Implication of Budget 2013

8/14/2019 Implication of Budget 2013

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IMPLICATION

OF

BUDGET

2013-14

COMPILED BY:

RAHUL SINGLA

MBA 1(GEN)


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Budget 2013-2014

Prudence over populism

The Finance Minister has delivered on one of the most important aspects

in this Budget - fiscal consolidation. The budgeted fiscal deficit for

FY2014 at 4.8% of GDP is in line with our and market expectations. In

terms of the fiscal deficit for FY2013, the Finance Minister has

exceeded expectations and reined it at 5.2% and it is slightly lower than

the government's own estimate of 5.3% of GDP.

Overall, we believe that the FY2014 Budget is responsible and more

credible since it seeks to narrow the fiscal deficit by increasing revenues

as well as reprioritizing expenditure. Although the Finance Minister has

refrained from announcing any big bang reformist measures (as expected

by the market) in the Budget, he has also abstained from 'playing to the

galleries' and resorting to major populist policies ahead of the election

year and we view that as a positive.


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Sectoral Impact


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Automobile Neutral

Announcement

Status-quo on basic excise duty for small cars, large cars (ex. SUVs),commercial vehicles (ex. chassis fitted), two-wheelers, three-wheelers and

tractors.

Excise duty on SUVs intended for non-taxi use increased to 30% from thecurrent rate of 27%.

Reduction in excise duty on chassis fitted trucks to 13% from 14% earlier. Purchase of 10,000 buses under JNNURM. Increase in basic customs duty on motorcycles (with engine capacity of

800cc or more) to 75% from 60% earlier and on luxury cars/SUVs to 100%from 75% earlier.

Period of concession available for specified parts of electric/hybrid vehiclesextended up to March 31, 2015.


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The increase in allocation under rural development program is positive forOEMs having strong rural presence, such as Mahindra and Mahindra, Maruti

Suzuki and Hero MotoCorp.

No major impact on Maruti Suzuki (royalty at 5.2% of sales in FY2012) asapplicable rate will be the rate of tax stipulated in the DTAA with Japan,

which stands at 10%.

Banking Neutral

Announcement

Capital infusion of `14,000cr in PSU banks, in-line with expectations. Interest subvention for short-term crop loans retained for PSU banks, RRBs

and Co-operative banks and has also been extended for private banks.

Banks have now been permitted to act as insurance brokers. An additional deduction of `1lac (over and above 1.5lakh) under Sec 24 will

be available for a person taking loan upto `25lakh for his first home from a

bank or a housing finance company.


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Impact

It will enable PSU banks to grow at a healthy rate and move progressivelytowards meeting the more stringent tier-I CAR requirements of Basel-III.

It will create a level playing field for private banks and encourage them tolend in these segments. However it remains to be seen whether they will

actually lend, considering the risks of high NPLs in such categories.

Apart from being a positive for the insurance companies (as they will be ableto push their products through multiple banks, as against the current practice

of a tie-up with one bank only), it will also slightly aid the fee incomeprofile of banks.

Capital Goods Positive


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Announcement

High value investments (ie greater than `100cr) in plant and machinery,during the period April 1, 2013 to March 31, 2015; will be eligible for

deduction of investment allowance of 15% (of the total investment). This

will be in addition to the current rates of depreciation.

Impact

It would encourage companies to revive stalled projects and make newinvestments; thus positive for all companies in the Capital Goods sector

In other announcements, faster clearances for stuck-up projects (via

CCI) will benefit capital goods companies who have been witnessing

slow execution on account of delay in clearences.


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Cement Positive

Announcement

Basic customs duty on bituminous coal to be reduced from 5% to 2%.Counter veiling duty on bituminous coal to be reduced from 6% to 2%.

For home loans upto `25,00,000 taken in 2013-14, additional Income taxdeduction of `1,00,000 towards interest is allowed for one year.

Tax on royalty paid by Indian subsidiaries to foreign parent companiesincreased from 10% to 25%. However, the applicable rate will be the rate

stipulated in the Double Tax Avoidance Agreement (DTAA)


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Impact

Reduction in customs duty on bituminous coal is marginally positive forcement companies, as it would reduce fuel costs.

This announcement is positive for the Cement sector, as it is expected toboost cement demand from the housing segment.

Not to impact ACC and Ambuja, which are covered by DTAA.FMCG Neutral

Announcement

The Budget has increased the allocation to rural development programs by46% to 80,194cr.

SED on cigarettes has been increased by 18%. FMCG Neutral Tax on royalty paid by Indian subsidiaries to foreign parent companies

increased from 10% to 25%. However, the applicable rate will be the rate

stipulated in the Double Tax Avoidance Agreement (DTAA).


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Impact

This is favourable for FMCG players like HUL, Dabur India, Marico etc asit would increase income in the hands of rural consumers, thereby boosting

consumption

Cigarette makers have in the past exhibited ability to increase priceswhenever there was an hike in excise duty. Thus, a hike in SED on cigarettes

is not expected to impact the profitability of cigarette manufacturing

companies like ITC, although it might affect volumes in the near term.

Not to impact HUL, Colgate, Nestle and GSK Consumer which are coveredby DTAA.

Infrastructure Neutral


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Announcement

Issuance of tax-free bonds amounting to `50,000cr (vs `25,000cr raised inFY2012-13) through various institutions for financing infrastructure projects

has been proposed over FY2013-14.

Allocation to Ministry of Drinking Water and Sanitation is being stepped upby 17.4% to `15,260cr for FY2013-14.

Rate of withholding tax on interest payments on external commercialborrowings is maintained at 5% for infrastructure sector companies across

power, roads and bridges, housing and ports segments.

If required, the Delhi Mumbai Industrial Corridor (DMIC) would beprovided additional funds during FY2013-14 within the share of the

Government of India in the overall outlay. Construction work on two cities -

Dholera (Gujarat) and Shendra Bidkin (Maharashtra) to be started in

FY2013-14.

The government plans to establish two major ports in West Bengal (Sagar)and Andhra Pradesh which would add 100mn tonne capacity.


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Impact

Positive for all E&C players as it would boost infrastructure developmentacross railways, ports, housing and highways, by facilitating fund raising for

various government bodies that award infrastructure projects.

Positive for all road developers (IRB, ITNL, Sadbhav and AshokaBuildcon).

Would help reduce borrowing costs for companies and hence, would helpfuel infrastructure projects with lowcost funds.

Positive for E&C companies such as Larsen & Toubro (L&T), IVRCL,NCC, etc as it would create more opportunities in the segment.

Positive for E&C companies such as Simplex Infrastructure, HCC (notrated), Gammon India (not rated) as it would enhance order inflows.

IT Neutral


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Announcement

Plan allocation for general education has been increased by 17% to`65,867cr for FY2013-14 from 56,200cr in FY2012-13.

Under Sarva Shiksha Abiyan, `27,258cr has been allocated, which is 7%higher than that allocated in the FY2012-13 budget.

Initiatives to modernize the Postal network are currently ongoing at anoverall cost of `4,909cr. An additional outlay of `532cr has been provided to

make post offices part of the Core Banking Solution and offer real time

banking services.

Impact

Higher allocation to the education sector would boost business opportunitiesfor education companies.

This will provide growth opportunities for companies focused towardsformal and vocational education such as Educomp Solutions, Everonn

Education, Core Education Technologies and NIIT, in terms of ICT and PPP

in K-12 and vocational segments.


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This will spur opportunities for Indian software companies in the e-Governance space in the domestic market, going forward.

Media Positive

Announcement

Government proposes to add 839 new FM radio channels covering 294cities. Their auction is to be conducted in FY2013-14.

Custom duty on set top boxes (STB) has been increased from 5% to 10%

Impact


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Positive for radio operators such as Entertainment Network India (ENIL),Sun TV etc.

Positive for domestic STB manufacturers. However, it is marginallynegative for cable and DTH operators as they mostly import STBs.

Metals Neutral

Announcement

Public-Private Partnership (PPP) with Coal India, to raise production Fast track project approvals via Cabinet Committee on Investments (CCI) Proposal to levy 4% excise duty on silver production Proposal to levy 10% export duty on bauxite


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Impact

This would be positive for Coal India over the medium to long-term as itcould help Coal India to increase the production and offtake rate of coal.

This would be positive for metal and mining companies such as Hindalco,Electrosteel Castings etc, whose projects have been held up for lack of

timely environmental and forest clearances.

This would be slightly negative for Hindustan Zinc. Marginally positive for Sterlite Industries as it increases domestic

availability of bauxite for producing aluminium.

Oil & Gas Positive

Announcement

Clarity on natural gas pricing Move to revenue sharing model for gas from profit sharing model Issue a policy on shale gas exploration and production


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Fast track clearances of NELP blocks via Cabinet Committee onInvestments (CCI)

Impact

Any increase in domestic natural gas price would be positive for oil and gasproducers including Reliance Industries (RIL), ONGC, Oil India and Cairn

India.

This would be positive for gas producers including RIL, ONGC, Oil Indiaand Cairn India.

This would be positive for companies like ONGC and RIL whose 22 and 15blocks, respectively, are stuck up due to pending environmental and defense

clearances.

Pharmaceutical Positive


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Announcement

The Health and Family Welfare Ministry has been allotted `37,330cr. Ofthis, the new National Health Mission that combines the rural mission and

the proposed urban mission will get `21,239cr, an increase of 24.3% over the

Revised Estimate. The Finance Minister also proposed an allocation of

4,727cr for medical education, training and research.

15% allowance for investments in plant and machinery above `100cr.

Impact

Will benefit all the companies in the sector

The Budget is positive for the pharmaceutical sector. Though much of

the demands haven't been met, the allocation and focus on the sector

continues.


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Power Positive

Announcement

Extension of tax exemption under Section 80-IA for power generationcompanies until FY2014

Generation-based incentive for wind energy projects and allocation of 800crto Ministry of Non-Renewable Energy for the same has been proposed.

Basic customs duty on steam coal to be increased from NIL to 2%. Counterveiling duty on steam coal to be increased from 1% to 2%.

Public-Private Partnership (PPP) with Coal India to raise Production


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Impact

As per Section 80-IA, power plants are eligible for a tax holiday of 10 yearsfrom the year of commissioning. The exemption under this section was

applicable to power plants commencing operations before FY2013; the same

has now been extended to FY2014. However, companies have to pay tax

under MAT provisions. Extension of 80-IA benefits would have a positive

impact on power generation companies.

Positive for companies which are into wind power generation Negative for imported coal based power plants, since it will increase the cost

of imported coal.

Medium to long term positive for the power generationCompanies

Real Estate Neutral

Announcement Imposed a TDS of 1% on the value of the transfer of immovable properties

(exempt for agricultural land) with tick size of over `50,00,000.


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An additional deduction of `1lac under Sec 24 (over and above `1.5lakh) willbe available for an individual taking loan upto `25lakh for his first home

from a bank or a housing finance company.

Rate of abatement to reduce from 75% to 70% for homes and flats having a)carpet area of 2,000 sqft or more, b) value of `1cr or more, and c) on high-

end construction projects.

Impact

There will be no material impact. This would continue to benefit developers such as HDIL, Anant Raj and

Prestige Estates Projects (all of which are not under our coverage) having

low-cost affordable housing projects.

This would only marginally affect developers such as DLF, MahindraLifespace Developers, etc. having projects in these segments.

Telecom Neutral


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Announcement

The Budget indicated that the government expects to have revenue receiptsof ~`40,850cr overall through the telecom sector, out of which ~`23,000cr is

expected to be raised from spectrum auctions.

Excise duty on mobile phones priced above `2,000 raised to 6% from 1%currently

Impact

This is broadly in line with the estimates and is not aggressive as comparedto 58,220cr outlined in the Union Budget FY2012-13. But most of it is

already factored in the stock prices.

This could lead to a marginal increase in mobile handset Prices

Implication of Budget 2013

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