Union Budget 2011-12 Review-280211

8/7/2019 Union Budget 2011-12 Review-280211

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Union Budget 2011-12 Review

Please refer to important disclosures at the end of this report

Source: Budget documents, Angel Research

Union Budget 2011-2012

Exercising restraint

In the Union Budget 2011-12, it was restraint that was requiredon the expenditure side. And, by not having any major populistmeasures, the Finance Minister has managed to bring downthe targeted fiscal deficit to 4.6% - the key positive from theBudget. Even though on some counts, such as subsidy estimates,the targets are likely to be overshot, but because of the absenceof any major populist measures and substantial restraint onmost items of expenditure, any overshooting of the fiscal deficitis likely to be contained to 20-40bp of GDP. In other words, thedeficit is unlikely to exceed the FY2011 levels of 5.1%.

Fiscal target is largely credible

The government managed to contain the fiscal deficit to 5.1%in FY2011, though this was not entirely on account of the 3Gauction revenue. Part of the reason was the sharp 20% increasein nominal GDP in FY2011 and the associated buoyancy in taxrevenue - about ` 30,000cr more than budgeted. Also, while

3G auction revenue was about ` 70,000cr higher than thatexpected, divestments were lower by about ` 20,000cr, indicatingonly ` 50,000cr of more than budgeted one-time revenue.

Although the government collected almost ` 90,0000cr higherthan the budgeted revenue in FY2011, debt raising remainedhigher than budgeted (even excluding the ` 15,000cr excessfunds mobilised) due to the huge increase in expenditure overbudget estimates. The main culprit was ` 48,000cr of excess

subsidy burden, while other items included ` 10,000cr higherthan budgeted towards pension, ` 10,000cr towards defenseand police and ` 22,000cr towards plan expenditure.

Exhibit 2: matched by far higher-than-budgeted expenditure in FY2011

The FY2012 fiscal deficit target of 4.6% is also expected to beaided by the buoyancy in tax revenue, with an 18.5% yoy increase expected in gross tax revenue in FY2012 over FY2011revised estimates (RE). In amount terms, the ~ ` 1lakh-cr increasein the centre's share of tax revenue is expected to completely

compensate for the absence of over ` 1lakh-cr received from3G auctions in FY2011, further aided by ` 20,000cr higherdivestment proceeds targeted this year.


Exhibit 1: Far higher-than-budgeted receipts in FY2011PPPPParticulars (articulars (articulars (articulars (articulars ( ` ` ` ` cr)cr)cr)cr)cr) FY2011 BEFY2011 BEFY2011 BEFY2011 BEFY2011 BE FY2011 REFY2011 REFY2011 REFY2011 REFY2011 RE V V V V V ariancearianceariancearianceariance

Centre's net tax revenue 534,094 563,685 29,591

Non-tax revenue

(mainly 3G Auctions) 148,118 220,149 72,031

Non-debt capital receipts

(mainly divestments) 45,129 31,745 (13,384)

727,341727,341727,341727,341727,341 815,579815,579815,579815,579815,579 88,23888,23888,23888,23888,238Debt receipts 381,409 415,997 34,588

- Excess cash balances (15,000)

TTTTTotal excess receiptsotal excess receiptsotal excess receiptsotal excess receiptsotal excess receipts 107,826107,826107,826107,826107,826

PPPPParticulars (articulars (articulars (articulars (articulars ( ` ` ` ` cr)cr)cr)cr)cr) FY2011 BEFY2011 BEFY2011 BEFY2011 BEFY2011 BE FY2011 REFY2011 REFY2011 REFY2011 REFY2011 RE V V V V V ariancearianceariancearianceariance

Subsidies 116,224 164,154 47,930

Pensions 42,840 53,262 10,422

Defence 147,344 151,582 4,238

Police 22,154 27,587 5,433

Grants to state governments 45,119 51,756 6,637

Other non-plan expenditure 361,976 373,212 11,236Total non-plan expenditure 735,657 821,553 85,896

Total plan expenditure 373,092 395,024 21,932

Total expenditure 1,108,749 1,216,577 107,828

Exhibit 3: Variance in budgeted receipts in FY2012 over FY2011


PPPPParticulars (articulars (articulars (articulars (articulars ( ` ` ` ` cr)cr)cr)cr)cr) FY2011 REFY2011 REFY2011 REFY2011 REFY2011 RE FY2012 BEFY2012 BEFY2012 BEFY2012 BEFY2012 BE V V V V V ariancearianceariancearianceariance

Centre's net tax revenue 563,685 664,457 100,772

Non-tax revenue

(mainly 3G Auctions) 220,149 125,435 (94,714)

Non-debt capital receipts

(mainly divestments) 31,745 55,020 23,275

815,579815,579815,579815,579815,579 844,912844,912844,912844,912844,912 29,33329,33329,33329,33329,333Debt receipts 415,997 392,817 (23,180)

- Cash balances (15,000) 20,000 35,000

Total receipts 1,216,576 1,257,729 41,153

Fiscal deficit 400,997 412,817 11,820

- Market borrowings 335,414 343,000 7,586

- Savings schemes 17,781 24,182 6,401

- Others (adjusted for cash) 47,802 45,635 (2,167)

On the expenditure side, about ` 20,000cr is realistically

expected to be lower in respect of agri debt waiver andrecapitalisation of PSU banks. The increase in non-planexpenditure is mainly on account of defense, police, pension,


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Exhibit 4: Variance in budgeted expenditure in FY2012 over FY2011PPPPParticulars (articulars (articulars (articulars (articulars ( ` ` ` ` cr)cr)cr)cr)cr) FY2011 REFY2011 REFY2011 REFY2011 REFY2011 RE FY2012 BEFY2012 BEFY2012 BEFY2012 BEFY2012 BE V V V V V ariancearianceariancearianceariance

Subsidies 164,154 141,079 (23,075)

Agri waiver 12,000 6,000 (6,000)

Capital outlay

(mainly PSU recapitalisation) 27,696 13,212 (14,484)

Defence, Police 179,169 194,100 14,931

Grants to state governments 51,756 65,466 13,710

Pension 53,262 54,521 1,259

Interest 240,757 267,986 27,229

Other non-plan expenditure 386,778 396,325 9,547

TTTTTotal non-plan expenditureotal non-plan expenditureotal non-plan expenditureotal non-plan expenditureotal non-plan expenditure 821,553821,553821,553821,553821,553 816,182816,182816,182816,182816,182 (5,371)(5,371)(5,371)(5,371)(5,371)TTTTTotal plan expenditureotal plan expenditureotal plan expenditureotal plan expenditureotal plan expenditure 395,024395,024395,024395,024395,024 441,547441,547441,547441,547441,547 46,52346,52346,52346,52346,523

TTTTTotal expenditureotal expenditureotal expenditureotal expenditureotal expenditure 1,216,5771,216,5771,216,5771,216,5771,216,577 1,257,7291,257,7291,257,7291,257,7291,257,729 41,15241,15241,15241,15241,152Source: Budget documents, Angel Research

The other major item of non-plan expenditure, which is projectedat much lower levels than in FY2011RE, is subsidy outgo. InFY2011, when average crude prices were about US $84 andMumbai petrol and diesel prices averaged about ` 57 and ` 41,respectively, fuel subsidy amounted to ` 38,386cr. With crudeprices currently at US $109 and petrol and diesel not muchabove FY2011 levels, either crude prices need to come downsignificantly to even below FY2011 average levels (unlikely) orthe government would have to hike petrol and diesel prices by a huge amount (limited ability, prices unlikely to be hiked morethan 10-15%). The more likely outcome would be a possible` 15,000cr-20,000cr overshooting of subsidy estimates, i.e.about 20bp of GDP, which may be borne by the centre or theoil companies.

grants to states and interest payments, where the expenditureincrease was essential. Other than that, substantial restraint hasbeen exhibited in respect of other non-plan expenditure items,showing an almost 22% decline over FY2011RE (about` 20,000cr in amount terms) - any overshooting on this frontcould be a downside risk to budget estimates, though any overshooting is unlikely to be comparable to the substantialover-runs in FY2011. On the plan expenditure side, the Budgetbuilds in a moderate 11.8% increase over FY2011RE.

Exhibit 5: Subsidy estimates appear optimisticPPPPParticulars (articulars (articulars (articulars (articulars ( ` ` ` ` cr)cr)cr)cr)cr) FY2011(RE)FY2011(RE)FY2011(RE)FY2011(RE)FY2011(RE) FY2012(BE)FY2012(BE)FY2012(BE)FY2012(BE)FY2012(BE)

Fertiliser subsidy 54,977 49,998

Food subsidy 60,600 60,573

Petroleum subsidy 38,386 23,640

Interest subsidy 5,223 6,868

Other subsidies 4,968 2,490

TTTTTotal subsidiesotal subsidiesotal subsidiesotal subsidiesotal subsidies 164,153164,153164,153164,153164,153 143,570143,570143,570143,570143,570Source: Budget documents, Angel Research

Exhibit 6: Significant catch-up left on domestic petrol/diesel pricesFYFYFYFYFY PPPPPetrol/Ltretrol/Ltretrol/Ltretrol/Ltretrol/Ltr..... Diesel/LtrDiesel/LtrDiesel/LtrDiesel/LtrDiesel/Ltr..... Crude BrentCrude BrentCrude BrentCrude BrentCrude Brent Subsidy Subsidy Subsidy Subsidy Subsidy (((((` ` `` ))))) (((((` ` `` ))))) (US $)(US $)(US $)(US $)(US $) (((((` ` `` cr)cr)cr)cr)cr)

2010 48 36 70 14,951

2011 57 41 84 38,386

2012 # 63 42 112 23,640Source: Bloomberg, Angel Research. Note: FY2012 # Petrol, Diesel, Crudeprices reflect current prices

Also, it may be difficult for the government to mobilise as muchas ` 24,000cr from savings schemes with Bank FD ratesprevailing at 9.5-10%, which may put further burden on the

projected market borrowing target of ` 3,43,000cr. The targetlevel of market borrowings is also aided by the fact that inFY2011 the government raised ` 15,000cr excess funds, whilethis year it expects to draw down ` 20,000cr. Overall, in ourview, the government should be able to keep fiscal deficit andmarket borrowings within manageable limits in FY2012.

Tapping different sources of funds to check risinginterest rates

There has been a clear thrust in the last few budgets to increasethe availability of funds to the economy, especially to theinfrastructure and priority sectors. Continuing this trend, in thisbudget as well, key announcements included increase in FIIinvestments in corporate bonds from US $20bn to US $40bn(the entire increase will be towards bonds issued by theinfrastructure sector), reduction in withholding tax, increase intax-free bond limits and removing medium-term capitalconstraints for PSU banks ( ` 6,000cr capital infusion this year).Given the shortage of funds in the domestic banking sector,most measures aim to increase fund availability from othersources. Importantly, by not having any major populist measures,

the Finance Minister has managed to bring down the targetedfiscal deficit to 4.6%, which is unlikely to be exceeded by morethan 20-40bp of GDP in our view. Together with the impending


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awarding of new bank licenses and increased foreign bankparticipation (being worked upon by the RBI currently), all thisshould help narrow the gap between savings and investments,keeping interest rates also in check - a positive for banks,infrastructure and the overall economy. On a positive note forthe markets, the budget has also permitted foreign investors todirectly invest in Indian mutual funds.

Focus on relieving agriculture supply bottlenecks

Rightly focusing on pressing matters such as high inflation, thereare several measures and statements of intent in the budget to

tackle high food inflation. Supply constraints in agriculture areclearly major issues that need fiscal focus and these constraintsare not so much in food production but in the supply chain.This can be appreciated from the fact that even though overallagriculture GDP growth is expected to be 5%+ in FY2011, foodinflation is still prevailing at as high as 11.5%. In FY2010, onaccount of drought, food prices went up, which was on theexpected lines. However, the persistence of food inflation, eventhough quarterly agricultural GDP growth has gone up to asmuch as 8.9%, highlights the supply chain constraints ailingagriculture in India. Although food inflation is expected to declinegoing forward on account of higher production as well as onbase effect, it is appropriate that this budget has shown somefocus on the government's part to address structural supply constraints.

Exhibit 7: Agriculture real GDP growth vs. food inflation

Source: CSO, Angel Research

(5.0)

0.0

5.0

10.0

15.0

20.0

25.0 Agri Real GDP growth (%) YoY Food Inflation (%)

M a r-0 7

J u n-0 7

De c -0 7

S e p -0 7

J u n-0 6

De c -0 6

S e p -0 6

M a r-0 8

J u n-0 8

De c -0 8

S e p -0 8

M a r-0 9

J u n-0 9

De c -0 9

S e p -0 9

M a r-10

J u n-10

De c -10

S e p -10

These measures include viability gap funding for cold storagechains, ` 2,000cr of RIDF funds for creating warehouses andincreased priority sector lending targets from ` 3.8lakh-cr to` 4.8lakh-cr. In fact, removal of production and distributionbottlenecks for items such as fruits and vegetables, milk, meat,poultry and fish has been declared to be a major focus ofattention this year, and towards this, the allocation to Rashtriya

Krishi Vikas Yojana (RKVY) has been increased from ` 6,755crin FY2011 to ` 7,860cr in FY2012. Moreover, put together,` 2,200cr is being allocated to increase production in variousfood crops. Approval is also proposed to be fast-tracked to 15mega food parks, as against 15 being set up in the first fouryears of the Eleventh Five-Year Plan. Capital investments infertiliser production are also proposed to be classified as aninfrastructure sub-sector.

Nothing particularly concrete on exploitation of natural resources

To tackle the issue of speeding up project approvals in case ofmineral resources, committees have been set up for greatertransparency and accountability in allocation, pricing andutilisation of natural resources, while issues relating toreconciliation of environmental concerns from variousdepartmental activities, including those related to infrastructureand mining, are to be considered by a Group of Ministers. Also,the rate of export duty for all types of iron ore has been enhancedand unified at 20% ad valorem.

Statements of intent on improving governance

On governance, there seems to be a firm commitment to plugleakages (direct transfer of cash subsidy), reduce black money,tackle corruption, monitor performance of ministries andcontinue fiscal consolidation. On direct transfer of cash subsidy,the Finance Minister has indicated that a major portion of thepopulation would be covered by this by March 2012, with theUID Project being rolled out at the rate of 10lakh numbers perday. In respect of financial sector reforms, the Finance Ministerindicated that in FY2012 several acts would be taken up foramendments, including those relating to insurance, pension,

banking, NPA recoveries and SBI's subsidiaries.Absence of big-bang announcements - The key drawback; overall a moderately positive budget

The main drawback in the Budget was the absence of any majorpolicy reform announcements, such as on FDI and infrastructure;while at the same time, GST implementation from April 2012was indicated as unlikely. As far as FDI is concerned, the FinanceMinister has only indicated that discussions are on for furtherliberalisation of the FDI policy. On GST, the Finance Ministerhas indicated that it will take time to form a consensus with the

opposition as well as with the state governments. (The former isrequired for the constitutional amendment, while the latter isneeded for effective implementation.) However, on a positive


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note, it has been indicated that DTC will be implemented fromApril 2012, which is why in this budget there was minimaltinkering with direct taxes. In case of excise duty as well, it hasbeen kept unchanged at 10%. Also, from a revenue mobilisationstandpoint, the divestment target has been kept at healthy ` 40,000cr, though outright privatisation has been currently ruled out.

Overall, without over-stretching itself, this Budget includes amodest set of measures without compromising on its fiscal deficitposition, and, to that extent, its impact is expected to bereasonably positive.

Exhibit 8: Sectoral Impact

Source: Angel Research

SectorSectorSectorSectorSector ImpactImpactImpactImpactImpact

Agriculture Positive

Automobile Positive

Banking Positive

Capital Goods Positive

Cement Negative

FMCG Positive

Hotel Negative

Infrastructure Positive

Media Positive

Metals NeutralOil & Gas Negative

Pharmaceutical Neutral

Power Positive

Real Estate Neutral

Retail Negative

Software Neutral

Telecom Negative


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Sectoral Impact


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The government plans to cover urea under nutrient-basedsubsidy policy for the fertiliser sector.

Investments in the fertiliser sector would be awardedinfrastructure status. Investment-linked deduction forfertilisers plants has also been allowed.

For FY2012, the farm credit target has been raised to` 4,75,000cr from ` 3,75,000cr in FY2011. Interestsubvention for short-term crop loans raised from 2% to3%. Thus, the effective rate of interest for such farmerswill now be 4%.

Reduction in corporate tax surcharge would haveminimum impact; however, application of MAT to SEZ'swould impact profitability of the companies.

Companies like Tata Chemical, Chambal fertilisers, andRCF are likey to benefit.

Positve for all companies in the fertilizer sector.

Positve for all companies with an exposure to Rural India.

Negative for Rallis as its new unit is coming up in Dahej.

Announcement Impact

Agriculture Positive

The Union Budget 2011-12 turned out to be pro-farmers' budget. The finance minister (FM) has chalked out a strategy to counterfood inflation, announced plans to boost farm production, promote balance usage of fertiliser, reduce overall subsidy burden,reduce food loss and promote the food processing sector.

Last year's nutrient-based subsidy scheme was highly successful and the government now plans to bring urea under the same.Investments in the fertiliser sector would be awarded infrastructure status. Investment-linked deduction for fertilisers plants has also

been allowed. The government's plan to set up 15 mega food park projects, in addition to the 15 already under construction, wouldlend further fillip to the sector.

Overall, we expect farmers to have better access to finance in turn boosting demand for various agri-inputs like seeds, fertilisers andagrichemicals.

Source: Company, Angel Research; Note: Price as on February 28, 2011

Company Company Company Company Company RecoRecoRecoRecoReco CMPCMPCMPCMPCMP TTTTTarget Parget Parget Parget Parget P ricericericericerice EPS (EPS (EPS (EPS (EPS ( ` ` ` ))))) P/E (x)P/E (x)P/E (x)P/E (x)P/E (x) EV/EBITDEV/EBITDEV/EBITDEV/EBITDEV/EBITDA (x)A (x)A (x)A (x)A (x)

(((((` ` ` ` ))))) (((((` ` ` ` ))))) FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012E FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012E FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012EUnited Phosphorus Buy 136 198 12.0 15.3 11.3 8.9 6.8 5.5

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Status quo maintained on excise duty front (10% on smallcars, two-wheelers and commercial vehicles (CV's) and22% + ` 15,000 on large cars, multi-utility vehicles andsports utility vehicles).

Excise duty on hybrid vehicles manufactured in India hasbeen reduced to 5% from 10% earlier. Also, specified partsof such vehicles to be fully exempt from basic customsduty and special CVD. Further, excise duty on kits forconversion of fossil fuel vehicles into hybrid vehiclesreduced to 5%.

Setting up of a National Mission for hybrid and electrichybrid vehicles and several fiscal measures for promotingsuch vehicles.

Allocation of ` 214,000cr provided for infrastructuredevelopment (which accounts for ~48.5% of the total planallocation) including ` 58,000cr for rural infrastructuredevelopment under Bharat Nirman.

A positive move as there would be no immediate increasein the vehicle prices (excise hikes are normally passed onby the manufacturers), which would sustain the volumegrowth.

Promote the manufacture, sale and usage of such vehiclesin India.

Expected to encourage manufacturing and selling ofalternative fuel-based vehicles in the country.

Broadly positive for long-term growth of the sector. Hikein allocation for infrastructure would be positive in thelong-term for CV players like Tata Motors, Ashok Leyland,Eicher Motors and Force Motors. Increase in allocation

under Rural Development program is positive for autocompanies with rural presence like Mahindra andMahindra (M&M) and Hero Honda.

Announcement Impact

Automobile Positive


(((((` ` ` ` ))))) (((((` ` ` ` ))))) FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012E FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012E FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012E

Bajaj Auto Buy 1,268 1,491 88.0 99.4 14.4 12.8 9.2 8.0

Maruti Buy 1,207 1,515 76.6 101.0 15.7 11.9 8.4 6.0

M&M Buy 614 794 43.2 47.5 14.2 12.9 9.0 7.7Tata Motors* Buy 1,082 1,384 130.3 138.6 8.3 7.8 5.7 4.8

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Source: Company, Angel Research; Note: * Consolidated results; Note: Price as on February 28, 2011


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Capital infusion of ` 6,000cr in PSU banks and ` 500cr inregional rural banks

Increase in total limit available to FII for investment incorporate bonds to US $40bn; Reduction in withholdingtax on interest income from infrastructure financing by foreign funds to 5% from 20%

Tax-free infra bonds of ` 30,000cr to be issued by government undertakings

Interest subvention proposed to be enhanced from 2% to3% for providing short-term crop loans to farmers whorepay their crop loan on time; Credit flow for farmersraised from ` 3,75,000cr to ` 4,75,000cr

` 3,000cr to be provided to NABARD to provide supportto handloom weaver co-operative societies, which havebecome financially unviable due to non-repayment of debtby handloom weavers facing economic stress

Legislations proposed in the financial sector concerning

insurance laws, banking laws and State Bank of IndiaSubsidiary Law, among others

Will enable PSUs and regional rural banks to grow at ahealthy rate

Higher foreign inflows likely to enhance liquidity in thesystem - Positive for the entire banking sector

Will aid in easing liquidity concerns

Slightly negative considering the lower yields and higherNPAs generally associated with agri-based lending

Could assist in reducing NPAs on loans to handloomweaver co-operative societies

Positive for the entire financial sector, especially largefinancial institutions such as SBI, ICICI Bank and HDFC

Announcement Impact

There has been a clear thrust in the last few budgets to increase the availability of funds to the economy, especially to the infrastructureand priority sectors. Continuing this trend, in this budget as well, key announcements included increased FII investments in corporatebonds to US $40bn, reduction in withholding tax, higher tax-free bond limits and removal of medium-term capital constraints forPSU banks ( ` 6,000cr capital infusion this year). Somewhat negative for banks, priority lending targets were increased to 27% to` 4.8lakh-cr. Importantly, by not having any major populist measures, the Finance Minister has managed to bring down the targetedfiscal deficit to 4.6%, which is not likely to be exceeded by more than 20-40bp of GDP. Together with new bank licenses andincreased foreign bank participation over the course of the next year, all this should help narrow the gap between savings and

investments, keeping interest rates also in check, which is a positive for banks.

Banking Positive

BankBankBankBankBank GovernmentGovernmentGovernmentGovernmentGovernment TierTierTierTierTier-1%-1%-1%-1%-1%holding (%)holding (%)holding (%)holding (%)holding (%) (3QFY2011)(3QFY2011)(3QFY2011)(3QFY2011)(3QFY2011)

Central Bank of India 80.2 6.1Indian Overseas Bank 61.2 7.3UCO Bank 63.6 7.5Source: Company, Angel Research

Source: Company, Angel Research

BankBankBankBankBank GovernmentGovernmentGovernmentGovernmentGovernment TierTierTierTierTier-1%-1%-1%-1%-1%holding (%)holding (%)holding (%)holding (%)holding (%) (3QFY2011)(3QFY2011)(3QFY2011)(3QFY2011)(3QFY2011)

Oriental Bank of Commerce 51.1 9.1Dena Bank 51.2 7.2Andhra Bank 51.6 7.1Bank of Baroda 53.8 7.7Vijaya Bank 53.9 9.3Allahabad Bank 55.2 8.1

Union Bank of India 55.4 7.4Corporation Bank 57.2 8.1Punjab National Bank 57.8 7.6

Banks with government holding less than 58% Banks with Tier-1 ratio less than 8%


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Company Company Company Company Company RecoRecoRecoRecoReco CMPCMPCMPCMPCMP TTTTTarget Parget Parget Parget Parget P ricericericericerice EPS (EPS (EPS (EPS (EPS ( ` ` ` ))))) P/E (x)P/E (x)P/E (x)P/E (x)P/E (x) P/ABP/ABP/ABP/ABP/ABV (x)V (x)V (x)V (x)V (x)


Axis Bank Buy 1,224 1,688 82.2 101.0 14.9 12.1 2.7 2.3

Dena Bank Buy 95 127 21.6 21.0 4.4 4.5 1.0 0.8

ICICI Bank Buy 971 1312 45.3 60.7 21.4 16.0 2.1 1.9

Indian Bank Buy 205 274 41.3 42.2 5.0 4.9 1.1 0.9

IOB Buy 133 166 17.4 23.6 7.6 5.6 1.1 0.9

J&K Bank Buy 752 987 126.6 138.2 5.9 5.4 1.0 0.9

SBI Buy 2,632 3,490 165.3 240.9 15.9 10.9 2.4 2.0

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Banking


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The government's relentless focus and continuedallocation to infrastructure development in the country should be positive for the entire capital goods sector ingeneral in the long run. With the increase in FII limit forinvesting in corporate infrastructure bonds, we expectliquidity pressure for infrastructure projects to ease goingforward.

Removes the disability that domestic suppliers of capital

equipment faced vis--vis importers who enjoyed aconcessional basic customs duty of 2.5% and fullexemption from CVD. Positive for BHEL, Thermax andBGR Energy. As regards the specific demand by BTGmanufacturers to increase import duty on foreignequipment, citing the lack of a level playing field fordomestic manufacturers, the Finance Minister has ignoredthe same and kept the rates unchanged.

Postive for Blue Star and Voltas

Announcement Impact

Allocation of ` 2,14,000cr for infrastructure developmentin 2011-2012. Foreign institutional investment (FII) limitin corporate infrastructure bonds to be increased fromUS $20bn to US $40bn.

Exemption from the levy of excise duty on capital

equipment supplied for the brownfield expansion of megaor ultra-mega power projects.

Full exemption from excise duty to air-conditioningequipment and refrigeration panels for cold chaininfrastructure.



BGR Energy Buy 408 700 42.2 49.8 9.7 8.2 6.3 5.6

Crompton Greaves Buy 245 330 13.7 15.6 17.9 15.7 11.1 9.5

Jyoti Structures Buy 82 150 10.3 13.6 8.0 6.0 3.9 2.9KEC International Buy 79 115 8.1 9.6 9.8 8.2 6.8 5.4

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Capital Goods Positive



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Excise duty on cement with retail sale price exceeding` 190/bag has been changed to 10% ad valorem + ` 160/mt from 10% on retail sale price.Excise duty on sale price below ` 190/bag has beenchanged to 10% on ad valorem basis + ` 80/mt from` 290/mt.

Duty on clinker has been changed from ` 375/tonne to10% ad valorem + ` 200/mt.

Basic customs duty on raw materials like petcoke andgypsum is reduced to 2.5% from 5%.

Allocation of` 2,14,000cr for infrastructure in 2011-12,an increase of 23.3% over 2010-11. This amounts to

48.5% of the total plan allocation. To boost infrastructuredevelopment, tax free bonds of ` 30,000cr is proposedto be issued by the government undertakings during2011-12.

As per the earlier tax regime, the company paid exciseduty on retail sale. Under the new tax regime, excise duty would be calculated on the retail selling price less thedealers' commission, VAT and excise duty.

The change in duty structure on cement is likely to havean impact of ` 2-3 per bag for cement sold above ` 190,but the impact will be higher by ` 4.5/bag for cementprice below ` 190 as per the new tax regime. We expect

all players to hike the cement price on account of higherexcise duty in the short term. Overall, on account ofsluggish demand and oversupply, we expect margins ofthe cement players to get negatively impacted.

Reduction in custom duty will be neutral for the sector asonly few companies like JK Lakshmi Cements, UltratechCements have their plants based on petcoke. Reductionin duty on gypsum will have a marginal positive impactof ` 2-3 /mt of cement.

Although the budget was silent in addressing the demandsof the cement industry, increased allocation forinfrastructure and housing incentives is expected toimprove demand.

Announcement Impact



Grasim Ind. Accumulate 2,277 2,521 211 251 10.8 9.1 5.3 4.9

India Cem. Buy 86 136 1.4 3.1 60.6 27.7 11.7 8.1

Madras Cem. Buy 92 139 7.7 6.4 11.9 14.4 7.1 6.6JK Lakshmi Cem. Buy 44 80 3.7 3.9 12.1 11.4 4.0 3.2

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Cement Negative



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Allocation for Bharat Nirman programme proposed tobe increased by ` 10,000 cr from the current year to` 58,000cr in 2011-12.

Remuneration of Anganwadi workers under NREGA scheme increased from ` 1,500/month to ` 3,000/monthand for Anganwadi helpers from ` 750/month to ` 1,500/month.

Approval given to set up 15 more mega food parks during2011-12 and augmentation of storage capacity throughprivate entrepreneurs and warehousing corporationsbeing fast tracked.

No change in central excise duty. MAT increased from18% to 18.5%, subsequent surcharge decreased from7.5% to 5%, resulting in overall MAT rate of 20% (earlier 19.3%).

Waiver of customs duty on crude palm stearin (key component in the manufacture of soap),

Waiver of customs duty on crude palm stearin waiver of

excise duty on warehouse facility on agricultural produceand decrease in central excise duty to 10% (earlier 30%)for bamboo for aggarbati.

No conducive roadmap for implementation of GST

Thrust on rural infrastructure development to helpcompanies in driving rural growth. Positive for HUL,Dabur, GCPL and Nestle

Spur income levels and rural spending

Help mitigate loss of food articles (currently 40% of foodcrop is lost) on account of poor storage. Positive for foodprocessing industry

No change in tax rates to lend fillip to industry, especially positive for ITC as excise on cigarettes remain untouched.

Positive for soap manufacturing companies like HUL,GCPL and ITC.

To boost small scale industry; marginally positive for ITC.

Likely to miss April 2012 deadline.

Announcement Impact

FMCG Positive

Company Company Company Company Company RecoRecoRecoRecoReco CMPCMPCMPCMPCMP TTTTTarget Parget Parget Parget Parget P ricericericericerice EPS (EPS (EPS (EPS (EPS ( ` ` ` ))))) P/E (x)P/E (x)P/E (x)P/E (x)P/E (x)

(((((` ` ` ` ))))) (((((` ` ` ` ))))) FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012E FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012E

ITC Accumulate 169 186 6.7 7.7 25.4 22.0

Asian Paints Accumulate 2,406 2,633 78.5 101.3 30.7 23.8

Dabur Accumulate 100 114 3.3 4.4 29.9 22.6

GSK Consumer Accumulate 2,092 2,268 87.4 103.1 23.9 20.3GCPL Accumulate 360 400 12.9 18.2 27.8 19.8

Top Picks



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Imposition of service tax on room tariff in excess of` 1,000/day, with an abatement of 50%, implying aneffective burden of 5%.

Imposition of service tax on air-conditioned restaurantsthat are licensed to serve liquor, with an abatement of70%, implying an effective burden of 3%.

The proposed change is likely to be mildly negative, as itincreases the cost for a consumer by 4.0-4.5%.

The proposed change is not likely to have any significantimpact on operations, as the additional burden is only 3.0%, which can be easily passed on to customers, owingto the price-insensitive nature of the service.

Announcement Impact

Currently, hotels are subject to luxury tax, which is a state government imposed tax. We believe that the imposition of additionalservice tax is mildly negative for the hotel industry, as it increases the effective cost for the customer by 4.0-4.5%, depending on ahotel's average room rate (ARR). Even though tax would be passed on to the consumer, it is expected to be slightly detrimental todemand, wherein travelers on the fringes of a price band may move a notch lower in their choice of hotels. The imposition of thistax is akin to a ~4.0% increase in ARR.

The service tax on restaurants relates to the F&B revenue stream of hotels. However, we believe this can be easily passed on tocustomers without any major impact, as this revenue is more price insensitive compared to hotel accommodation.

The other expectations of the industry, such as grant of infrastructure status and an increase in depreciation rate on hotel buildingsto 20%, were not granted in the Budget.

Hotel Negative


(((((` ` ` ` ))))) (((((` ` ` ` ))))) FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012E FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012E FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012ETAJGVK Buy 99 177 7.2 9.8 13.8 10.0 7.8 5.7

Top Picks



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Announcement Impact

Infrastructure Positive

The FII limit for investment in infra corporate bonds hasbeen raised by US $20bn to US $25bn. The FII's will alsobe permitted to trade in unlisted bonds with a lock-inperiod of three years.

Issuance of tax-free bonds worth ` 30,000cr by variousgovernment undertakings.

Increase in MAT rate from 18% to 18.5% and reductionin surcharge from 7.5% to 5%.

Special vehicles by way of notified infrastructure debt fundsto attract foreign funds for infrastructure financing.

Extension by one year of additional deduction of ` 20,000for investment in long-term infrastructure bonds.

Extension by one year of sunset clause under section 80IA.

Few construction equipment have been exempted fromcustoms duty.

To enhance the flow of funds to the infrastructure sectorand help develop the market for corporate bonds.

Will lend a boost to infrastructure development in railway,ports, housing and highways by facilitating fund raisingfor organisations like NHAI.

The benefit by reduction in surcharge would be nullifiedby increase in the MAT rate.

Will create more avenues for long-term fund requirementfor the infra sector.

Additional deduction of ` 35,000 for investments in longterm infrastructure bonds was expected. Hence,marginally negative.

Positive for power companies having projects to becompleted in next twelve months.

Positive for all construction companies.

The Union Budget 2011-12 continued to lay stress on infrastructure development, as the allocation for the sector has been increasedby 23.3% yoy to ` 2,14,000cr, that is 48.5% of the planned expenditure. IIFCL, a government established infra finance company,authorised to refinance bank lending to infrastructure projects, is expected to achieve cumulative disbursement target of ` 25,000crby FY2012.



L&T Buy 1,528 1,964 53.9 67.8 28.4 22.5 19.2 15.4

IVRCL Buy 68 126 7.2 8.4 9.6 8.3 6.9 6.2

NCC Buy 101 164 7.7 9.0 13.0 11.2 9.8 8.5ITNL Buy 208 285 20.4 22.6 10.2 9.2 9.1 12.6

Top Picks



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Concessional basic customs duty of 5% and CVD of 5%available to newspaper establishments for high-speedprinting presses extended to mailroom equipment.

Jumbo rolls of cinematographic film fully exempted fromCVD by providing full exemption from excise duty.

Increase in personal tax exemption limit to ` 1.8lakh.

Benefits print companies under high capex mode. Positivefor DB Corp (likely to enter Maharashtra with a Marathidaily).

Positive for film producing companies like UTV, ErosInternational and PVR (PVR Pictures).

To spur income levels and consumer spending.

Announcement Impact

Media Positive

Top Picks

Source: Company, Angel Research; *Note: Target price based on FY2013E EPS; Note: Price as on February 28, 2011

Company Company Company Company Company RecoRecoRecoRecoReco CMPCMPCMPCMPCMP TTTTTarget Parget Parget Parget Parget P ricericericericerice EPS (EPS (EPS (EPS (EPS ( ` ` ` ))))) P/E (x)P/E (x)P/E (x)P/E (x)P/E (x)

(((((` ` ` ` ))))) (((((` ` ` ` ))))) FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012E FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012E

Jagran Prakashan Buy 112 185 6.8 7.7 16.4 14.6

DB Corp Buy 236 358 13.0 14.7 18.2 16.1HT Media Buy 132 175 7.5 8.6 17.6 15.4


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Overall, the Union Budget 2010-11 is Neutral for the metals sector and negative for mining companies (exporting iron ore). Exportduty on iron ore has been raised to ad valorem 20% on lumps as well as fines. Currently, lumps are taxed at 15% and fines are taxedat 5% on an ad valorem basis. Nevertheless, no announcement on imposition of mining tax (26% at PBT) is positive for miningcompanies as well as steel companies with captive mines. Also, the Budget proposes to exempt export duty on iron ore pellets, whichcurrently stands at 15%. The present custom duty of 5% on steel, copper and aluminium and excise duty of 10% on production ofmetals has been kept unchanged.

LLLLLower target price for Sesa Goa:ower target price for Sesa Goa:ower target price for Sesa Goa:ower target price for Sesa Goa:ower target price for Sesa Goa: Considering the budget proposal of increased ad valorem export duty to 20% on iron ore lumpsas well as fines, we raise our export duty expenses for Sesa Goa to ` 1,903cr, compared to our previous forecast of ` 485cr forFY2012. Thus, we lower our FY2012 EBITDA estimates by 26.1% to ` 4,008cr. Consequently, our target price stands reduced to` 298 ( ` 356), while we maintain our Accumulate rating.



Sterlite Industries Buy 164 206 13.5 17.5 12.1 9.3 6.5 4.8

Hindustan Zinc Accumulate 1265 1,356 103.4 125.3 12.2 10.1 7.5 5.4

Tata Steel Buy 606 747 66.0 69.1 9.2 8.8 6.1 5.5

SAIL Buy 153 182 12.2 15.9 12.5 9.6 8.2 6.4

JSW Steel Buy 869 1,047 56.9 77.1 15.3 11.3 7.3 5.7Electrosteel Cast. Buy 31 45 4.3 4.1 7.1 7.5 6.1 6.8

Top Picks


Metals Neutral

To increase ad valorem duty on export of iron ore lumpsand fines to 20%

To exempt export duty on iron ore pellets

To increase allocation for infrastructure spending

Imposition of 20% ad valorem export duty on iron orelumps and fines is negative for Sesa Goa and slightly negative for NMDC.

Exemption from export duty on iron ore pellets ismarginally positive for NMDC.

The government's continued focus on infrastructure

spending in the Budget would be positive for the overallmetal sector, as it would help boost demand for metals inthe country.

Announcement Impact


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GAIL Buy 428 530 29.0 33.4 14.7 12.8 9.1 7.3

IGL Buy 290 345 18.5 21.1 15.7 13.7 8.1 7.2

ONGC Buy 271 350 30.6 32.2 8.8 8.4 3.8 3.6RIL Buy 965 1,160 66.6 74.9 14.5 12.9 9.4 8.2

Top Picks

Tax holiday under Sec 80IB for upstream companies shallnot apply to blocks licensed under a contract awardedafter March 31, 2011.

` 23,640cr of petroleum subsidies has been provided forFY2012.

Revision in provision towards petroleum subsidy sharingto ` 38, 386cr for the ongoing fiscal ( ` 3,108cr originally provided for FY2011).

No roll back of custom duty on crude oil and Re 1/ltrincrease in excise duty of petro products,announced inthe last budget.

Levy of MAT on the SEZ's.

MAT rate has been increased from 18% to 18.5% andsurcharge has been reduced from 7.5% to 5%.

This could lead to dip in IRR on any commercialhydrocarbon discovery resulting from NELP IX andonwards. Upstream companies like ONGC, OIL, RIL andCairn could be affected by this announcement.

Would be insufficient if crude oil stays at current levels(above US $110/bbl) or retail prices are not revisedupwards. Under recoveries are expected to amount to~ ` 75,000cr in FY2011 and higher in FY2012. Negative

for OMCs like HPCL, BPCL and IOC.Paves way for further cash compensation of ` 12,000-15,000cr. Yet, the OMCs are far from fully compensatedin FY2011, with expected under recoveries of ~ ` 75,000cr.

Negative for OMCs as they continue to bear higher underrecoveries on petro products.

Might impact earnings of SEZ refinery and polymer cracker

of RIL.

The effective tax rate would be at same levels. Neutral forRIL and Cairn.

Announcement Impact

Oil & Gas Negative



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Pharmaceutical Neutral



Alembic Buy 66 92 7.4 9.5 8.8 6.9 6.7 5.2

Aurobindo Pharma Buy 170 210 18.3 20.9 9.3 8.1 10.4 8.0

Cipla Buy 300 377 13.0 17.1 23.0 17.5 19.8 15.2

Indoco Remedies Buy 393 541 40.4 54.1 9.7 7.3 7.9 5.7Lupin Buy 382 466 18.6 23.3 20.5 16.4 16.7 13.9

Top Picks

Allocation to the Ministry of Health & Family Welfare hasbeen increased from ` 22,300cr in 2010-11 to ` 26,760crfor 2011-12.

Surcharge on domestic companies has been reduced from7.5% to 5%.

MAT increased from the current rate of 18% to 18.5% ofbook profits.

MAT has been levied on SEZ developers.

Weighted deduction on R&D remained unchanged withno extension on the tenure for deduction, which is currently

available till FY2012.

There were no indications on the extension of the EOUbenefit, which is available only till FY2011.

Central Excise Duty has been increased from 4% to 5%.

Positive for the pharma and healthcare sectors in general.

Positive for the sector, especially for companies payingnormal tax. Ranbaxy and Dr. Reddy's will be thebeneficiaries.

There would not be any impact of increased MAT rate, aswith the reduction in the surcharge rate, the effective levelof taxation for MAT companies would remain the same.

Negative for companies that were to benefit from SEZ.From our coverage, Cipla would be impacted due to itsSEZ facility in Indore. For Aurobindo Pharma andDishman, higher tax rates have already been factored in.

Though FY2012 numbers would not be impacted, it is adisappointment for the overall sector.

This would be negative for the sector, especially companies that have not been or have been slow inexpansion through SEZ. In our coverage, Cadila wouldnot be impacted even though one of its facilities atPatalganga has 100% EOU status. This is on account ofthe commisioning of its new facility and lower profitability at Patalganga, which will lead the profits from the JV toremain under MAT.

Neutral for the pharma sector as the companies wouldpass it on to customers.

Announcement Impact



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NTPC Buy 170 230 10.4 11.4 16.4 14.9 11.6 10.8

CESC Buy 299 468 40.5 44.4 7.4 6.8 6.6 7.3

GIPCL Buy 90 135 6.8 10.2 13.2 8.8 8.4 6.2PTC Buy 81 136 4.9 6.4 16.7 12.7 11.3 10.5

Top Picks

Extension of tax exemption under 80-IA for powergeneration companies till FY2012.

Parallel excise duty exemption for the domestic suppliersmanufacturing capital goods needed for expansion ofexisting mega or ultra mega power projects.

As per Section 80-IA exemptions, power plants are eligiblefor a tax holiday of 10 years from the year ofcommissioning of the plants. The exemption under 80-IA has now been extended by a year till FY2012. However,the companies have to pay tax under the MAT provisions,which has been increased to 18.5% of book profit (18%for FY2010-11). The extension of the 80-IA benefits wouldhave a marginally positive impact on private sector powergeneration companies. Some of the companies, whichwould majorly benefit include Adani Power and TataPower.

Currently, capital goods imported for the expansion ofexisting mega or ultra mega power projects enjoy aconcessional basic customs duty of 2.5% and fullexemption from counter veiling duty (CVD). However, thedomestic power equipment manufacturers are requiredto pay excise duty on supplies to such projects. The budgethas tried to correct this anamoly and exempted the

supplies by domestic manufacturers to such projects fromexcise duty. This move is positive for Tata Power andReliance Power, as it would reduce the capital cost.

Announcement Impact


Power Positive


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Real Estate Neutral

MAT will be applicable for SEZ's.

Extension of 1% interest subvention on housing loanswhere the loan amount has been increased from ` 10lakhto ` 15lakh where the cost of the house does not exceed` 25lakh ( ` 20lakh).

Priority sector advance has been increased from ` 20lakhto ` 25lakh where the loan-to-value ratio is 90%.

Under the existing provisions, there is deduction of profitin the first ten consecutive assessment years out of thefifteen years from the year the SEZ is notified. With theapplication of MAT (18.5%), tax outflow will increase fordevelopers like DLF and Mahindra Lifespace. DLF has~7mn sq ft of SEZ space, which will increase its tax outflowin turn impacting our FY2012 earnings estimate for thecompany by 3-4%.

This will benefit developers like HDIL, Parsvnath,Sobhahaving projects in tier II and III cities.

This will benefit developers having projects in tier II andIII cities.

Announcement Impact

The Budget announced measures more in favour of boosting mid-income housing projects in Tier II and III cities by extendinginterest subvention and increasing priority advances. The introduction of MAT status for SEZs nullifies non-extension of STPI.



HDIL Buy 158 243 30.9 32.4 5.1 4.9 6.0 5.1Anant Raj Buy 76 145 6.7 8.5 11.4 9.0 7.9 6.5

Top Picks



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Union Budget 2011-12 had no significant new initiatives specially aimed at the sector. However, we believe that the Budget will havea positive impact on the sector due to the various other policy measures announced. Increase in the tax exemption limits will lead toa higher disposable income at the hands of the consumers thereby leading to higher consumption of goods and services.


(((((` ` ` ` ))))) (((((` ` ` ` ))))) FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012E FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012E FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012EPantaloon Retail Buy 261 332 8.5 13.6 30.8 19.2 8.2 7.1

Top Picks

The levy of 1% central excise duty on branded jewellery.

Conversion of optional excise to mandatory (at the rateof 10% for all garments from earlier 4% for cotton and10% of others).

Likely to make Titan products costlier to that extent.

We expect Shoppers Stop and Pantaloon Retails apparelMRPs to increase by 6% in turn impacting sales volumes.

Announcement Impact

Retail Negative



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(((((` ` ` ` ))))) (((((` ` ` ` ))))) FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012E FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012E FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012EBharti Airtel Accumulate 331 360 16.4 22.5 20.2 14.7 8.8 6.7

Top Picks

Telecom Negative


The Budget indicated that the government expects to raise` 29,648cr through recurring license fees and other usagecharges from the telecom sector. This could be anindication that the government will accept TRAI's proposalsregarding >6.2MHz spectrum buyout, according to whichevery MHz of additional spectrum (on an all-India basis)beyond the contracted limit of 6.2MHz would cost amassive ` 4,571.87cr.

MAT rate increased from 18% to 18.5% of book profits,but surcharge rate decreased from 7.5% to 5%.

This will put a huge financial burden, especially on largeplayers who are already in a dire need of funding aheadof the 3G and BWA auctions in FY2012.

The decrease in surcharge would partly set off the impactof MAT rate increment.

Announcement Impact


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Buy (> 1 5%) Accumulate (5% to 1 5%) Neutral (-5 to 5%)Reduce (-5% to - 1 5%) Sell (< - 1 5%)

Ratings (Returns) :

Disclaimer

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Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and tradingvolume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals.

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Note: Please refer to the importantNote: Please refer to the importantNote: Please refer to the importantNote: Please refer to the importantNote: Please refer to the important Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to theStock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to theStock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to theStock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to theStock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to thelatest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may havelatest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may havelatest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may havelatest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may havelatest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may haveinvestment positions in the stocks recommended in this report.investment positions in the stocks recommended in this report.investment positions in the stocks recommended in this report.investment positions in the stocks recommended in this report.investment positions in the stocks recommended in this report.


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Union Budget 2011-12 Review-280211

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Transcript of Union Budget 2011-12 Review-280211