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Union Budget

India I Equities

Theme Report
28 February 2013

India Budget FY14
Walk the talk
Against the backdrop of a hostile macroeconomic environment, the current budget seems to be close to the best that could be rolled out. The focus on fiscal consolidation, inducements for investment and financial savings and promotion of skill formation are laudable as also the attempt to avoid populist measures in the run-up to the next general election. Yet, we remain sceptical about some of the targets set by the FY14 budget. The budget is positive for infrastructure and construction companies and negative for segments of auto, FMCG and media sectors. Focus on fiscal consolidation. One of the redeeming features of the budget announcement is the retraction to the fiscal consolidation path. Despite the large slippage in subsidy payments, the 5.2% fiscal deficit in FY13 could be achieved through major cut in spending, especially capital spending. The finance minister has projected fiscal deficit of 4.8% of GDP in FY14. This is scheduled to be achieved through inter alia reduction of non-plan expenditure from 12.3% in FY13 to 10.8% in FY14 and increase in tax revenue 16.7% in FY13 to 19.1% in FY14. Sector Positive. Greater focus on infrastructure could help infrastructure & construction companies. A positive for companies in building affordable housing. Greater expenditure on education and vocational course is positive for the sector. Sector Negative. Increase in surcharge from 5% to 10% would expand income tax rate across companies as well as Dividend Distribution Tax. Increase in excise duty on SUVs is negative for the auto sector; 18% hike in excise duty on cigarettes is negative for cigarettes companies; increase in customs duty on set top boxes is negative for media companies.
High government borrowing: Crowding out private investment
-5 (Growth, %, Values in reverse order) 0 5 10 15 20 25 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 5,000 4,500 4,000 3,500 3,000 2,000 1,500 1,000 500 (` bn) 2,500

Sensex: 18862 Nifty: 5693

Key budget figures
FY13 (RE) FY14 (BE)

Budget size (`bn) Gross tax-GDP ratio (%) Receipt / expenditure growth (%) Net govt. borrowing (`bn) Fiscal deficit-GDP ratio (%)

14,308 10.4 14.3 4,674 5.2

16,653 10.9 14.6 4,840 4.8

RE- Revised estimates, BE-Budget estimates Source: Government of India

Impact on sectors
Positive Infrastructure, Cap goods, Construction, Metals and Education Auto, Consumer & retail, Cigarette and Media Banks, NBFCs, Cement, Telecoms, IT Services, Pharmaceuticals, Logistics and Real estate

Negative Neutral

Source: Anand Rathi Research

Research Team
+9122 6626 6666 Institutionalresearch@rathi.com

Net market borrowings (RHS)
Source: Government of India

Fixed investment

Anand Rathi Shares and Stock Brokers Limited (hereinafter “ARSSBL”) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix Anand Rathi Research India Equities

28 February 2013

India Budget FY14 – Walk the talk

Contents
Budget FY14: Best in a bad situation............................................................ 3 Sector ........................................................................................................ 8 Autos............................................................................................... 9 Cement ......................................................................................... 11 Construction.................................................................................. 13 Consumer & Retail........................................................................ 15 Education...................................................................................... 17 Financial Services......................................................................... 18 Healthcare..................................................................................... 20 Industrials...................................................................................... 21 Logistics........................................................................................ 23 Media and Entertainment.............................................................. 24 Metals and Mining......................................................................... 25 Real Estate ................................................................................... 26 Telecommunications ..................................................................... 27

Anand Rathi Research

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India’s fiscal deficit remains elevated and current account deficit is at record high. the current budget seems to be close to the best that could be rolled out.000cr through disinvestment. Moreover. We envisage the following challenges in meeting the desired level of fiscal consolidation:  High corporate income and service tax collection targets. increase in tax revenue 16.com Sandeep Shenoy +9122 6626 6777 sandeepshenoy@rathi. Ambitious disinvestment and divestment plans. the reduction in absolute   Anand Rathi Research 3 . Meanwhile. Despite considerable softening of the manufactured price inflation. The budget FY14 aims to garner `40.000cr in FY13 to `2. Against this backdrop.9% in FY14. Yet. food and consumer price inflation remain in the double-digit zone. The budget aims at reducing the spending on three major subsidies – food.28 February 2013 India Budget FY14 – Walk the talk Budget FY14: Best in a bad situation Gautam Singh +9122 6626 6743 gautamsingh1@rathi.000cr in FY14. there have been large slippages on account of actual subsidy spending over the budget estimates on the same. we remain sceptical about some of the targets set by the FY14 budget. The slippage was 56% in FY12 and 38% in FY13.000cr through divestment of government stake in non-government companies. The finance minister has projected fiscal deficit of 4. the 5.000cr slippage in subsidy payments.com Sujan Hajra +9122 6626 6720 sujanhajra@rathi. barring FY08. the current budget is close to the best that could be rolled out. Given these. The focus on fiscal consolidation. Yet. while India has registered high growth in service tax collection in 16 out of the last 18 years.8% of GDP in FY14. The real GDP growth according to Central Statistical Office’s (CSO) advanced estimate has plunged at a decadal low.2% in FY13 and to 16. It has never been able to get more than `25. fertilizer and petroleum – from `2. according to our assessment. especially capital.000cr through disinvestment in a year. India’s saving and investment rates have fallen considerably. The current budget has been rolled out in an extremely tough macroeconomic environment. The FY14 budget estimates corporate income tax growth to accelerate to 11. This is scheduled to be achieved through inter alia reduction of nonplan expenditure from 12. Focus on fiscal consolidation. Despite the `68. The budget has also factored in `14. This implicitly assumes strong jump – by ~500bps – in company earning growth between FY13 and FY14. Best in a bad situation.21.1% in FY14. with the gradual broadening of the tax base – service tax now accounts for 13% of the Center’s gross tax revenue – the assumption of 36% growth in service tax revenue looks ambitious. Challenges in achieving the desired fiscal consolidation.2% fiscal deficit in FY13 could be achieved through major cut in spending. It would require bullish equity market conditions for the government to be able to meet these targets.8% in FY14. Ambitious subsidy reduction plans. we remain sceptical about some of the targets set by the FY14 budget.3% in FY13 to 10.com Against the backdrop of a hostile macroeconomic environment.48. which remains doubtful. In the past two years. inducements for investment and financial savings and promotion of skill formation are laudable as also the attempt to avoid populist measures in the run-up to the next general election. One of the redeeming features of the budget announcement is the retraction to the fiscal consolidation path.7% in FY13 to 19.

In the face of expenditure overrun and revenue shortfall. the budget assumes at least 2 percentage point acceleration in the real GDP growth between FY13 and FY14. In the run-up to the current budget. Once again. this looks ambitious. The budget calculations implicitly assume nominal GDP growth at 11.000cr. the finance minister had to aggressively scale down the planned and capital spending in FY13. The finance minister has dispelled such fears. Fig 1 – Rise in subsidies remains a major overhang on expenditure 1.000cr and `33. looks optimistic.000cr FY13 to `65.8% of GDP in FY14 would be challenging. Avoidance of overtly populist measures. That is. Anand Rathi Research Note: BE-Budget estimates Anand Rathi Research 4 .000cr in FY14. the drift may become populist with the bulging of social spending.7% in FY13 and 13. set by the budget.4% in FY14. Anand Rathi Research Petroleum Fertilizer Note: BE-Budget estimates  High nominal GDP growth rate. respectively. remained modest. If the country wants to stick to the fiscal consolidation process envisaged by the budget FY14. it might entail major reductions from the ambitious targets for plan and capital spending which have been pegged at 29% and 37%. This is despite the likely slowdown in inflation and thereby the growth in GDP deflator in FY14.000 800 (` billion) 600 400 200 0 FY14BE FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 Food Source: Government of India. Even the allocations under the flagship food securities and MGNERAGA at `10. especially on petroleum from `97.28 February 2013 India Budget FY14 – Walk the talk amount of subsidy payment. respectively. there were apprehensions that the current budget being the last before the next general election. Fig 2 – Budget spend under NREGA 450 401 400 350 (` billion) 300 250 200 150 100 FY07 FY08 FY09 FY10 FY11 FY12 FY13BE FY14BE 113 120 160 335 400 330 330 Central allocation for NREGA Source: Government of India. The aforementioned points suggest that achieveing fiscal deficit at 4.

the FY13 Budget has taken specific measures for the equity market. These include: Anand Rathi Research 5 .000 during FY14 would be entitled to an additional deduction of interest of up to `100. The redeeming feature of the FY13 budget has been announcements on the infrastructure sector.     Inducement for financial saving. thereby spurring demand for equipment 3. Both the rate and slabs have been kept unchanged for the personal income tax.8 crore tax payers are expected to benefit to the value of `3. including 9m in 2013-14. The provision of a deduction of 15% on capex of `1bn and above will be cash-flow positive for companies. This should materialize into demand for T&D equipment.600 crore). A further `10bn would be set aside to encourage youth to voluntarily enrol at skill-development institutions. After several budgets. However. the budget FY14 proposes the following:  Introduction of inflation indexed bond or inflation indexed national security certificates.000. A breather for the equity market. The structure and tenor of the instruments to be announced later  Under the Rajiv Gandhi Equity Savings Scheme.000. Furthermore.000cr States to be encouraged to get the finances of their Electricity Boards restructured at the earliest. Each individual who undergoes training would be provided an incentive of `10. the first-time investor can now avail tax benefits on investment in mutual funds and in listed shares for three successive years Loan for the first home up to `25. Continuing its initiatives for skills development. This would make skills training affordable and more accessible to people. in addition to the current rates of depreciation.  Focus on vocational training and skill formation. particularly for those at the bottom of the pyramid.  Capex of `1bn undertaken during FY14-15 will be eligible for a deduction 15% of the investment. In a bid to induce households to save more. Madhya Pradesh. together with the recognition given to industryled assessment and certification. would build up aspiration for skills and contribute significantly to ongoing efforts to ensure that India is in a position to leverage its demographic dividend. Direct taxes: Small relief No change in personal income tax. the budget proposes to provide a tax credit of `2.000 kms of road projects which were previously stalled in states like Gujarat. the government will encourage setting up of Infra Debt Funds and selectively give permission for issuance of tax free infra bonds of up to `50. the government envisages training 50m people in the 12th Plan. This.00.000 to every person who has a total income up to `5 lakh (1. vocational institutes affiliated with the State Councils of Vocational Training have been included in the negative list of service tax. Maharashtra.28 February 2013 India Budget FY14 – Walk the talk Inducement to investment. Rajasthan and Uttar Pradesh to be cleared and awarded in the next six months Three new ports have been planned in addition to seven new cities under the Delhi Mumbai Industrial Corridor in the 12th Plan To improve access to funds.

001%. (2) normal rate of excise duty of 12%. except on cigarettes of less that 65mm.25 to 0.28 February 2013 India Budget FY14 – Walk the talk  Rajiv Gandhi Equity Savings Scheme.017 to 0. No change in service tax rate.  Indirect taxes: No change  Anand Rathi Research 6 . including footwear. MF/ETF purchase/sale on exchanges from 0.01%. excise duty on cigarettes has been increased by 18%. However.001%. and (3) normal rate of service tax of 12%.5% to 5. duty on specified machinery for manufacture of leather and leather goods.0%. Also. This scheme has been restructured and now includes new retail investors (annual income below `12 lakh) who can invest in mutual funds and in listed shares for three successive years Reduction in Securities Transaction Tax (STT). were reduced from 7. The budget FY14 proposes no change in the: (1) Peak rate of basic customs duty of 10% for non-agricultural products. for MF/ETF redemptions at fund counters from 0.1 to 0. STT has been reduced for equity futures from 0.

2 19.186 197 480 1.9 2.308 10.1 9.699 1.579 2.0 16.3 5.653 10.9 3.801 37 1.171 2 867 301 5.4 4.016 9.9 19.1 20.259 5.5 6.421 2.6 -18.790 3.9 35.4 24.0 16.8 8.6 132.217 203 506 508 5.340 921 1.1 -1.7 9.8 -15.183 7.061 3.7 -25.100 9.1 18.9 5.509 4.594 6.163 218 503 442 4.298 1.232 1.060 2.728 6.8 7.752 2.9 -95.121 990 130 5.732 1.6 13.1 36.0 7.959 7.087 5.553 4.892 2.976 1.362 181 (103) 189 1.448 6.7 12.131 907 1.8 3.5 2.311 2.254 228 112 124 305 11.7 14.6 -32.4 18.649 1.8 9.0 4.043 5.565 1.5 8.4 16.4 21.370 2.142 2.044 8.3 15.089 2.653 11.9 29.1 17.024 3.403 6.9 5.2 1.167 1.297 1.390 2. Anand Rathi Research 7 .3 16.447 833 1.493 1.943 2. RE.438 996 858 734 124 5.718 4.358 1.920 8.531 3.909 7.297 166 554 577 5.873 1.308 8.053 1.8 7.232 5.4 -10. %) FY13RE FY14BE Total receipt Revenue receipt Total tax receipt Share of state.7 14.3 13.1 9.323 2.7 -183.1 4.9 - BE: Budget estimate.195 1.912 2.5 -0.840 558 58 107 527 16.434 2.292 3.2 10.514 8.589 1.9 -15.380 2.401 5.200 1.8 5.4 7.590 1.987 1.169 2.0 42.6 34.1 7.086 609 164 969 207 386 376 2.8 7.922 733 1.377 710 33 2.0 -0.337 2.840 6.2 39.1 2.718 10.466 2.736 2.120 2.3 1.841 2.28 February 2013 India Budget FY14 – Walk the talk Fig 3 – Expenditure control to keep fiscal deficit in check (`bn) FY09 FY10 FY11 FY12 FY13RE FY14BE (Growth.9 - 16.4 29.Revised estimates.428 5.0 33.327 35 1.723 178 739 806 6.054 6.396 4.265 2.476 4.364 819 43 696 81 4.7 4.8 21.742 1.4 10.030 2.209 3.8 -24.674 240 86 141 501 14.197 3.931 2.336 6 (13) 61 608 8.563 12.7 18.325 818 648 535 113 3.3 1.134 999 1.7 271.1 31.359 3.3 23.734 2.1 32.0 2.034 2.179 2.456 975 36 1.984 246 133 86 82 10.665 683 405 317 88 3.6 14.973 8. UT in Central taxes Tax receipt for Centre Personal income tax Corporate income tax Customs duty Excise duty Services tax Other tax Non-tax receipt Interest Dividend and profit Other non-tax Capital receipt Net market borrowings Disinvestment of PSUs Receipts from small savings etc.2 8.124 3.1 -2.5 -29.2 16.577 2.638 497 15 409 73 2.620 4.680 4.798 1.0 17.929 3.720 1.689 4.425 3.535 1.8 13. Recovery of loans Other capital receipt Total expenditure Non-plan expenditure Revenue expenditure Interest payments Defence Explicit subsidies Others Capital expenditure Loans and advances Defence Others Plan expenditure Revenue expenditure Central plan States plan Capital expenditure Central plan States plan Gross fiscal deficit Revenue deficit Primary deficit Gross fiscal deficit (% of GDP) Revenue deficit (% of GDP) Primary deficit (% of GDP) Source: Government of India.9 13.5 2.641 4.8 3.160 3.413 925 786 671 116 5.7 30.185 3.5 5.090 4.179 799 6 679 115 4.885 7.2 11.030 584 28 1.3 -52.0 11.788 751 495 401 94 4.707 1.6 10.128 632 11 511 110 3.270 918 61 621 236 3.999 2.245 7.9 1.211 6.228 1.2 3.518 8.5 659.433 1. Anand Rathi Research 8.348 1.523 1.3 32.204 7.245 1.414 2.061 13.2 3.539 1.703 3.4 2.433 3.3 16.

28 February 2013 India Budget FY14 – Walk the talk Sector Anand Rathi Research 8 .

and counter calls for levy of additional differential duty on diesel vehicles. the impact of the budget is marginally negative for the auto sector. Basic customs duty on motor cycles with engine capacity of 800cc or more was increased from 60% to 75%. Calls for a lower excise duty to boost flagging demand. However. Calls for a lower excise duty to boost flagging demand. benefits from deduction of the investment allowance may provide relief. Tata Motors Ashok Leyland. Basic customs duty on new passenger cars and other motor vehicles (high end cars) with CIF value of more than US$ 40.000 buses. and may hit demand. An increase in Dividend Distribution Tax will result in lower money for distribution to shareholders. were ignored. Anand Rathi Research Negative Positive Positive Negative Negative Positive M&M. Excise duty on truck chassis reduced from 14% to 13%. Tata Motors. Companies investing `1bn or more in plant and machinery during the period from 1 April 2013 to 31 March.28 February 2013 India Budget FY14 – Walk the talk Autos Rohan Korde +9122 6626 67333 rohankorde@rathi.000 buses for hilly states 1% lower excise duty on CV chassis Increase in surcharge from 5% to 10% Increase in surcharge from 5% to 10% on Dividend Distribution Tax Investment allowance of 15% Source: Government of India. which will mainly hit M&M. Lastly.2015 would be entitled to deduct an investment allowance of 15% of their investment.com The budget was marginally negative for the auto sector. Fig 4 – Impact on sector and stocks Budget announcements Impact on sector Impact on companies 3% increase in excise duty on SUVs JNNURM allocation for purchase of up to 10. However. However. were ignored. A higher tax rate will impact profitability of all auto and auto component companies by ~2%. Surcharge on domestic companies increased (from 5% to 10%) and surcharge on Dividend Distribution tax (DDT) increased (from 5% to 10%). Eicher Motors CV companies All companies All companies All companies Budget announcements   Excise duty rates hiked from 27% to 30% for SUVs. especially by hilly states. which will result in price increases.000 and/or engine capacity exceeding 3000cc for petrol run vehicles and exceeding 2500 cc for diesel run vehicles has been increased from 75% to 100%. a significant portion will be used to support the purchase of up to 10. Anand Rathi Research 9 . JNNURM outlay has been provided at `148. excise duty on SUVs was raised 3%.73bn. higher JNNURM outlay for purchase of buses and 1% reduction in excise duty on truck chassis are positives for CV companies. An increase in surcharge on tax would lower profits ~2% for all companies. excise duty on SUVs was raised by 3%. of which.     Impact on the sector Overall. together with levy of differential duty on diesel vehicles.

000 buses mainly for the hill states).0-2. companies undertaking capex of `1bn or more in plant and machinery over FY14-15 may be able to avail benefits from deduction of the investment allowance. Anand Rathi Research 10 .5%. The outlay under JNNURM for purchase of up to 10. a higher outlay under the JNNURM scheme (for purchase of ~10. Increase in tax on royalty/technical fees to be paid to a non-resident is unlikely to impact Maruti Suzuki. However. Other SUV manufacturers like Tata Motors and other unlisted companies may also face demand slowdown. Higher surcharge on income tax will hit earnings of all auto and auto component companies by ~2% in FY14e. and hence may slightly hit M&M’s demand.28 February 2013 India Budget FY14 – Walk the talk Higher customs duty on high-end imported vehicles would be a dampener for this niche segment. capping it at 10%. while Tata Motors and Eicher Motors may also get a share of the pie. and 1% reduction in excise duty on truck chassis are positives for CV companies. Key beneficiaries are Ashok Leyland and Volvo.000 buses would benefit CV companies. Impact on companies Higher excise duty on SUVs would result in a price increase of ~2. Lastly. since it is covered under a DTA with Japan.

Birla Corp.com Manish Valecha +9122 6626 6552 manishvalecha@rathi. while rationalisation in customs duty on imported coal is a negative.80-IA benefits Source: Government of India. this may also result in substantial capacities getting added in endFY15. besides offering higher provision for rural housing (from `40bn to `60bn) and urban housing (`20bn from nil). a standard rate of 2% customs duty and 2% CVD is proposed. Steam coal is exempt from customs duty but attracts a concessional CVD of 1%.    Impact on the sector Increase in rate of tax on royalty and fees for technical services will only impact companies which are now paying at 10% and there is no DTAA between India and the foreign country where the parent company is based.28 February 2013 India Budget FY14 – Walk the talk Cement Jaspreet Singh Arora +9122 6626 6727 jaspreet@rathi. Continued thrust on infrastructure programmes such as the Pradhan Mantri Gram Sadak Yojana (PMGSY). the rate of tax currently paid is the lower of that provided in Income Tax (IT) Act (10%) and Double Tax Avoidance Agreements (DTAA). Heidelberg Shree. This will be in addition to the current rates of depreciation. However. the implied benefit to individual companies in the form of tax savings will be meaningful. 2015. The budget proposes to award 3000kms of road works in 1HFY14. Century Ambuja. Mangalam. Madras Cement. Introduction of investment allowance for new projects and greater allocation for infrastructure are positives. Fig 5 – Impact on sector and stocks Budget announcements Impact on sector Impact on companies Tax rate on royalty/technical fees raised to 25% Neutral from 10%. The hike in tax on royalty/technical fees is neutral for MNC cement companies. Ambuja. All cement companies Shree. National Housing Development Programme (NHDP). Since capex in cement projects is substantial. Since both kinds of coal are used in thermal power stations. The rate as per IT Act is now proposed to be raised to 25%. Ultratech. However. Dalmia. Bituminous coal attracts a duty of 5% and CVD of 6%. and Jawaharlal Nehru National Urban Renewal Mission (JNNURM). an investment allowance of 15% is proposed for projects requiring `1bn or more in plant and machinery during April 01. thereby reducing the capacity utilisation rates in FY16. The investment allowance of 15% will benefit companies which have work underway for expansion projects or which can setup new capacities over FY14-15. JK Cement. Ultratech. the applicable rate will be the rate of tax stipulated in DTAA. To attract new investment and quicken implementation of projects. JK Lakshmi. Anand Rathi Research ACC. Anand Rathi Research 11 . DTAA rates applicable 15% investment allowance for projects costing Positive >`1bn and set up during F14-15 Rationalisation of customs duty and CVD on bituminous and steam coal Higher allocation for infrastructure projects Extension of Sec. India Cement Negative Positive Positive Budget announcements  In a case of distribution of profits by a subsidiary to a foreign parent company in the form of royalty and fees for technical services.com The budget is neutral for the cement sector. 2013 to March 31.

The rationalisation of customs duty on imported thermal coal is negative for captive power-producing companies such as Ambuja. The investment allowance of 15% will largely benefit companies which have work underway for expansion projects like Shree Cement. depending on the quantum of coal imported used.28 February 2013 India Budget FY14 – Walk the talk Rationalisation of custom duty on imported coal used in thermal power plants will raise the cost by 3% for companies which use 100% imported steam coal in their power plants. the proposal is likely to have limited impact. JK Cement. Anand Rathi Research 12 . Since only a few companies in the industry use imported coal to generate power. Century. This means EBITDA for these companies would drop by 1-2%. Impact on companies Increase in rate of tax on royalty and fees for technical services will have no impact on any company since the applicable rate as per DTAA for ACC. Birla Corp. with potential of brownfield expansion (can be done in <2 years). India Cement. Madras Cement. Ultratech. Sagar Cement. JK Lakshmi. Continued impetus on infrastructure areas of urban projects. Ultratech. roads and housing through various schemes is likely to boost demand for cement. Others like ACC. Continued impetus on various infrastructure schemes is positive for all cement companies from the perspective of better demand growth rate. Mangalam. Dalmia. Ambuja and Heidelberg is at 10%. will also benefit if work on projects starts by 1QFY14. and Birla Corp.

5m for first home buyers Increased allocation for PMGSY to `217bn and introduction of PMGSY-II Increased allocation to JNNURM to `147bn vs a revised estimate of `74bn in FY13. KNR. Award of 3000km of road project in Gujarat. to increase production of coal. Madhya Pradesh. Formation of PPP policy framework with Coal India as one of the partners. 1961 Allocation under Rural Infrastructure Development Fund (RIDF) to `200bn Source: Government of India.1m over FY14-15 for housing loan up to `2. J Kumar All construction companies NCC All construction companies Budget announcements     Increase in the limit of tax-free bonds by government agencies for infrastructure financing (from `250bn to `300bn). from `130bn to `153bn Support to municipalities that will implement waste-to-energy projects through different instruments such as viability gap funding. KNR. Enhanced provisions under the Rural Housing Fund. Formation of regulatory authority for the road sector is a positive and so is the higher allocation to road transport and highways ministry from `289bn to `375bn. Positive Maharashtra. Higher allocation positive for Metro rails and urban transport segment Launch of the first two Infrastructure debt funds Extension of the sunset clause for power companies under Sec. Enhanced provisions under Rural Housing Fund. Award of 3000km of road project in Gujarat. Supreme. if required. to increase production of coal.80-IA of the Income-Tax Act. KNR. Increase in allocation for rural drinking water and sanitation. Ramky All construction companies Positive Positive Positive Positive Positive Positive Positive Positive Positive Positive Positive Positive Pratibha. NCC. Anand Rathi Research All construction companies NCC J Kumar. additional funds during 2013-14 within the share of the GoI in the overall outlay for the project DMIC project. NCC. Supreme.com Jaspreet Singh Arora +9122 6626 6727 jaspreet@rathi. Government shall provide. from `40bn to `60bn and set up of Urban Housing Fund with an outlay of `20bn. Maharashtra. by a further year up to 31 Mar ’14. from `40bn to `60bn and set up of Urban Housing Fund with a outlay of `20bn. NCC. Rajasthan and Uttar Pradesh in 1HFY14. Ramky J Kumar. Supreme. Rajasthan and Uttar Pradesh in 1HFY14 Formation of regulatory authority for road sector Increase in allocation to road transport and highways ministry from `289bn to `375bn Work to start on two cities Dholera. Ramky J Kumar.80-IA of the Income Tax Act. 13   Anand Rathi Research .28 February 2013 India Budget FY14 – Walk the talk Construction Manish Valecha +9122 6626 6552 manishvalecha@rathi. Supreme Pratibha. J Kumar and Supreme Pratibha.com Government’s attempts to make financing available for projects and to remove bottlenecks in infrastructure development are positives for construction companies. 1961. Maharashtra. repayable grant and low cost capital Interest deduction of `0. Fig 6 – Impact on sector and stocks Budget announcements Impact on sector Impact on companies Increase in the limit of tax-free bonds by government agencies for infrastructure financing (from `250bn to Positive `500bn). Madhya Pradesh. Ramky Ramky All construction companies KNR. Formation of PPP policy framework with Coal India as one of Positive the partners. Extension of the terminal date of the sunset clause for the tax holiday for the power sector under Sec. Gujarat and Shendra Bidkin.

28 February 2013 India Budget FY14 – Walk the talk  Increase in allocation for rural drinking water and sanitation from `130bn to `153bn. power. Kumar. J. water and urban infrastructure would largely benefit. Impact on companies Companies focused on roads. and Supreme would gain from the greater allocation for infrastructure. and for PMGSY to `217bn (along with introduction of PMGSY-II). Allocation under Rural Infrastructure Development Fund (RIDF) to `200bn. Thrust given to financing projects would also be positive. KNR. Pratibha. Ramky. housing. Impact on the sector The greater allocations to various schemes for infrastructure spending would be positive for the sector. and so will be the formation of regulatory authority of road sector and award of 3000kms in 1HFY14. Anand Rathi Research 14 .

com Aniruddha Joshi +9122 6626 6732 aniruddhajoshi1@rathi.28 February 2013 India Budget FY14 – Walk the talk Consumer & Retail Shirish Pardeshi +9122 6626 6730 shirishpardeshi@rathi. The 18% increase in excise on income tax is negative for cigarette companies (ITC and VST). The higher tax rate would impact profitability of all consumer and retail companies 2% and 3% respectively.000 cigarettes The 18% increase in excise duty on cigarettes would warrant a 360-bp rise in VAT.0 18. Removal of excise on readymade garments is positive for Lovable and Page Industries. Consumer companies generate large free cash-flows and pay dividends. Increase in surcharge from 5% to 10% will impact all consumer companies as tax rates will go up 155bps. Fig 7 – Impact on sector and stocks Budget announcements Impact on sector Impact on companies Suman Memami +9122 6626 6707 sumanmemani@rathi. Page and Rupa. Increase in surcharge on the dividend distribution tax.com The budget is marginally negative for the consumer sector due to the 5% increase in surcharge on income tax as well as on the dividend distribution tax.0 Source: Anand Rathi Research * Duty (`) per 1.0 18.194 1.0 18. The increase in the dividend distribution tax would result in less money to distribute to shareholders.788 669 2027 669 1409 2027 2725 3290 18.com Increase in excise on cigarettes – by 18% Increase in surcharge – from 5% to 10% Increase in surcharge – from 5% to 10% on dividend distribution tax Removal of excise on readymade garments Removal of customs duty on peanut butter – from 30% to 0% Source: Government of India. Excise duty on readymade garments has been reduced to 0%. Impact on the sector The overall impact on the consumer sector would be marginally negative. VST All companies All companies Page. Lovable. The increase in excise duty will compel cigarette companies to raise prices 11-12% to pass on the excise-duty increase. from the earlier 12% (70% abatement).718 2. would result in an additional impact of 77bps. We believe this would compel ITC to raise prices 11-12% to pass on the entire impact. except on cigarettes of less than 65mm.309 2. Considering the price hikes of ~15% in the past four Anand Rathi Research 15 . Rupa Agro-Tech Foods Budget announcements     Excise duty on cigarettes has been increased by 18%.0 18. from 5% to 10%. Impact on companies Fig 8 – Increase in excise duty on cigarettes Cigarette Length (mm) Current * Revised * Hike (%) Non-filter Non-filter Filter Filter Filter Filter Filter <65 65-70 <65 65-70 70-75 75-85 >85 669 1. The reduction of duty on readymade garments would help companies such as Lovable.718 669 1. Anand Rathi Research Negative Negative Negative Positive Positive ITC.

ITC may find it slightly difficult to increase prices at one go. Anand Rathi Research 16 . Though some of the savings are likely to be re-invested in brand-building measures. earnings would go up 4-5% for Lovable and Page Industries.28 February 2013 India Budget FY14 – Walk the talk quarters. We expect a similar impact on VST’s earnings. We believe the impact on its FY14e earnings would be 3-4%. Removal of excise duty on readymade garments would help Lovable and Page Industries to expand margins without resorting to price hikes.

and Testing Activities in relation to agricultural produce to be included in the negative list of service tax. `27. Vocational courses offered by institutes affiliated to the State Councils of Vocational Training. Core. NIIT. Everonn and Core Education. `10bn (`10bn in FY12-13) allocated to the National Skills Development Corp. such as Educomp. which gives every child between 6 and 14 years the right to free and compulsory education in a neighbourhood school till completing elementary education. Impact on the sector Greater expenditure on education. A further rise in spending under the RMSA and the opening of new K-12 schools under PPP are positive for companies providing educational services in government schools. Anand Rathi Research 17 . The Budget proposes to raise expenditure on education by 17% to `658. Aptech Budget announcements     `272. Everonn. NIIT. Also of help would be the greater expenditure on skills development.com Increase in spending under the Sarva Shiksha Abhiyan (7%) is positive for the sector.67. The government has allocated `10bn to the NSDC for FY13-14. Impact on companies Greater expenditure on education.24bn (a 25. `39.6% increase) provided for the Rashtriya Madhyamik Shiksha Abhiyan (RMSA).58bn (a 7% increase) allocated for education under the Right to Education Act and the Sarva Shiksha Abhiyan (RTE-SSA).5bn. Government spend on skills development and sops for the private sector. up 7% yoy. Core Education Everonn.3bn would be under the SSA. (NSDC) for FY13-14. Positive for companies providing educational and IT-related services to the government sector. Aptech.28 February 2013 India Budget FY14 – Walk the talk Education Atul Thakkar +9122 6626 6724 atulthakkar @rathi. Fig 9 – Impact on sector and stocks Budget announcements Impact on sector Impact on companies Greater expenditure on primary education Positive Increase in spending under the NSDC and other Positive skill-development schemes Source: Government of India. This is in line with the Right to Education Act. Aptech. aiming to enhance skills of 9m people in 2013-14. Skills development. Of this. Everonn. NIIT. Core Education. Anand Rathi Research Educomp. Positive for NIIT.

28 February 2013 India Budget FY14 – Walk the talk Financial Services Clyton Fernandes +9122 6626 6744 clytonfernandes@rathi.5m between April 1. Clearer taxation of securitization transactions. Interest deduction up to `0. Introduction of commodities transaction tax (CTT) of 0. Anand Rathi Research 18 .8% in FY14. not subject to double taxation Limit for raising tax-free bonds for infra lending increased to `500bn Introduction of commodities transaction tax of 0. Target for agriculture credit set at `7. Budgetary support of `14bn for re-capitalization of government-owned banks. was in line with our expectation. but government’s net market borrowing of`4. Union Bank No impact All banks All banks and housing-finance NBFCs Shriram Transport Finance. the budget FY14 has some positives too: Re-cap of government banks. at 4. clearer taxation on securitization transactions by NBFCs and tax-free infrastructure bonds for select infra NBFCs. is slightly negative for government bond yields. While fiscal deficit (as percent of GDP).       Impact on the sector Higher net market borrowing a negative.com Fiscal deficit – 4.8% of GDP in FY14 against 3% in FY15.1% on nonagri commodities.com While an above-estimated net market borrowing program by the government is slightly negative for the banking sector. Banks are likely to make lower treasury gains or higher marked-to-market provisions on their investment books.5m between April 1. Canara Bank. will be exempt from income tax. Magma Fincorp PFC. at `4. to ensure every bank meets Basel-3 requirements.com Kaitav Shah +9122 6626 6545 kaitavshah@rathi. 2013 and March 31. REC MCX Positive Positive Negative Budget announcements   Fiscal deficit announced at 4.1% on non-agri commodities Source: Government of India. Fig 10 – Impact on sector and stocks Budget announcements Impact on sector Impact on companies Asheeta Kapadia +9122 6626 6814 asheetakapadia@rathi. IDFC.750bn). strengthens its capital adequacy and supports additional credit growth. PNB. The SPV vehicle for securitization transactions.8% of GDP in FY14. 2014.84trn. IDBI.000cr capital Interest subventions to continue for agriculture and to be extended to private sector banks Interest deduction up to `0.000bn (from `5. the aboveestimated announcement of net market borrowing.1m on loans for first-time home buyers of up to `2. Anand Rathi Research Negative for bond yields All banks Positive Neutral Neutral Positive SBI. 2014. 2013 and March 31.84trn is slightly higher than expected Re-capitalization of government banks –`140bn All-women PSU banks to be setup with `1. Tax-free bonds limit raised to `500bn for certain financial institutions for building resources for infra lending from the expected `250bn in FY13. Interest subvention of 3% will continue to be paid as incentive to farmers who repay short-term crop loans on time. except at the time of distribution of income.1m on loans for first-time home buyers of up to `2.

The SPV vehicle used for securitization transactions will be exempt from income tax. banks’ exposure to relatively riskier assets could increase. Higher limit of tax-free infrastructure bonds. Banks would be given capital to grow their business – positive for those that are constrained for capital.1m on loans for first-time home buyers of up to `2. as yields are unlikely to decline much. This clarity is likely to further boost the securization market. in sync with the government’s focus on this sector. Introduction of commodities transaction tax (CTT) of 0. Interest deduction of `0. LIC Housing Finance.5m qualify for priority sector lending). Increasing limit to raise tax-free bonds for certain financial institutions is a positive for infrastructure-financing companies like PFC.28 February 2013 India Budget FY14 – Walk the talk Provision for capital infusion augurs well. IDBI. and unlikely to have a major impact. and Dewan Housing Finance. and Union Bank. since they have longer duration portfolios and higher marked-to-market exposures. Anand Rathi Research 19 .5m between April 1. REC and IDFC. Interest deduction for housing loans. Clarity on taxation could boost securization transactions and benefit NBFCs like Shriram Transport and Magma Finance which have a relatively higher proportion of off-balance sheet assets.1m on loans for first-time home buyers of up to `2.1% on non-agri commodities is a negative for MCX. Impact on companies Increase in government’s net market borrowing is a negative for banks. The target for agriculture credit is high. as it would help them meet their priority-sector-lending requirements (home loans below `2. Capital infusion in government-owned banks is positive for State Bank of India. It is a positive for banks too. It also gives more clarity on sell-down transaction by HDFC to HDFC Bank. 2014 is beneficial for all housing finance NBFCs. Interest deduction of `0. leading to higher credit losses. Canara Bank.5m between April 1. Taxation on securitization deals clearer. Punjab and Maharashtra Bank. Increasing the limit to `600bn for raising tax-free bonds by certain financial institutions is a positive for infrastructure-financing companies and benefits their cost of funds. except at the time of distribution of income. 2014 is beneficial for banks and housing finance NBFCs like HDFC. especially government owned. Interest subsidies and interest subventions for farm loans announced are minimal. 2013 and March 31. 2013 and March 31. In case of a poor monsoon in FY14. Continued focus on agriculture credit.

All companies could witness marginal increase in effective tax rate due to rise in surcharge to 10% from 5%. Lupin. DRL. Sun. Those investing more than `1bn in plant and machinery would benefit from 15% investment allowance from taxable income. and DRL would marginally benefit from lower effective tax rate on account of investment allowance on capex in plant and machinery.  Impact on the sector Investment allowance of 15% of the total investment amount from taxable income for investment of more than `1bn would provide marginal tax benefits to healthcare companies incurring capex for setting up new capacity. Larger companies like Cipla. Anand Rathi Research 20 . thereby hitting profits marginally. Anand Rathi Research Marginal positive Marginal negative Slightly positive for companies who invest heavily on capex for plant and machinery like Cipla. Sun etc Effective tax rate will increase by 5% of existing rate for all companies Budget announcements  Investment allowance of 15% from taxable income for manufacturing companies which spend more than `1bn during FY14-15 in installation of plant and machinery for manufacturing activities. This would help reduce effective tax rate and improve profits.com Sanjeev Chiniwar +9122 6626 6716 sanjeevchiniwar@rathi. Increase in surcharge from 5% to 10% would impact all companies marginally in terms of increase in tax rate by 5% of the existing rate. Impact on companies All companies in sector with annual profit of more than `100m would have marginal negative impact from increased tax rate on account of higher surcharge.28 February 2013 India Budget FY14 – Walk the talk Healthcare Sriram Rathi +9122 6626 6737 sriramrathi@rathi. Fig 11 – Impact on sector and stocks Budget announcements Impact on sector Impact on companies 15% investment allowance to companies who invest above `1bn in plant and machinery in FY14-15 Increase in surcharge rate from 5% to 10% for companies with taxable income of more than `100m Source: Government of India.com We do not expect the Union Budget’ 13-14 to have any material impact on the pharmaceutical and hospitals sectors. Lupin. The surcharge on tax rate has been increased from 5% to 10% on domestic companies whose taxable income is more than `100m per year.

ITNL L&T L&T. Fig 12 – Impact on the sector and on stocks Budget announcements Impact on sector Impact on companies Setting up infra debt funds Access to corporate debt markets and selective issue of tax-free bonds Enhanced allocation for M-NREGS. This is positive for most companies. credit enhancement and other innovative means. These will be utilized to raise resources and. provide longterm low-cost debt for infrastructure projects. in conjunction with the Asian Development Bank (ADB). BHEL. Rajasthan and Uttar Pradesh. Siemens. As part of the Delhi-Mumbai Industrial Corridor (DMIC) project. power). Financial institutions will be selectively allowed to issue tax-free bonds in FY14. To facilitate private-sector fund mobilisation. Anand Rathi Research. The Finance Minister said that 53% would be funded by the public sector. will facilitate companies / infrastructure developers to access corporate debt markets. In expenditure. which had encountered hurdles. the government outlined an increase in social spending on welfare programs such as the M-NREGS.000km of road projects in Gujarat. the government has made several plans. ITNL Infra developers: L&T. 3. GVK. of `500bn. is a slight dampener for capital goods players and infrastructure developers. 21      Anand Rathi Research . the IAY and resumption of large ticket investments in infrastructure (roads. ITNL. ports. however. plans for seven new cities have been finalised while work on two new smart industrial cities will commence in FY14. 47% would have to come from the private sector. the Union Budget FY14 has pegged funds required at US$1trn. Two new major ports (in West Bengal and Andhra Pradesh) and a supplementary harbour in Tamil Nadu should add 142m tons of cargohandling capacity. IRB. Bajaj Electricals Infra developers: L&T. Positive Positive Positive Positive Positive Positive Positive Positive Negative Infra developers: L&T. ABB All companies in the segment Budget announcements  The government will encourage setting up Infrastructure Debt Funds (IDF). The increase in surcharge on corporate income tax.28 February 2013 India Budget FY14 – Walk the talk Industrials Amol Rao +9122 6626 6615 amolrao@rathi. have been cleared and will be awarded in 1HFY14. IRB. GVK.000km of road projects Progress on the Delhi-Mumbai Industrial Corridor 3 port projects planned Restructuring SEB debt Deduction of 15% on capex of `1bn and over Surcharge on corporate income tax raised Source: Government of India. V-Guard. through take-out finance. IAY Award of 3. GMR. Madhya Pradesh. BHEL. ABB L&T. GMR.com For the 12th Five-year Plan. Siemens. Simplex Infra L&T. GMR. IRB. The government has also outlined an increase in social spending on welfare programs such as the M-NREGS and the IAY.com Deepak Agarwal +9122 6626 6520 deepakagarwal@rathi. India Infrastructure Finance Corporation (IIFC). Maharashtra. GVK Brown goods / consumer electricals: Havells. linked to easier access to debt.

The provision of a deduction of 15% on capex of `1bn and above will be cash-flow positive for companies. etc.  Impact on the sector With the exception of the surcharge on corporate income. thus spurring demand for equipment. a dedicated source of cash for infrastructure projects coupled with a streamlined process to avail of it should help speed up execution. BHEL. This would. all the above developments are positive for companies. though the Budgetary measures are positive. hence. IL&FS Transportation) would be likely beneficiaries. The surcharge on corporate income tax has been raised from 5% to 10%. w. CFLs.e. concrete demand for domestic companies (L&T. We feel companies in the equipment space (L&T. Restructuring SEB debt would set the ball rolling to beef up T&D infrastructure. ABB) could be primary beneficiaries of budgetary measures. Lastly.28 February 2013 India Budget FY14 – Walk the talk   Various state governments have been encouraged to get the finances of their electricity boards restructured by Mar’13. FY14. especially in light of difficulties in land acquisition and securing environmental clearances. fans. Impact on companies We believe that. BHEL. Capex of `1bn undertaken during FY14-15 would be eligible for a deduction of 15% of the investment. The announcement of a regulatory body for highways and roads is a step in the right direction. IRB. projects stand a better chance of getting off the ground. thereby. etc. With a single body legislating and overseeing the sector. Anand Rathi Research 22 . This should stand companies such as Havells. switches.) would take 2-3 quarters to materialise.f. Siemens. Second-rung ancillaries (not under our coverage) supplying conductors.). in addition to the current rates of depreciation. transformers and metering equipment as well as sizeable infrastructure construction operators (IRB. lay the foundation for greater demand for high-powered transformers. V-Guard and Bajaj Electricals in good stead. schemes like the IAY would most likely materialise into demand for brown goods (household wires and cables. sub-station components and high voltage conductors. The paucity and high cost of funds in the recent past have been well documented.

of India. especially for companies in warehousing. The new roads would benefit companies such as CCI. Anand Rathi Research Budget announcements    No clear roadmap for the GST would result in further delays in implementation 3. The further thrust on developing the road network would help reduce bottlenecks for transportation companies. of India (CCI).000km of new road projects to be awarded in Gujarat. Rajasthan and UP would be positive. TCI.com The budget is neutral for the logistics sector. This would be slightly negative for the sector. NABARD funding warehousing construction would benefit companies planning to construct warehouses. Madhya Pradesh. especially Container Corp. It would benefit companies such as TCI and CCI. We do not expect any significant decline in their revenues. of India Source: Government of India.28 February 2013 India Budget FY14 – Walk the talk Logistics Dhaval Dama +9122 6626 6728 dhavaldama@rathi. Impact on the sector The further delay in implementing the GST is a negative for the sector. Impact on companies The delay in implementing the GST is a slight negative for all logistics companies. MP. This would lead to reduced costs for them in future. of India (TCI) and Gateway Distriparks. Maharashtra. Plans to award 3. No clear roadmap for GST has been provided in the budget. which could further delay its implementation. Rajasthan and Uttar Pradesh `50bn to NABARD to finance warehouse construction. of India. Transport Corp.000km of new road projects in Gujarat. Gati and other logistics companies involved in road transport. Gateway Distriparks All companies Container Corp. Transport Corp. Transport Corp. of India. Fig 13 – Impact on sector and stocks Budget announcements Impact on sector Impact on companies No clear roadmap for GST New road projects to be awarded NABARD financing for warehouse construction Negative Positive Positive Container Corp. The NABARD fund for warehouse construction would provide companies access to low-cost funds to set up warehouses. Anand Rathi Research 23 .

Anand Rathi Research 24 . Impact on companies Higher customs duty on STBs would adversely impact Dish TV. Hathway Cable and Datacom. Imposition of surcharge on income and dividend distribution tax would hit profitable companies in the sector with high dividend payout ratios. DEN Networks. Hathway Cable. Hathway Cable. The increase would thus raise investments required for the digitization of TV networks. Capex for these companies is expected to rise ~5%. Hathway Cable and Datacom.28 February 2013 India Budget FY14 – Walk the talk Media and Entertainment Yogesh Kirve +9122 6626 6731 yogeshkirve@rathi. Wire and Wireless India and Hinduja Ventures. and TV18 which are suffering losses or face low effective taxes).5% (except for Dish TV. Increase in surcharge on income tax would hit earnings of all companies by 1. This would hit multi-system operators and direct-to-home (DTH) companies. and is neutral. The announcement pertaining to auction of radio licenses is in line with the existing roadmap for radio licensing. including 707 in 227 new cities. Increase in customs duty on import of set top boxes (STB) would raise investment required towards digitization of TV networks.com The Union Budget’13-14 was negative for the sector. Impact on the sector Most of the STB requirements in the country are met out of imports. Anand Rathi Research Budget announcements   The union budget proposes increase in customs duty on STBs from 5% to 10%. The budget announced government’s plans to auction 839 FM radio licenses across 294 cities in 2013-14.0-2. Greater surcharge on dividend distribution tax would especially impact Sun TV Network as the company has a high payout ratio. TV18 (which are suffering losses or face low effective taxes) Sun TV Network Source: Government of India. Wire and Wireless India and Hinduja Ventures Entertainment Network India (ENIL). Reliance Broadcast Network All companies except Dish TV. DEN Networks.com Rajesh Zawar +9122 6626 6726 rajeshzawar@rathi. Fig 14 – Impact on sector and stocks Budget announcements Impact on ector Impact on companies Increase in customs duty on STB from 5% to 10% Plans to auction 839 FM radio licenses across 294 cities in 2013-14 Increase in surcharge on income tax Increase in surcharge on dividend distribution tax Negative Neutral Negative Negative Dish TV.

higher surcharge on income tax and introducing dividend distribution tax. Anand Rathi Research 25 . however.  Impact on the sector Investment allowance of 15% of the total investment amount from taxable income for investment of more than `1bn would provide marginal tax benefits to metal companies (with huge capex outlays). Surcharge on income tax has been increased from 5% to 10% on domestic companies whose taxable income is above `100m per year. Introduction of excise duty on silver obtained from base metal refining could be a realization dampener for Hindustan Zinc.com The budget is negative for the sector. while no reduction in 30% iron ore export duty is disappointing. be partially offset by higher demand through thrust on manufacturing capex. however.28 February 2013 India Budget FY14 – Walk the talk Metals and Mining Rajesh Zawar +9122 6626 6726 rajeshzawar@rathi. The negative impact will. Impact on companies Increase in steam coal import duty will raise power and fuel costs 2-3% and is more negative for aluminium players in the sector. Thrust on infrastructure financing and PPP model in coal mining are long-term demand drivers with no near-term impact. cheaper fund access and investment allowance. Negative for aluminium players. Anand Rathi Research Neutral Budget announcements  Investment allowance of 15% from taxable income for manufacturing companies which spend more than `1bn during FY14-15 in installation of plant and machinery for manufacturing activities. Fig 15 – Impact on sector and stocks Budget announcements Impact on sector Impact on companies 15% investment allowance to manufacturing Positive companies which invest more than `1bn in plant and machinery during FY14 and FY15 Increase in surcharge rate from 5% to 10% for Negative companies with taxable income of above `100m Increase in coal import duty Negative Positive for companies due to huge capex run rates Effective tax rate will increase by 5% of existing rate for all companies The cost will increase 3% for purely import based power plants or consumers. already reeling under severe cost inflationary pressure (shortage of raw materials. but can be negative for realizations Infra spending will support volumes Merchant miners will be negatively impacted while smelters like Sterlite Industries will benefit Coal mining on PPP basis with Coal India as Positive partner 4% excise duty implemented on silver extracted Negative from base metal smelting Thrust on easing fund raising and spending for infrastructure sector through IDF (Infra Debt Positive Funds) Export duty of 10% imposed on bauxite Source: Government of India. The impact will. Imposition of 10% export duty on bauxite will reduce the realizations of the merchant miners but it will benefit smelters like Sterlite Industries. be offset by rise in income tax surcharge from 5% to 10% for all companies. but no near-term impact Possible pass through of excise duty. Coal production volumes will increase in the long run. It has marginally added to earnings pressures by raising customs duty on coal. and higher fuel prices).

or more or of a value of `10m or more. Impact on companies Positive for companies in the affordable segment (Puravankara).1m as interest deduction (in addition to `0. Reduction in the abatement rate from 75% to 70%. Measures have been taken to address the urban housing shortage. Introducing TDS at 1% on the transferable value of immoveable property would help curtail under-valued and unreported transactions.  TDS to be deducted by buyer when paying seller. This would boost demand in the affordable segment. to Likely to further boost rural `60bn housing Likely to take measures to Start of the Urban Housing Fund. An additional `0.ft. Ultimately.1m.28 February 2013 India Budget FY14 – Walk the talk Real Estate Suman Memani +9122 6626 6707 sumanmemani@rathi.5m for property of `4m. ft. `0. or more or of `10m or more. Anand Rathi Research Budget announcements  Increase in interest deduction for home buyers by up to `0.    Impact on the sector The budget has been positive by providing additional interest deduction to home buyers. Benefit for Puravankara Projects (for its brand Provident Housing) Not likely to benefit any listed entity NA We do not see any listed entity affected as this is primarily a secondary transaction except of land sales Would be totally passed on to customers: DLF Source: Government of India.000 sq. in the case of property cost of `10m or more. or 2. from 75% to 70% This is a direction to curtail undervalued and unreported transactions Cost likely to go up very marginally for high-end buyers. Fig 16 – Impact on sector and stocks Budget announcements Impact on sector Impact on companies Increase in home loan interest-deduction by Positive for affordable housing. Anand Rathi Research 26 . This benefit can be enjoyed by home buyers if they do not have any residential house property on the date of sanction of loan. most developers will cost up to `4m for first-time property buyers. Reduction of abatement. Lower abatement rate. leading to more transparency in the longer run.com The Union Budget’13-14 has brought some cheer to home buyers.000 sq. Homes and flats with carpet area of 2. shift to the affordable-home besides interest deduction of up to `0. from 75% to 70%.000 sq. this would be passed on to end customers.1m for loans up to `2. This would boost demand in the affordable segment. for loans up to `2. Marginal impact on increase in service tax for high-end property sellers (DLF).5m and property Moreover. This would help developers increase volumes.15m segment U/S 24 of the IT Act Rural Housing Fund increased by 25%.5m. ft. TDS at 1% on the value of immovable property transferred where the consideration exceeds `5m.15m U/S 24 of the IT Act) for loans up to `2. with address housing shortage in `20bn allocated urban areas TDS at 1% of the value of the transfer of immovable property where the consideration exceeds `5m Homes & flats with carpet area of 2.5m and property cost not exceeding `4m. Allocation for the rural housing fund has been raised to `60bn along with introducing an urban housing fund. of `4m and of loans up to `2. allocating `20bn. would raise the service tax very slightly.

In FY13. (2) estimated proceeds factoring in staggered payment of winning bids (only 33% upfront). spectrum usage fees) to account for `170-190bn of this.28 February 2013 India Budget FY14 – Walk the talk Telecommunications Yogesh Kirve +9122 6626 6731 yogeshkirve@rathi. including listed ones like Bharti Airtel. Fig 17 – Impact on sector and on stocks Budget announcements Impact on sector Impact on companies Estimated auction proceeds of `220-240bn in FY14 Positive versus `400bn in FY13 Increase in excise duty rate on mobile phones Negative (costing >`2. Lower estimates pertaining to proceeds from spectrum auction (`220-240bn vs `400bn original estimate for FY13).000. it could raise only ~`30bn vs `400bn target. Impact on the sector The estimated proceeds of `220-240bn pertaining to spectrum (auctions. Higher excise duty on mobile phones would marginally and indirectly impact mobile service providers.com The budget was largely neutral for the sector. Cost of renewal of licenses is likely to be benchmarked to the spectrum price discovered in auctions. Idea Cellular. Proceeds target is sentimentally positive for all telcos as it suggests that the reserve prices would be lowered. Higher excise duty on mobile phones is marginally negative for all companies. and Tata Teleservices (Maharashtra). Impact on companies Lower estimated spectrum fees (one-time/auction) bodes well for Bharti Airtel and Idea Cellular. in FY12. (3) lower expectations following failure of auctions in FY13. Assuming recurring levies (license fees. these companies are less affected by the price discovery. could be owing to factoring in staggered spectrum payment schedule or lower expectations on spectrum proceeds (auction. 70%/60% of mobile phones imported/manufactured cost less than `2. According to the finance minister.000) Source: Government of India. Notably. Downward revision is possibly due to: (1) Spectrum already sold in FY13 (of `90bn). one-time fee) for FY14 is lower than `400bn original budget estimate for FY13. Idea Cellular All mobile operators Budget announcements Budget estimates non-tax revenues from ‘other communication services’ at `408bn for FY14. govt expected `150bn proceeds as spectrum fee. Anand Rathi Research Bharti Airtel. The budget proposes increase in excise duty on mobile handsets (costing more than `2. these targets are academic. Penetration of such phones is a key driver of data consumption for telecom operators. To an extent. lower estimated proceeds from spectrum auctions reflect lower govt expectations. as actual proceeds would depend on demandsupply and resolution of legal/regulatory issues. which may thus face indirect impact of rate hike. However. one-time excess fee).000) from 1% to 5%. proceeds from spectrum auctions and one-time of excess spectrum is estimated at `220-240bn. the proceeds target is sentimentally positive for telcos (as it suggests lowering of reserve prices). Reliance Communications. whereas actual proceeds were nil. Anand Rathi Research 27 . The renewal schedule of Reliance Communications and Tata Teleservices (Maharashtra) is more back-ended. Higher excise duty on mobile handsets would marginally hit sale of featured/smart phones.

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Anand Rathi Ratings Definitions Analysts’ ratings and the corresponding expected returns take into account our definitions of Large Caps (>US$1bn) and Mid/Small Caps (<US$1bn) as described in the Ratings Table below: Ratings Guide Large Caps (>US$1bn) Mid/Small Caps (<US$1bn) Buy >15% >25% Hold 5-15% 5-25% Sell <5% <5% Anand Rathi Research Ratings Distribution (as of 28 Feb 2013) Buy Anand Rathi Research stock coverage (184) 65% % who are investment banking clients 4% Hold 27% 2% Sell 8% 0% Other Disclosures This report has been issued by ARSSBL which is a SEBI regulated entity. however. ARSSBL or its affiliates may have or not received compensation for investment banking services from the issuer of these securities in the past 12 months and do not expect to receive compensation for investment banking services from the issuer of these securities within the next three months. any entity and/or company mentioned in this Research Report. ARSSBL accepts responsibility for its contents. 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