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Economic Overview
Indian economy
The Indian economy has displayed remarkable resilience in the face of significant global challenges, including the COVID-19 pandemic, the Russian-Ukraine conflict, and synchronised policy rate hikes by central banks worldwide. Building upon the impressive growth rate of 8.7% in FY22, India is projected to maintain its positive momentum with a real growth rate of 7% for FY23. This commendable performance can be attributed to the driving forces of robust private consumption and capital formation, which have not only stimulated employment generation but also contributed to a decline in urban
unemployment rates. Additionally, the successful execution of an extensive vaccination drive, administering over 2 billion doses, has bolstered consumer confidence and fostered a sustained rebound in consumption. It is imperative that private capital expenditure takes the lead to accelerate job creation, as the credit growth to the Micro, Small, and Medium Enterprises (MSME) sector has witnessed exceptional growth, aided by the extended Emergency Credit Linked Guarantee Scheme (ECLGS) initiated by the government. Furthermore, private consumption as a percentage of GDP reached its highest level in Q2 of FY23, driven by a resurgence in contact-intensive services such as trade, hotels, and transport.
An essential driver of Indias economic growth in FY23 has been the CAPEX of the central government, which exhibited a remarkable increase of 63.4% during the first eight months of the fiscal year. This surge in government CAPEX has not only invigorated the economy but has also facilitated private CAPEX, thereby acting as a catalyst for growth. The central government remains on track to meet its full-year capital expenditure budget, while the strengthening of corporate balance sheets and increased access to credit financing bode well for sustained private CAPEX. Indias economy has demonstrated resilience and an ability to rebound swiftly from the pandemic, surpassing the recovery of
many other nations. The proactive measures implemented by the government, in collaboration with the Reserve Bank of India, have effectively mitigated the impact of global events and contributed to the gradual easing of inflationary pressures. These prudent steps, coupled with the favourable trend of easing global commodity prices, have successfully brought retail inflation.
As the focus shifts to FY24, the Indian economy is poised for robust growth. A proactive approach to credit disbursement and a revitalised capital investment cycle are expected to drive economic expansion.
The corporate and banking
sectors, bolstered by improved balance sheets, are poised to contribute significantly to this positive trajectory. Moreover, the expansion of public digital platforms and the implementation of transformative initiatives like PM GatiShakti, the National Logistics Policy, and Production- Linked Incentive schemes will provide additional impetus to manufacturing output. These measures, combined with a favourable economic environment, position India for continued progress and development in the upcoming fiscal year.
+ Indias GDP Growth Forecast (In %) |
2019-20 | 3.7 |
2020-21 | (6.6) |
2021-22 | 8.7 |
2022-23 | 7.0 |
2023-24 | 6.0-6.8 |
Industry Overview
Indian renewable energy landscape
Indias renewable energy sector is poised for significant growth, driven by the countrys soaring energy demand and its commitment to sustainable development. As one of the largest and fastest-growing economies in the world, India recognizes the urgency of shifting towards low-carbon, renewable energy sources to meet its energy needs. The nations recent announcement of its ambitious targets to achieve net-zero carbon emissions by 2070 and to derive 50% of its electricity from renewable sources by 2030 marks a pivotal moment in the global fight against climate change.
To fulfil its renewable energy ambitions, India aims to produce
five million tonnes of green
hydrogen by 2030, supported by the establishment of 125 GW of renewable energy capacity. With the approval of 57 solar parks boasting a combined capacity of 39 GW+, and the identification of potential offshore sites for wind energy, India is making significant strides in the renewable energy sector. The transformational impact of these ambitious goals is already evident, as the rising population and electrification of rural communities fuel the demand for clean energy to power homes, businesses, and entire communities. The adoption of clean energy not only contributes to reduced pollution levels but also empowers villages to become self-sustainable.
Indias commitment to renewable energy will revolutionise its power sector and yield numerous benefits. As technological advancements improve the efficiency of batteries for storing electricity, the cost of solar energy is projected to decrease
by 66% by 2040. By leveraging renewable energy sources instead of coal, India stands to save an impressive D54,000 crore (US$
8.43 billion) annually. Furthermore, the introduction of wind-solar hybrid capacity, with an anticipated addition of 15,000 MW between 2020 and 2025, demonstrates the countrys determination to harness the potential of diverse renewable energy sources. The governments comprehensive plan includes the development of extensive transmission lines spanning 50,890 circuit km and substation capacity of 4,33,575 MvA, thereby bolstering domestic production and facilitating the energy transition. By envisioning the installation of 515 GW of battery storage by 2030, the government aims to ensure uninterrupted power supply to end consumers, further cementing Indias position as a global leader in renewable energy.
Government commitments
• India has set forth an ambitious vision to combat climate change by reducing total projected carbon emissions by 1 billion tonnes before 2030.
• As part of this commitment, the government aims to decrease the carbon intensity of the nations economy by less than 45% within the decade.
National green hydrogen mission
• A groundbreaking initiative, the National Green Hydrogen Mission, has been approved by the Union Cabinet with an initial outlay of D19,744 crore.
• This mission encompasses various components, including the SIGHT program, pilot projects, research and development, and other vital aspects.
• By focusing on the production of five million tonnes of green hydrogen
by 2030, India is spearheading the global shift towards a hydrogen- based economy.
Offshore wind energy
• Recognizing the vast potential of offshore wind resources, India has set medium and long-term targets for offshore wind power capacity
r\r\ it-i/M-i c-
• By aiming to achieve an impressive 30 GW by 2030, the country is poised to harness this untapped source of renewable energy.
• Offshore wind farms will play a pivotal role in diversifying the renewable energy mix and driving sustainable growth in the power sector.
Wind-solar hybrid policy
• To ensure optimal utilisation of transmission infrastructure and land, the government introduced a national policy promoting large-scale grid-connected wind-solar PV hybrid systems.
• This innovative approach addresses the intermittency challenge by synergizing the complementary characteristics of wind and solar energy sources.
• By striking the right balance between wind and solar components in hybrid projects, India is enhancing grid stability and unlocking the
full potential of renewable energy resources.
PLI scheme
• To boost domestic manufacturing capabilities and promote exports
in the solar sector, the government has launched the Production-Linked Incentive (PLI) Scheme.
• The scheme aims to establish fully integrated solar PV module manufacturing capacities, generating significant direct and indirect employment opportunities.
• With a focus on import substitution and fostering research and development, this initiative will drive advancements in solar technology and elevate Indias position in the global renewable energy market.
Favourable union budget
• Recognizing the significance of green growth, Indias Union Budget has prioritised various renewable energy initiatives.
• A substantial allocation of funds, including a $2.4 billion National Hydrogen Mission, demonstrates the governments commitment to scaling up hydrogen production.
• Additionally, budgetary support has been extended to Battery Energy Storage Systems and Pumped Storage Projects, bolstering energy storage capabilities and ensuring a reliable and sustainable power supply.
Installed capacity for renewables
(February 2023)
63.3 gw Solar |
41.9 gw Wind |
10.2 gw Bio Power |
4.93 gw Small Hydro |
With continuous efforts to expand renewable infrastructure and embrace innovative technologies, India is poised to further strengthen its position as a global leader in renewable energy generation. The substantial growth in installed capacities sets the stage for a greener future, where renewable sources play a vital role in meeting the countrys energy demands while mitigating climate change.
Sources: Invest India, IBEF
Indian wind energy sector
In the realm of renewable energy, India has emerged as a prominent player, particularly in the field of wind power. With an impressive installed capacity of 41.9 GW as of February, 2023, India stands proudly as the fourth-largest country worldwide in terms of its wind power capacity. This remarkable feat has been made possible through strategic project placements across key regions, harnessing the abundant wind resources that adorn the Southern, Western, and Northern Western parts of the country.
Recognizing the immense potential of wind energy, the Indian government has taken proactive steps to foster its development. The National Institute of Wind Energy (NIWE) has played a pivotal role by setting up over 800 wind-monitoring stations throughout the country. These stations have provided crucial insights into Indias wind potential at various heights above ground level, unveiling an impressive gross wind power potential of 302 GW at 100 metres and a staggering 696 GW at 120 metres.
The fiscal year 2023 marked a significant upswing for the wind sector, witnessing the addition of 2.28 GW of new capacity?a remarkable 105% increase compared to the previous year. Among the states, Rajasthan emerged as the front-runner, boasting an installed capacity of 867 MW, closely followed by Gujarat (770 MW) and Madhya Pradesh (324 MW).
To further spur private sector investment, the government has introduced a range of fiscal and financial incentives. Guided by favourable policies and bolstered by a robust installed capacity, Indias wind energy sector continues to thrive, playing a pivotal role in driving the nations renewable energy goals and making significant strides in reducing its carbon footprint.
Key developments
The wind energy sector in India has undergone some key developments that have played a significant role in shaping its growth trajectory and fostering a favourable environment for wind power generation in India. By providing technical support, streamlining procurement processes, and facilitating inter-state transmission, India is paving the way for a robust and sustainable wind energy ecosystem.
V. Technical support and |
r. Tariff-based competitive | Facilitating inter-state |
site identification: |
bidding process: | sale of wind power: |
The National Institute of Wind |
Tariff-Based Competitive Bidding | To unlock the full potential |
Energy (NIWE) in Chennai |
Process marks a significant | of wind energy, the Indian |
has been instrumental in |
milestone in the wind energy | government has taken a |
providing essential technical |
sector. These guidelines establish a | significant step by waiving off |
support, including wind |
transparent framework for procuring | inter-state transmission charges |
resource assessment and |
wind power through a competitive | and losses for wind power. |
the identification of potential |
bidding process. By standardising | This initiative aims to facilitate |
sites. This expertise has |
the process and defining the roles | the smooth and seamless sale |
empowered project developers |
and responsibilities of stakeholders, | of wind power across state |
and stakeholders to make |
these guidelines facilitate the | boundaries, promoting inter |
informed decisions, maximising |
procurement of wind power at | state collaboration and enabling |
the utilisation of Indias wind |
competitive rates, ensuring cost | a more efficient utilisation of |
resources. |
efficiency for distribution licensees. | wind resources. |
Installations 2022-26 23.7 GW |
19.4 GW |
15.0 GW |
Majority of active pipline is |
Peak in installations in 2024 with | Installations stabilize with annual |
commissioned until 2024; base |
expiry of ISTS waive-offs in June | hybrid auctions, where wind plays |
case and conservative case projects |
2025; C&I hybrid installations | critical role; reduction due to |
will be impacted due to surge in turbine costs |
will peak | phasing out of ISTS waivers |
Policy framework and market mechanisms driving the industry
J |
nlH | 3 |
Renewable Energy Certificate |
Green Energy Open Access | Ministry of Power (MoP) |
(REC) Mechanism: Empowering |
Rules and Grid Non- | Trajectory: Clear Roadmap for |
Market Participation |
Discriminatory Access (GNA): | Renewable Energy Expansion |
The REC mechanism has |
Enabling Seamless Integration | The Ministry of Power (MoP) |
emerged as a pivotal instrument |
Indias commitment to ensuring | trajectory sets Renewable |
in promoting renewable energy |
fair and equitable access to the | Purchase Obligation (RPO) targets |
adoption. By allowing the trading |
grid is exemplified by the Green | until 2030, aligning with Indias |
of excess RECs among commercial |
Energy Open Access (OA) rules and | ambitious plan to achieve 500 |
and industrial consumers and |
Grid Non-Discriminatory Access | GW of renewable energy capacity. |
distribution companies, this market- |
(GNA) provisions. The Green OA | This trajectory includes separate |
based mechanism incentivizes |
rules streamline the approval | wind RPO targets, acknowledging |
stakeholders to actively engage |
process, facilitate banking of excess | the significant potential of |
in the renewable energy market. |
energy, and provide incentives | wind power and stimulating its |
Notably, the flexibility in REC |
for renewable energy projects. | further development. Moreover, |
pricing through power trade |
Simultaneously, GNA ensures that | the MoP trajectory introduces |
and the removal of expiry dates |
all market participants have non- | separate obligations for hydro |
until compliance enhance the |
discriminatory access to the Inter- | and energy storage, emphasising |
attractiveness and stability of REC |
State Transmission System (ISTS). | the governments commitment |
transactions. These measures foster |
These policies empower renewable | to advancing these technologies. |
a vibrant marketplace for renewable |
energy generators and consumers, | These targeted trajectories provide |
energy certificates, encouraging |
enabling them to access the grid | a comprehensive roadmap for |
market participants to contribute to |
seamlessly and contribute to the | renewable energy growth, guiding |
Indias renewable energy goals. |
growth of clean energy sources. | the industry towards a sustainable and diversified energy mix. |
Company overview
KP Energy Limited stands at the forefront of the wind energy industry, creating a niche position for itself in the wind energy value chain, by offering cutting- edge Balance of Plant (BOP) solutions that drive sustainable development of utility-scale wind farms. From the initial stages of project conceptualization to the commissioning and ongoing maintenance throughout its lifecycle, KP Energy is involved in the entire wind farm development value chain. Operating primarily in Gujarat, India, the Company provides comprehensive services encompassing site identification, site preparation, construction and erection, power evacuation, and operations and maintenance.
With an unwavering commitment to sustainability, KP Energy plays a vital role in coordinating diverse activities related to utility-scale wind farm development. By seamlessly integrating these activities, the Company delivers turnkey solutions to its clients. This holistic approach enables KP Energy to revolutionise the renewable energy landscape and contribute to a greener future.
Business performance discussion
The Company witnessed a remarkable year of growth and profitability, achieving outstanding results across key performance indicators. With a remarkable growth rate of 74% year on year, the top line surged to D442.4 crore in FY23, while the EBITDA margins improved from 13.6% in FY22 to an impressive 16.2% in FY23. This success translated into a recordbreaking Profit After Tax (PAT) of D43.9 crore, representing a remarkable growth of 140% compared to the previous year.
These exceptional achievements were made possible through the unwavering commitment of the Companys dedicated team, who ensured the timely delivery of projects and maintained superior project execution standards. Additionally, the Company reached a significant milestone, surpassing a cumulative renewable capacity of approximately 1 GW, including projects under development.
Outlook
With increasing wind and hybrid energy installation, and enhancing capabilities of the Company, the
outlook for its core EPCC business segment remains positive. This is further supported by the robust business pipeline of the Company in this segment. The Companys focus extends beyond its core EPCC business to include significant investments in its Independent Power Producer (IPP) segment. Building upon the initial success of an 8.4 MW renewable energy capacity, the Company has expanded its IPP portfolio by installing a 10 MWdc solar power project. This expansion has resulted in a cumulative installed capacity of 18.4 MW as of 2023.
Looking forward, the Company has outlined a strategic roadmap to further strengthen its position in the IPP segment. By 2025, the aim is to install 100 MW of self-owned power generating assets, capitalising on the tremendous growth potential in the renewable energy market. This strategic move paves the way for sustained long-term profitability. Furthermore, the Companys Operations and Maintenance (O&M) business is set to grow in parallel with the expansion of the EPCC segment. This cohesive growth strategy ensures comprehensive support for the Companys wind energy projects, enhancing operational efficiency and maximising their long-term value.
Business model
KP Energy has strategically structured its business model around three interconnected segments, each playing a pivotal role in its pursuit of becoming a prominent force in the Indian wind energy market.
Project based revenue |
Annuity base revenue | Annuity base revenue |
engineering, procurement, |
operations and | independent power |
construction, and |
maintenance (O&M): | producers (IPP): |
commissioning (EPCC): |
KP Energy understands the | As an IPP, KP Energy not only |
This segment encompasses the |
importance of ongoing support | develops and operates wind energy |
Companys end-to-end solution |
and maintenance to optimise | projects but also contributes |
for wind farm development. From |
the performance of wind farms. | to Indias renewable energy |
site identification to construction |
Through its O&M segment, the | capacity. By generating clean and |
and erection, KP Energy manages |
Company focuses on efficient | sustainable power, the Company |
the entire project, ensuring |
management and upkeep of | actively participates in the countrys |
seamless execution and successful |
wind energy BOP, ensuring their | energy transition and reinforces its |
commissioning. |
reliability and long-term value. | commitment to a greener future. |
These three interconnected segments form the core of KP Energys business strategy. By integrating their expertise and leveraging synergies, the Company has established itself as a comprehensive service provider in utility-scale wind farm development. With a strong focus on innovation and sustainability, KP Energy continues to drive growth and make significant contributions to the Indian wind energy market.
Key Financial Ratios |
||||
Financial Ratios |
FY23 | FY22 | Variance (in%) | Comments if variance is more than 25% |
Debtors Turnover |
12.04 | 24.70 | 51.27% | Trade Receivable Turnover Ratio is decreased due to increase in debtors during the current year. |
Inventory Turnover |
3.08 | 1.89 | (62.90%) | Inventory Turnover Ratio is increased due to Purchase of Inventory at the end of current financial year which will be consumed in next financial year. |
Interest Coverage Ratio |
13.02 | 7.36 | 76.86% | The increase in the Interest Coverage Ratio is primarily due to a significant increase in net earnings from operations as compared to finance costs during the year. |
Current Ratio |
1.23 | 1.23 | 0.20% | - |
Debt Equity Ratio |
0.32 | 0.26 | (21.29%) | - |
Operating Profit Margin (%) |
16.22 | 13.56 | 19.60% | - |
Net Profit Margin (%) (After Tax) |
10.03 | 7.30 | 37.46% | Net Profit ratio is increased due to increase in incremental profit arising from considering VG DTL as an associate from current year compared to previous year as a subsidiary, consequently, share of Loss from an associate i.e. 50% is considered in consolidated profit and loss instead of 100% as per previous year. Also, Revenue growth and simultaneous focus on Cost control has also tributed to increase in Net proft Ratio. |
Return on Equity Ratio |
34.46 | 16.86 | 104.44% | Return on Equity is improved due to Revenue growth in EPC Segment and consequent Increase in profit and repayment of term loan during the current financial year. |
Technology Initiatives
Given the rapid pace at which technology is advancing and its immense potential to enhance organizational efficiencies, it is crucial for every Company to harness the substantial benefits that technology can offer to their operations. At KP Energy, we have proactively embraced technological advancements to optimize our operations, elevate operational effectiveness, and fortify project execution.
To this end, we have recently integrated SAP Business One into our operations, spanning functions such as Financial Management,
Sales and Customer Management, Purchasing and Inventory Control, Production Planning, Business Intelligence, Analytics, and Reporting. This implementation is poised to refine processes, provide deeper insights into our business, and facilitate swift decision-making based on real-time information, thus empowering us to steer growth that is both sustainable and profitable.
Furthermore, our commitment to leveraging technology extends to our Human Resource Management, where we have adopted the Keka platform. This platform facilitates the enhanced management of human resources, boasting features that encompass leave management, attendance tracking, performance evaluation, and expense monitoring. Through these advancements, we are dedicated to driving operational excellence and fostering an environment of continuous improvement.
Risks and concerns |
||
Type of risk |
Impact | Mitigation strategies |
Regulatory risk |
As a part of the dynamic renewable | Constant monitoring and engagement: We maintain a |
energy industry, we operate within | proactive approach by closely monitoring government | |
a regulated space that is subject to | and regulatory developments. This enables us to | |
government and regulatory policies. | anticipate and adapt to potential changes in the | |
Changes or amendments in wind | wind energy policy landscape. We actively engage | |
energy policies or power evacuation | with relevant stakeholders, participate in industry | |
facilities can potentially impact our | associations, and provide constructive feedback to help | |
industrys performance, including | shape favourable regulatory frameworks. | |
our operations. Adverse alterations | ||
to the regulatory framework may | ||
disrupt the stability and predictability | ||
of our business, necessitating agile | ||
adaptability to mitigate potential | ||
challenges. | ||
Business |
Our revenue streams are closely tied | • Strengthening customer relationships: We focus on |
vulnerability |
to capital expenditures in the wind | fostering long-term relationships with Independent |
energy sector, primarily driven by | Power Producers (IPP) and Captive Power Producers | |
Independent Power Producers (IPP) | (CPP). By building strong partnerships and delivering | |
and Captive Power Producers (CPP). | value-added services, we aim to enhance customer | |
Therefore, fluctuations in the capital | loyalty and retain a stable base of customers who are | |
expenditure scenario and cycle, such | committed to ongoing capital expenditures. | |
as reduced investments by either | • Diversification of revenue streams: We actively | |
IPPs or CPPs, have the potential | explore opportunities to diversify our revenue | |
streams within the wind energy sector. This | ||
performance. We acknowledge the | involves expanding our services to include project | |
development, and operations and maintenance, | ||
with the capital expenditure dynamics | or power generation as an IPP. By diversifying our | |
revenue sources, we reduce our reliance on a single | ||
revenue stream and enhance our resilience to | ||
potential fluctuations in the capital expenditure cycle. | ||
Project |
The process of project development | • Robust risk assessment and management: We |
development risk |
entails various risks, ranging from | conduct thorough risk assessments for each |
obtaining building permits and | project, identifying potential risks and developing | |
acquiring suitable land to managing | mitigation plans. This includes early identification | |
logistics and Right-of-Way (RoW) | of potential challenges related to building permits, | |
challenges. These uncertainties | land acquisitions, logistics, and Right-of-Way | |
expose our business to potential | (RoW). By proactively addressing these risks, we | |
project delays, cancellations, or write- | aim to minimise the likelihood of project delays, | |
offs, which can significantly impact | cancellations, or write-offs. | |
profitability. Furthermore, project | • Strengthening project planning and execution: | |
delays often lead to cost overruns, | We continuously enhance our project planning and | |
further exacerbating the potential | execution capabilities to ensure efficient and timely | |
delivery. This includes conducting comprehensive | ||
feasibility studies, optimising project timelines, and | ||
addressing project development | establishing effective project management processes. | |
By improving project planning and execution, we aim | ||
strategies to minimise their potential | to reduce the likelihood of cost overruns and mitigate | |
the potential impact on profitability. | ||
• Collaboration and partnerships: We actively | ||
collaborate with relevant stakeholders, including local | ||
authorities, communities, and suppliers, to streamline | ||
project development processes. By fostering strong | ||
partnerships and maintaining open communication | ||
channels, we aim to address project development | ||
uncertainties more effectively and minimise potential | ||
roadblocks. |
Internal control systems and their adequacies
The Company maintains robust internal control systems that are appropriate for its size and nature of business. These systems are designed to ensure the safeguarding of assets and prevent unauthorised use or disposition.
They also ensure that all transactions are properly authorised, accurately recorded, and reported in accordance with the Companys policies and procedures. The adequacy of the internal control systems has been reviewed by the Audit Committee and management, resulting in necessary improvements being implemented to enhance their effectiveness.
Human resource development and employee relations
At K.P. Energy, we recognize that our human resources are a vital asset and key drivers of our growth. We firmly believe that the success of our Company is intertwined with the success of our employees. With this in mind, we are dedicated to investing in the development of our workforce and establishing our reputation as an employer of choice in the market. Throughout the year, we focus on nurturing a culture of collaboration and mutual respect, resulting in healthy and harmonious employee relations across all levels. We also organised an award ceremony Beyond Boundaries to recognise and facilitate good performance of employees across different domains. Our commitment to maintaining strong relationships with our employees remains unwavering.
Cautionary statement
Statements in the Management Discussion and Analysis and other parts of the report describing the Companys objectives, projections, estimates and expectations may be forward-looking statements. Actual results may differ materially from those expressed or implied due to various risks and uncertainties. Important factors that could make a difference to the Companys operations include economic and political conditions in India and other countries, in which the Company may operate. Other factors that may impact the Companys operations include volatility in interest rates, changes in government regulations and policies, tax laws, statutes, and other incidental factors. The Company does not intend to update these statements.
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www.indiainfoline.com is part of the IIFL Group, a leading financial services player and a diversified NBFC. The site provides comprehensive and real time information on Indian corporates, sectors, financial markets and economy. On the site we feature industry and political leaders, entrepreneurs, and trend setters. The research, personal finance and market tutorial sections are widely followed by students, academia, corporates and investors among others.
Copyright © IIFL Securities Ltd. All rights Reserved.
Stock Broker SEBI Regn. No: INZ000164132, PMS SEBI Regn. No: INP000002213, IA SEBI Regn. No: INA000000623, SEBI RA Regn. No: INH000000248
This certificate demonstrates that IIFL as an organization has defined and put in place best-practice information security processes.