFORMANCE HIGHLIGHTS

During FY 2024–25, the Company reported significant growth in dividend income, rising to -18.70 crore from _15.60 crore in FY 2023–24. The investment portfolio continues to be actively managed with a focus on long-term value creation. The Companys approach is guided by sound research and expert advice, balancing returns with prudence.

ECONOMIC OUTLOOK:

Global Economic Outlook 2025:

As per the IMF forecast, the global economy is projected to grow steadily at 2.8% in 2025 and 3.0% in 2026, while growth in advanced economies is likely to stay modest at 1.4% in 2025 and 1.5% in 2026. The developing economies such as China and India are expected to show stronger growths despite global uncertainties and recent geopolitical and trade tensions. The global economy growth was moderate at 3.3% in 2024 as against 3.5% in 2023 meanwhile, Emerging Markets and Developing Economies (EMDEs) expanded by 4.7% in 2023 and 4.3% in 2024.. With growing geo-political tensions and tari_ uncertainty, growth is further likely to moderate to 2.8% in 2025 as forecasted by the IMF. However, the uncertainty will prevail across the world till the issue of the US tari_ is finally settled between US with its major trade partners and supply chain disturbance is eased.

INDIAN ECONOMY:

India continued to be one of the fastest-growing major economies, driven by strong domestic demand, structural reforms and supportive policies. In recent years, the countrys rapid economic expansion enabled it to surpass the UK, making it the worlds __h-largest economy. India grew at 6.4 % in fiscal year 2024-25. However, in FY2025, in a year of tari_ uncertainties, rising geopolitical tensions and persistent supply chain disruptions Indian Economy growth is estimated to remain same at 6.5% in current fiscal year as per second advance estimates from the Ministry of Statistics and Programme Implementation (MOSPI). With oil and other commodity price being stable, Consumer Price Index (CPI) inflation is expected to average below 5% in FY2025.

India continued on a steady path of economic growth, driven by a strong manufacturing sector, an expanding services industry and increased investments in infrastructure. Various government-led initiatives, including digital transformation, financial inclusion programs, Performance based Incentives and Make in India policy played a crucial role in strengthening domestic manufacturing capabilities and attracting foreign direct investment (FDI) across key sectors.

Several initiatives have been taken by the government to improve domestic consumption such as reduction in Income Tax on Individuals, Interest rate cuts, Loans to MSME, and rural entrepreneurs which leave more disposable income in the hands of the people. Government continues to allocate substantial funds to the infrastructure sector to create jobs in the rural area to boost consumption. New areas are being identified for investment to be future ready such as Green Energy, Data Centres, Semiconductor, Green Hydrogen, Defence, Power including small nuclear plant, Electric Vehicles , Energy storage, mining and refining of Rate earth and other precious metals. Since most of the new investments are happening in private sectors, it will provide huge market opportunities to the investors. The steady rise in urbanisation, along with a rapidly growing middle class, further contributed to increased consumer spending across multiple sectors. With these strong economic drivers in place, Indias economy is projected to grow at a robust rate of 6.5% in FY2026.

INDUSTRY OVERVIEW

Non-Banking Financial Companies (NBFC) Industry

The NBFC sector plays a crucial role in Indias financial system by providing credit to various economic sectors, including those that traditional banks may not adequately serve. At the same time, NBFCs maintain strong partnerships with commercial banks, mutual funds and insurance companies to ensure financial stability and a diversified funding base. The growth of assets under management (AUM) for NBFCs is expected to remain robust at 15-17% over FY2025 and FY2026. While this reflects a slight moderation from the strong 23% growth recorded in FY2024, it continues to exceed the decade-long term average growth of 14% per annum (FY2014-2024).

The NBFC sector has faced consecutive challenges since FY2019, beginning with the failure of a large NBFC and subsequent liquidity stress, followed by the COVID-19 pandemic and most recently, monetary policy tightening due to high inflation. However, these pressures have eased over the past two years. According to the RBIs Financial Stability Report (December 2024), the sector remains healthy, supported by strong capital bu_ers, such as:-

v Capital to Risk- Weighted Assets Ratio -26.1% in September 2024,

v Net Interest Margin 5.1%

v Return on Asset - 2.9%

v Gross Non-Performing Assets at 3.4% of gross loans NBFCs are currently adjusting to a changing regulatory landscape and heightened scrutiny from the central bank. Since November 2023, the increase in risk weights on bank lending to NBFCs has moderated their Assets Under Management (AUM) growth. However, with the reversal of this regulatory requirement from the beginning of FY2026, bank funding is expected to ease once again. The reduced availability of bank credit has led NBFCs to explore alternative funding sources, including capital market instruments, foreign currency borrowings and securitisation. However, greater reliance on non-bank funding has increased their cost of capital, impacting profitability.

Despitethesechallenges,NBFCshavemaintainedadequateprovisionsfornon-performingassets,demonstrating effective loan resolution and asset quality improvement. Additionally, ongoing regulatory recalibration, with a stronger focus from RBI on customer protection, operational compliance and pricing disclosures, are expected to shape the sectors future lending practices.

COMPANYS STRATEGY AND OUTLOOK

The Company follows a sustainable growth-oriented investment philosophy focused on:

• Long-term equity investments in quality businesses

• Diversification across sectors and asset classes

• Allocation to InvITs, REITs, mutual funds, and fixed-income instruments

• Periodic portfolio rebalancing based on macroeconomic trends

Looking ahead, the Company aims to capitalize on emerging investment themes while safeguarding returns through prudent risk management.

RISKS AND MITIGATION

• Despite a positive macroeconomic outlook for India, we are still not immune from the geopolitical risks and tari_ uncertainties which may cause inflation, supply chain disruptions, commodity price volatility and export contraction in some industries. ese external factors are likely to impact India as we are not fully disconnected from the global economy. However, with strong domestic demand and the government attentiveness, the impact may not be severe. The Company is actively monitoring these risks and taking necessary steps of a diversified investment approach to mitigate potential adverse impacts.

Disclaimer

The information and opinions expressed in this section of the Annual Report reflects the views of Companies management at the time of its publication. ese are intended solely for communication with stakeholders and do not constitute investment advice or solicitation. The Company and its management shall not be held liable for any losses arising from reliance on this report.

On behalf of the Board of Directors

Gaurav Swarup

Chairman & Managing Director

Date: 27-05-2025

Place: Kolkata