Union Budget '13 Review (First Cut)

Union Budget 2013‐14 (First cut)

Credible and balanced budget

Edelweiss Research February 2013

Union Budget FY14: Highlights

Fiscal math largely credible. Revenue slightly aggressive, but expenditure and subsidies well provided for.

Consolidation process continues. Fiscal deficit for FY14 budgeted at ~4.8% of GDP (our estimate ~5.0% of GDP)GDP).

Budgeted net borrowing is at ~INR 4.8tn. We believe it could be a bit higher by ~INR200bn. However, gross borrowing came higher than expected as government intends to rebalance the maturity profile of debt.

Budget was growth supportive as it intended to support investments through extra tax exemptions for investment in plant and machinery. Further, it substantially raised the limits of tax‐free infra bonds.

Some attempt has been made to boost financial savings by liberalising coverage of Rajiv Gandhi Equity p g y g g j q yScheme (RGES) and insurance sector. Further, the finance minister announced that inflation indexed bonds will be introduced possibly with the intent to curb gold imports.

While the finance minister cited CAD as a big worry, no export boosting measures were announced.While the finance minister cited CAD as a big worry, no export boosting measures were announced.

Positively impacted companies are:

Capital goods companies namely Thermax, Cummins, ABB and Siemens

Refiners namely IOCL, BPCL, HPCL, MRPL and RIL

Housing finance companies namely LIC Housing Finance, Gruh Finance and Dewan Housing

Bus manufacturers namely Ashok Leyland, Tata Motors and Eicher Motors

Affordable housing developers namely Jaypee Infratech & Puravakankara Projects

2

Fiscal math looks largely credible

Fiscal math largely credible

Fiscal consolidation process continues, although at a bit slower pace compared to FY14. The FM has announced gross fiscal deficit for FY14 at 4.8% of GDP (against 5.2% of GDP in FY13).

Broadly speaking the Budgeted fiscal target is certainly in the realm of possibility, we think that fiscal deficit of 5% of GDP is more realistic.

Revenue slightly aggressive

Gross tax revenue collection of the government will improve on account of better tax buoyancy on account of improving economy and some changes in the taxes, which will add to government kitty. However, the benefits of headline tax rate hikes in indirect taxes last year will be absent in FY14. Overall, we think that 18% YoY growth in tax revenues is more realistic compared to 19% YoY assumed by the government (against ~17% YoY achieved in FY13).p y g ( g )

On non‐tax revenues side as well, we think FM has been a bit aggressive, particularly with regards to telecom revenues .

Expenditure does not seem to be under‐budgeted

Budgeted growth of 16% YoY in expenditure is sizeable and we do not see any material risk of slippage on this frontBudgeted growth of 16% YoY in expenditure is sizeable and we do not see any material risk of slippage on this front. Subsidies (at ~2% of GDP) have been adequately provided especially given that government is undertaking periodic diesel price hikes.

Meanwhile, sharp cuts in plan expenditure undertaken in FY13 are being compensated by budgeting 29% YoY growth in FY14 S f hi i l d b i l i i l d l diFY14. Some of this is related to substantial increase in rural development spending.

3

Minor changes in taxes

Slight changes in direct and indirect taxes

Minor changes in the direct taxes. Surcharge raised to 10% from 5% on corporate taxes.

Surcharge introduced on super rich (income above INR 10mn)

No changes in headline indirect taxes rates.

Voluntary compliance encouragement scheme introduced in service taxes for the defaulters.

DTC bill to be introduced in this budget session itself.

GST no specific time‐frame for implementation mentioned. However, FM mentioned that significant progress has been made and he hoped to introduce constitutional amendment and draft bill in GST in coming months.

4

Few positive announcements…

Positive for investment

Investment allowance of 15 % in FY14 and FY15 to manufacturing companies which invest more than INR1bn in plant and machinery.

T f i f b d t i f INR250b t INR500bTax free infra bonds to increase from INR250bn to INR500bn.

Road regulator to iron out issues in the sector.

Incentives to boost financial savings

RGES scheme to incentivise households savings in equities and mutual funds broadened in coverage.

Announcement to introduce inflation indexed bond.

Certain steps to increase the coverage of insurance.

Others

Additional tax deduction for first time house buyer (loan up to INR 2.5 million)

5

Fiscal deficit likely to be ~5% of GDP in FY14

Fiscal Deficit FY14 at 5.0% of GDP (INR bn)Particulars FY14 (Edel) FY14 (BE) FY13 (RE) FY13 (BE) FY12 (Actual)Tax revenue (net) 8,741 8,841 7,421 7,711 6,297 ‐ Direct tax 6,654 6,709 5,685 5,676 4,967

‐ Indirect tax 5,565 5,650 4,695 5,054 3,924 Indirect tax 5,565 5,650 4,695 5,054 3,924 Less : Assignment to states 3,478 3,518 2,959 3,019 2,595Non‐tax revenue receipts 1,624 1,723 1,297 1,646 1,217 of which telecom & 3G 300 408 194 580 174Capital receipts 605 665 381 417 369

of which disinvestment 400 400 240 300 181 of which disinvestment 400 400 240 300 181TOTAL RECEIPTS 10,970 11,228 9,099 9,774 7,883

Non‐plan expenditure 11,078 11,100 10,016 9,699 8,920 a) Total subsidy 2,360 2,311 2,577 1,900 2,179‐ Food subsidy 950 900 850 750 728 Food subsidy 950 900 850 750 728

‐ Fertilizer subsidy 660 660 660 610 700 ‐ Oil Subsidy 650 650 969 436 685 ‐ Interest and others subsidy 100 101 98 104 66b) Interest payments 3,707 3,707 3,167 3,198 2,732c) Other revenue expenditure 3 911 3 911 3 454 3 557 3 210c) Other revenue expenditure 3,911 3,911 3,454 3,557 3,210d) Capital expenditure 1,100 1,171 819 1,043 799Plan expenditure 5,553 5,553 4,292 5,210 4,266 ‐ Revenue 4,433 4,433 3,434 4,205 3,337 ‐ Capital 1,121 1,121 858 1,005 786TOTAL EXPENDITURE 16 631 16 653 14 308 14 909 13 186TOTAL EXPENDITURE 16,631 16,653 14,308 14,909 13,186

Fiscal deficit 5,662 5,425 5,209 5,135 5,303Revenue defcit 4,046 3,798 3,912 3,503 3,944Revenue deficit/GDP (in %) 3.6 3.3 3.9 3.4 4.4Fiscal deficit/GDP (in %) 5 0 4 8 5 2 5 1 5 9

6

RE: Revised Estimates BE: Budget EstimatesSource: Budget documents, Edelweiss research

Fiscal deficit/GDP (in %) 5.0 4.8 5.2 5.1 5.9

Borrowing could exceed by ~INR 200bn

Funding the FiscFY14 (Edel) FY14 (BE) FY13 (RE)

Gross market borrowing 6,527 6,290 5,580 ‐ Net market borrowing 5 077 4 840 4 674 Net market borrowing 5,077 4,840 4,674

Net short term (T‐bil l) 198 198 457 Small savings scheme 58 58 86 Others 329 329 (8) Fiscal deficit 5 662 5 425 5 209

RE: Revised Estimates BE: Budget Estimates

Source: Budget documents, Edelweiss research

Fiscal deficit 5,662 5,425 5,209

Net budgeted market borrowing of INR 4.8tn (vs INR 4.67 in FY13) was inline with the market expectation

However, gross borrowing came much higher than the expectations of ~INR 5.75tn

Th i f hi h b i i b b k/ it hi ( t ~INR500b ) hi h ill b i dThe main reason for higher gross borrowing is buyback/switching (extra ~INR500bn) which will be carried this year for better debt management.

7

Comparison to pre‐crisis period

Revenues still long way to go Expenditure reined back close to pre‐crisis levels

12.0

13.5

15.6

17.0

)

7.5

9.0

10.5

(as %

of G

DP)

11.4

12.8

14.2

(as %

of G

DP)

6.0

7.5

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

(Ede

l)

G % f GDP

10.0

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

(Ede

l)

T l di % f GDPFGross tax as % of GDP FTotal expenditure as % of GDP

Source: CMIE, Edelweiss research

8

FY13 : Significant consolidation in 2H

In 2H FY13 government undertook aggressive fiscal consolidation to achieve gross fiscal deficit of ~5.2% of GDP in FY13 (vs Budgeted ~5.1% of GDP).

The consolidation was undertaken mainly via reductions in expenditure (especially plan expenditure)The consolidation was undertaken mainly via reductions in expenditure (especially plan expenditure).

130

fiscal

Deficit as % of budgeted fiscal deficit

58

82

106

as % of Bud

geted f

deficit)

10

34 Apr.

May

Jun. Jul.

Aug.

Sept.

Oct.

Nov.

Dec.

Mar.(Fiscal deficit a

S

FY13 FY12

Source: CMIE, Edelweiss research

9

Sector wise AnnouncementsSector-wise Announcements

10

Automobiles

Sector Industry/market wishlist Edelweiss expectations Announcements in Budget Impact on sector/companyAuto Relief in excise duty. Not l ikely. Increase in excise duty to 30% on non‐

taxi SUVs in 27% bracket. Marginal negative for M&M as we expect the additional levies to be passed on to the customer.

Clarity on diesel passenger vehicle taxation. Diesel tax on higher capacity SUVs No announcement. Positive for M&M.was expected

Benefits in tax and R&D expenditure to electric vehicles.

Likely. No announcement. Marginal negative for M&M.

To provide INR149bn for JNNURM (to purchase upto 10k buses, especially by hill states)

Positive for Ashok Leyland, Tata Motors, Eicher Motors.

by hill states).To increase tax rate on payments of royalty/technical fees to non‐residents from 10% to 25%.

Neutral for Maruti as applicable rate will be the rate of tax stipulated in the DTAA (10% between India and Japan).

Custom duty hike from 75% to 100% on luxury cars (CIF value above

Neutral.on luxury cars (CIF value above USD40k).Custom duty hiked from 60% to 75% on bikes above 800cc engine capacity.

Neutral.

Excise duty on truck chassis reduced from 14% to 13%.

Neutal.

11

BFSI

Sector Industry/market wishlist Edelweiss expectations Announcements in Budget Impact on sector/companyBFSI Bank's lending to power sector • Sectoral exposure l imit for banks in

case of lending to power sector can be relaxed to facilitate fresh lending. • Long term base rate to be introduced for infrastructure projects which should be delinked from bank base rates in order to provide stable interest charges for projects

Tax sops on fixed deposits • Increasing the TDS l imit on fixed d it t R 25 000 f 10 000 tdeposit to Rs 25,000 from 10,000 at present. • Tax break on longer tenor to provide some relief to ALM: Considering low deposit mobilization and lending skewed towards longer tenor assetsg

Commodities Transaction Tax Levy of CTT on commodity trading Proposal to introduce Commodities Transaction tax (CTT) in a l imited way. 0.01% of the value of the contract implemented

Negative for MCX as it impacts the jobbing volumes and increases cost of trading on MCX vis‐à‐vis international exchanges. However, on the positive side with the introduction of CTT, the bill now also specifies that commodities trading will not be considered a speculative transaction and hence CTT paid by the assessee along with losses incurred, if any can now be adjusted against othernow be adjusted against other business income thereby leading to tax benefits.

12

BFSI‐contd.

Sector Industry/market wishlist Edelweiss expectations Announcements in Budget Impact on sector/companyBFSI Interest subvention scheme for ST

crop loans to be continued and to be extended to Private SCBs as well.

Positive for private banks as they too can offer the lucrative scheme to farmers. A brief description of the scheme‐Under this loans are provided by banks to farmers at 9% and i f the repayment is done within the agreed time frame, the farmer ends up paying only 4% RoI while the bank can claim another 5% from the government via RBI. While now private banks too canRBI. While now private banks too can offer this scheme we believe they are under no compulsion to do so.

Additional deduction of interest upto INR0.1mn for first home loan (of less h INR2 5 ) i d i FY14

Positive for home loan financiers in the category of INR2.5mn and below,

l LICHF D H i G hthat INR2.5mn) sanctioned in FY14. Value of property to be less than INR 4 mn

namely LICHF, Dewan Housing, Gruh Finance. SBI too stands to benefit to a l imited extent on the home loans portfolio.

FIIs to be permitted to trade currency derivatives on exchange to the extent

Positive for MCS‐SX, however the l imit to the extent of their exposure only g

of their Indian rupee exposure in India

p ylimits the overall volume expansion

Infrastructure tax‐free bonds of INR500bn can be issued in FY14

Though the eligible l imit of INR500bn is lower than the INR600bn of last fiscal, given that only INR250bn is l ik l t b bili d d thi h dlikely to be mobilized under this head of the total l imit the reduction in overall l imit is unlikely to have any impact

13

Capital Goods

Sector Industry/market wishlist Edelweiss expectations Announcements in Budget Impact on sector/company Capital Goods

Increased allocation to strenghthening T&D network to cut AT&C losses

Increased allocation to strenghthening T&D network to cut AT&C losses

No annoucement Negative

Investment Allowance @15% on Positive for Capital equipment investments in new Plant & Machinery worth INR 1bn and above

companies l ike Thermax, Cummins, ABB, Siemens, etc.

Tax on royalty payments by Indian subsidiary hiked to 25% from 10%

Marginally negative for Cummins India

Increased allocation of Capital Expenditure in defence (INR 867bn ,

Positive Bharat Electrnoicsand Larsen & b

Expenditure in defence (INR 867bn , 25% YoY growth) in FY14E

& Toubro

14

Cement

Sector Industry/market wishlist Edelweiss expectations Announcements in Budget Impact on sector/companyCement Reduction in excise duty on cement and

simplification of the duty structure to specific rate per MT against the current complex structure of charging it on ad‐valorem cum

No change. No change.

specific duty basis and further relating it to the

Abolition of import duty on pet coke and levy of customs duty on cement imports.


Classify cement as 'Declared Goods' under Section 14 of the Central Sales tax Act to put it


on equal footing with other core sector goods l ike coal and steel.

Customs duty on steam coal hiked by 2% and CVD by 1%.

The impact will be marginal in the INR0.3‐0.8 range per bag of cement.

No incremental impact on ACC andTax on royalty payments hiked to 25% from 10%.

No incremental impact on ACC and Ambuja Cement as India has DTAA with Switzerland capping the tax at 10%.

15

Consumer Goods

Sector Industry/market wishlist Edelweiss expectations Announcements in Budget Impact on sector/companyConsumer Goods

Rural initiatives on income generation. We expected this to continue, though growth could moderate.

Contribution to MNREGA scheme maintained at INR330bn (no increase), in l ine with expectations.

Rural growth has been growing ahead of urban growth which is l ikely to continue.

No increase in excise duty on cigarettes. Increase in exercise duty by 8‐10% for cigarettes was expected.

Excise on cigarettes increased 18% on all segments except below 65mm.

The hike is sentimentally negative for all cigarette companies, especially the smaller players as this is second year of harsh Budget for cigarettes. ITC will need to hike price ~13% to offset this excise rise to maintain EBIT margin atexcise rise to maintain EBIT margin at the current 32.3%; ITC's strong pricing power will have l ittle impact on volumes, though no change in sub 65mm category will prop volumes.

An upward revision in the income tax exemption We expected an increase as it would Tax credit of INR2,000 for income up We expect this step to marginally p plimit.

pbe a step towards direct tax code.

, pto INR500,000 (leading to effective exemption of INR220,000 for individuals with income less than INR500,000).

p p g yincrease disposable income of the urban poor/urban middle class which will help boost Consumer spending to some extent.

Rate of tax increased from 10% to 25% l i d h i l f id

No significant impact on most i (HUL C l ) d DTAAon royalties and technical fees paid

to non‐resident. This will be effective as per government note from April 1, 2014 (i.e. FY15).

companies (HUL, Colgate) due to DTAA rate over‐riding the enhanced rate. Since it is applicable from FY15 there is no near term impact.

16

Construction

Sector Industry/market wishlist Edelweiss expectations Announcements in Budget Impact on sector/companyConstruction Steps to lower borrowing costs by allowing

refinancing of INR term loans through ECBs.Unlikely. No announcement. Neutral.

Government will constitute a regulatory authority for the road

Positive as it will increase accountability and transparency in theregulatory authority for the road

sector.accountability and transparency in the system.

3,000 km of road projects will be awarded in the first six months of 2013‐14.

Positive for the sector as it will increase order flow.

17

IT

Sector Industry/market wishlist Edelweiss expectations Announcements in Budget Impact on sector/companyIT MAT on SEZ income to be withdrawn as it is

counter to the long‐term policy announced by the Government through the SEZ Act. Alternatively, MAT should be withdrawn at least

Did not expect to occur No announcement

in respect of SEZs which have already been notified so that economic viability of these SEZs is protectedDenial of tax deductions for onsite services.With the sunset of STP benefits, there has been denial of tax deductions for onsite

The expectation was that onsite services will be treated as exports of services and not as export of

No announcement

services on one pretext or the other, which the exporters of IT services are entitled to.

manpower

Increase in surcharge to result in 1.3% average tax increase as some portion of the income is on MAT and

j i it N MAT

Marginally negative impact

majoiity on Non MAT.

18

Media

Sector Industry/market wishlist Edelweiss expectations Announcements in Budget Impact on sector/companyMedia Subsumption of service tax and entertainment tax

in GST.Unlikely as it also depends on the implementation of GST which has been pending for a few years.

No announcement No impact

Reduction of customs duty on digital head ends Unlikely as it will put additional Customs duty on set top boxes This will be a negative (~INR65 impact) y gand set top boxes.

y pburden on the government and discourage domestic production of STBs.

y pincreased from 5% to 10% to promote domestic production of set top boxes.

g ( p )for cable and DTH companies as almost all set top boxes are imported. We expect all companies to pass this hike to consumers.

FM Phase 3 auctions will be d t d i FY14 294 iti

Positive for ENIL, Next Mediaworks and RBNL Al li htl iti fconducted in FY14. 294 cities

(population > 0.1mn) will have 839 FM stations.

RBNL. Also, slightly positive for companies l ike Sun TV, DB Corp and HT Media which have small FM radio operations as a % of total sales.

Temporary transfer or permitting the use or enjoyment of a copyright

Likely negative for broadcasters as movie acquisition costs might increase

relating to cinematographic fi lms was fully exempt from service tax; now, this exemption will be restricted to exhibition of cinematograph films in movie theatres.

due to higher service tax. Likely minor negative for DTH/cable operators who provide pay‐per view facil ity.

19

Metals & Mining

Sector Industry/market wishlist Edelweiss expectations Announcements in Budget Impact on sector/companyMetals and Mining

Steel ‐ increase in import duty to 10% from 7.5% Low probabil ity No change None

Removal of steel imports from free trade Unlikely. Measure also requires No change Noneagreements (FTA) concurrence of foreign countries

Implementation of zero import duty on import of certain grades of coal

Likely Import duty on all thermal coal grades at 2%

Sentimentally positive for Coal India

Imposition of 4% excise duty on silver produced from zinc/lead ore

Negative for HZL and Sterlite

Increase in customs duty for aluminium from 5% to 10%

Unlikely No change None

Iron ore ‐ reduction in export duty (currently 30%)

Unlikely No change None

20

Oil & Gas

Sector Industry/market wishlist Edelweiss expectations Announcements in Budget Impact on sector/companyOil & Gas Removal of National Calamity Contingent Duty on

Crude Oil levied @ Rs.50/MT.We did not expect any changes on the same.

No announcement

Extension of 100% Excise Duty Concession to North East Refineries.

Should happen, maybe partial say 50% or 75%

No announcement

Declared Goods status to Natural Gas and LNG No changes No announcementDeclared Goods status to Natural Gas and LNG No changes No announcementExtension of 'Infrastructure Status' to 'Gas projects' such as LNG terminals for the purpose of 10‐year tax holiday under Section 80‐IA

No changes No announcement

Extension of 7 year tax holiday on refineries from March 2012 to March 2017


100% Depreciation on Fuel quality up‐gradation No changes No announcement100% Depreciation on Fuel quality up‐gradation projects


Include petroleum products in GST, while addressing the concern of states through levy of an additional tax


None Import duties on crude to increase from 0% to 2 5% Also increases

No announcement No changes. This is positive for refining companies (IOCL BPCL HPCL MRPL RIL)from 0% to 2.5%. Also increases

import duties on all products by 2.5% except diesel, LPG, Kerosene

companies (IOCL, BPCL, HPCL, MRPL, RIL) as the current duty differential of ~2% is maintained

‐ PSC for NELP blocks will in future be moved from profit petroleum sharing to revenue sharing modelShale gas policy to be announced

Revenue sharing model will ease the capex approval process. If the Rangarajan Panel recommendations on natural gas pricing are approved it wil l‐ Shale gas policy to be announced

soon‐ Natural gas pricing policy will be reviewed soon‐ Cabinet Committee on Investment (CCI) will meet to clear hurdles in

l ti /d l t f NELP

natural gas pricing are approved, it will be a positive for RIL and ONGC. Any approvals by CCI for NELP blocks will lead to exploration activities picking up

exploration/development of NELP blocks

Investment allowance of 15% on new plant & machinery acquired and installed in FY14 and FY15, and worth INR 1bn and above

The same is positive for sector but more for RIL. RIL has planned $12bn capex and most of the same is expected to be commercial 2015 end.

21

Pharma

Sector Industry/market wishlist Edelweiss expectations Announcements in Budget Impact on sector/companyPharma Rolling out of universal access programme to

essential medicines with an outlay of INR5,000‐6,000 crores p.a. (0.1% of GDP).

Important to see if private sector players will be part of the procurement for access to essential medicines.

Healthcare expenditure increased from INR30,000 crores to INR37,330crores (increase of 24%); overall, the expenditure under N i l H l h Mi i i d

Positive as it increases the reach for medicines thereby improving penetration levels in both urban and rural areas.

National Health Mission increased to INR21,200 crores and will include both rural and proposed urban mission.

Increase weighted deduction on R&D to 300% from current 200%.

No announcement.

Revisit the MAT currently being levied on SEZs, given industry has high investment in SEZs.

Increase in surcharge from 5% to 10%; investment allowance of 15% over current depreciation on capex of INR100 crores and more on P&M.

a) Negative impact of 0.4% increase in MAT rate to an extent that domestic accounts for 40% of total business.

b) Investment allowance does not benefit as most companies pay tax atbenefit as most companies pay tax at MAT.

Remove excise duty disparity between API and formulations.

We expected this in order to reduce disparity in the MODVAT structure.

No change in the duty structure.

Healthcare (hospitals)

Increase in exemption l imit under Section 80D for health insurance.

Likely. More insurance penetration in Tier ‐II cities without prior approval of IRDA

Improve affordability for quality healthcare in these towns that are

and health cover under social security package for unorganized sector.

target areas for growth by specialty hospitals.

Priority sector status to healthcare including hospitals and diagnostics.

Increase in surcharge from 5% to 10%. Negative impact with increase in taxIncrease in surcharge from 5% to 10%. Negative impact with increase in tax rate by 1% as most profit comes from domestic business.

22

Real Estate

Sector Industry/market wishlist Edelweiss expectations Announcements in Budget Impact on sector/companyReal Estate

Give infrastructure status to affordable housing segment.

Likely Current sops for affordable housing to continue.

No Impact

Tax exemptions for small houses (under‐60 sq.m carpet area) and special housing zones.

Likely No announcement. No Impact

Increase in exemption l imit on interest payments on mortages.

Not l ikely Additional interest deduction of INR100,000 for housing loans up to INR2.5mn taken for first home from the period 1.4.13 to 31.3.14.

Positive for Jaypee Infratech (BUY) and Puravakankara Projects (Unrated). Other l isted companies do not have a significant presence in <INR3mn segment

Industry status to real estate. Not likely No announcement. No Impact.Industry status to real estate. Not l ikely No announcement. No Impact.Implementation of REITs so that small investors will get a chance to invest in real estate assets.

Not l ikely No announcement. No Impact.

Surcharge on taxes for higher income groups. Likely Surcharge of 10% for persons whose taxable income exceeds INR10mn per year.

Minimal impact as segment is not price sensitive / does not face affordabil ity issues.

U b h i f d b b U lik l i l i dUrban housing fund to be set up by NHB for INR20bn.

Unlikely to impact l isted space.

TDS to be deducted at a rate of 1% for transfer of immovable property (other than agriculture land), where the consideration exceeds INR5mn.

Could impact demand for real estate properties in NCR and partially in Mumbai with a possible fall in speculative transactions.p

Houses above 2,000 sq ft or above INR1crore to have lower abatement of 70% against 75%.

To impact costs by ~0.6%. Expected to be passed on to end users. Sentimentally negative for DLF, Oberoi.

23

Power & Infrastructure

Sector Industry/market wishlist Edelweiss expectations Announcements in Budget Impact on sector/companyPower 2% customs duty imposed on thermal

coal imports (earlier nil) & CVD increased to 2% from earlier 1%.

PPAs have a clause to pass on such increase in cost to procurers. However, this is negative for developers having merchant contracts. Negative for JSW Energy and PTC India.

Sec 80 IA benefits extended and DDT exempted for dividend from foreign companies by another year

Positive ‐ on expected l ines

24

Retail

Sector Industry/market wishlist Edelweiss expectations Announcements in Budget Impact on sector/companyRetail Clarity on nuances of norms (sourcing, back

end investment, etc.) for FDI in multi brand retail .

Mirroring proactiveness in promotion of FDI in single‐brand retail, we expected government to provide clarity on norms on FDI in multi‐

No announcement. Confusion persists regarding FDI norms; will continue to await clarity.

No further regulations to curb gold demand; in January 2013, government had hiked import duty on gold from 4% to 6%.

We had not ruled out stricter regulations l ike reduction of credit period by domestic banks provided to jewellers (from current 180 days credit to 90 days), mandatory quoting of PAN numbers for high value

No changes announced. Positive for branded jewellers who were fearing stricter rules

of PAN numbers for high value purchases and to introduce gold‐l inked financial instruments to divert savings from physical gold to bonds.

An upward revision in the income tax exemption l imit

We had expected an increase as it could be a step towards direct tax

Tax credit of INR2,000 for income up to INR500 000 (leading to effective

We expect this reforms to marginally increase disposable income of thelimit. could be a step towards direct tax

code.to INR500,000 (leading to effective exemption of INR220,000 for

increase disposable income of the urban poor/urban middle class which

To further reduce central excise duty on branded clothes (effective excise duty reduced by 90bps from 4.5% on 3.6% on apparel retail price in the last budget).

We had belived this was unlikely due to ballooning fiscal deficit and the fact that there was cut initiated in the last budget.

Zero excise duty route', as existed prior to Budget 2011‐12, is being restored in respect of branded readymade garments and made ups.

This is clearly positive for branded garment players and also retailers l ike Pantaloons and Shoppers Stop

p g ) g y g p

GST roadmap laid down This is a clear positive for Retail players.

Service tax will be leviable on taxable service provided in restaurants with air‐conditioning or central air heating

This will be negative for QSRs and fine‐dining with air‐conditioning

air conditioning or central air heating in any part of the establishment at any time during the year.

25

Telecom

Sector Industry/market wishlist Edelweiss expectations Announcements in Budget Impact on sector/companyTelecom Increase in surcharge to result in

1.6% average tax increase.Marginally negative impact

26

Disclaimer

This document has been prepared by Edelweiss Securities Limited (Edelweiss). Edelweiss, its holding company and associate companies are a full service, integrated investment banking, portfolio management and brokerage group. Our research analysts and sales persons provideimportant input into our investment banking activities. This document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data orother sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. Edelweiss or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from anyinadvertent error in the information contained in this report. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Eachrecipient of this document should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult his own advisors todetermine the merits and risks of such investment. The investment discussed or views expressed may not be suitable for all investors. We and our affiliates, group companies, officers, directors, and employees may: (a) from time to time, have long or short positions in, and buy orsell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as advisor or lender/borrower to such company (ies) or have other potential conflict of interest withrespect to any recommendation and related information and opinions. This information is strictly confidential and is being furnished to you solely for your information. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to anyother person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,p p , p , p , y p p p , y, y p y y y, , y j , ,publication, availability or use would be contrary to law, regulation or which would subject Edelweiss and affiliates/ group companies to any registration or licensing requirements within such jurisdiction. The distribution of this document in certain jurisdictions may be restricted bylaw, and persons in whose possession this document comes, should inform themselves about and observe, any such restrictions. The information given in this document is as of the date of this report and there can be no assurance that future results or events will be consistent withthis information. This information is subject to change without any prior notice. Edelweiss reserves the right to make modifications and alterations to this statement as may be required from time to time. However, Edelweiss is under no obligation to update or keep the informationcurrent. Nevertheless, Edelweiss is committed to providing independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Neither Edelweiss nor any of its affiliates, group companies, directors,employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Past performance is not necessarily a guide to futureperformance. The disclosures of interest statements incorporated in this document are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. Edelweiss Securities Limited generally prohibits its analysts, personsreporting to analysts and their dependents from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information provided in these reports remains, unless otherwise stated, the copyright of Edelweiss. All layout, design,original artwork, concepts and other Intellectual Properties, remains the property and copyright Edelweiss and may not be used in any form or for any purpose whatsoever by any party without the express written permission of the copyright holders.

Analyst Certification:

The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related tospecific recommendations or views expressed in this report.

Analyst holding in the stock: No.

Additional Disclaimer for U.S. Persons

Thi h t i d t f Ed l i S iti Li it d hi h i th l f th h l t( ) h h d th h t Th h l t( ) i th h t i / id t t id th U it d St t (U S ) d t i t dThis research report is a product of Edelweiss Securities Limited, which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associatedpersons of any U.S. regulated broker‐dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker‐dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulationsregarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account.

This report is intended for distribution by Edelweiss Securities Limited only to "Major Institutional Investors" as defined by Rule 15a‐6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission(SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to anyU.S. person, which is not the Major Institutional Investor.

In reliance on the exemption from registration provided by Rule 15a‐6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Edelweiss Securities Limited has entered into an agreement with a U.S.registered broker dealer Enclave Capital LLC ("Enclave")registered broker‐dealer, Enclave Capital, LLC ("Enclave").

Transactions in securities discussed in this research report should be effected through Enclave or another U.S. registered broker dealer.

Additional Disclaimer for U.K. Persons

The contents of this research report have not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000 ("FSMA").

In the United Kingdom, this research report is being distributed only to and is directed only at (a) persons who have professional experience in matters relating to investments falling within Article 19(5) of the FSMA (Financial Promotion) Order 2005 (the “Order”); (b) persons fallingwithin Article 49(2)(a) to (d) of the Order (including high net worth companies and unincorporated associations); and (c) any other persons to whom it may otherwise lawfully be communicated (all such persons together being referred to as “relevant persons”).

This research report must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this research report relates is available only to relevant persons and will be engaged in only with relevant persons. Any person who is nota relevant person should not act or rely on this research report nor any of its contents. This research report must not be distributed, published, reproduced or disclosed (in whole or in part) by recipients to any other person.

Edelweiss shall not be liable for any delay or any other interruption which may occur in presenting the data due to any reason including network (Internet) reasons or snags in the system, break down of the system or any other equipment, server breakdown, maintenanceshutdown, breakdown of communication services or inability of the Edelweiss to present the data. In no event shall the Edelweiss be liable for any damages, including without limitation direct or indirect, special, incidental, or consequential damages, losses or expenses arising inconnection with the data presented by the Edelweiss through this presentation.

Copyright 2009 Edelweiss Research (Edelweiss Securities Ltd). A rights reserve

27

py g ( ) g

Union Budget '13 Review (First Cut)

Economy & Finance

Transcript of Union Budget '13 Review (First Cut)