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Emkay
Private Client Research

1st March 2007
Union Budget
Analysis
2007-08
Emkay
1 March, 2007 Emkay - Private Client Research
Emkay Union Budget Analysis 2007-08

Private Client Research
A Cleverly Balanced Budget
The Union Budget for FY2007-08 announced by Finance Minister P Chidambaram in

a nutshell is targeted more towards Rural India and aimed at controlling inflationary
We rate budget as positive and
pressures within the Indian Economy. As mentioned by us in our Pre- Budget Report,
good balancing excercise
the FM has strongly focused on Agriculture, Infrastructure, Public Health and Education
which continue to be the foundation blocks of the economy.
Agriculture has been accorded a big boost in this years budget with the FM increasing
the total planned outlay here by 28.6% to Rs 225 bn with the Bharat Nirman and
Agriculture Infrastructure, Public
other flagship programmes like Accelerated Irrigation Programme, Water Resource
Health and education to be the key
Management, Rain fed Area Development Programme getting renewed focus. On the
thrust areas.
other hand the outlay on Education has been increased by 34.2% YoY to Rs 323.5
bn while for Public Heath services the plan outlay is up by 21.9% from last year to Rs
152.91 bn.
In terms of revenue raising measures, the 1% education cess and the increase in
dividend distribution tax from 12.5% to 15% have come as small negative surprises
Education cess increased to 3%
for the capital markets. On the other hand allowing short selling settlements by
from 2%
delivery and securities lending by institutions as well as allowing corporates to unlock
value in group companies via issue of Exchangeable Bonds is a welcome step.
On a Sectorial basis the Cement sector became the whipping boy for the FM in his
bid to control inflationary pressures arising from rising cement prices. What surprises
us is that a differential excise duty structure based on retail cement price of Rs 190
per bag is unlikely to curtail inflationary trends. In fact looking at the current trend in
cement prices (Rs 240 per bag prevailing in Mumbai and Rs 210 in Chennai) the
cement manufacturers are in no mood to cut prices.
Also the IT sector has now come under the tax regime by the FM for the first time.
While there is no doubt that IT services continue to grow rapidly and contribute
handsomely to the services segment, the fact remains that IT now is no longer the
blue eyed boy which continued to enjoy exemptions earlier.
We believe that higher plan outlays for Agriculture and Infrastructure in this budget
should ensure that the GDP growth rate does not slow down. Our belief is that GDP
growth in the medium term would be driven largely by the Manufacturing and Service
sectors. The FM has however done a commendable job by infusing the much-needed
financial discipline with FY07 revenue and fiscal deficits estimated at a around 2%
and 3.7% respectively.
From a common man’s perspective this Budget has addressed basic issues like
providing of drinking water facilities, roads, sanitation, employment opportunities etc
but has largely been a non event for the Indian corporate sector except for minor
tinkering in certain key sectors.
We hence rate this Union Budget for FY2007-08 as a balanced exercise targeted
largely at Rural India and the common masses wherein efforts have been made to
ensure financial stability for corporates with a clear focus on macro issues like
controlling inflation and price increases in essential commodities.
Union Budget 2007-08 Please see the disclaimer on the last page For Private Circulation 2
Agriculture to be a big focus area Agriculture – Big Focus Area

The government’s focus on the Agriculture sector is quite obvious as almost 60% of
our population still depends on agriculture as its livelihood. While acknowledging the
fact that average growth in Agriculture was 2.3% in the 10th Five year plan was below
expectations, the 11 th Five Year Plan has targeted an average agriculture YoY growth
of 4%.
We believe that there are three important reasons for the increased focus on agriculture
n A large part of population still lives on agriculture and increase in their incomes
would induce overall consumption of goods and services
n Huge opportunity in food processing as India has an enviable position in most of
the agri-products
As mentioned earlier Agriculture which used to previously account for a sizeable
chunk (around 24% in 2001) of the GDP has seen its share drop to 18.5% in FY07
and has seen a volatile uneven trend after its peak 10% growth in FY2004. Hence
going ahead the renewed initiatives announced for Agriculture in this budget specifically
with regard to increased plan outlays creation of irrigational facilities, creation of
water management cells, improved production due to better utilisation of seeds and
fertilizers should ensure a sustainable growth in agriculture. We believe that food
processing industry would be major beneficiaries of the sustained agriculture credit.
Infrastructure Spending to accelerate further —

During FY06, both savings rate and capital formation rates have remained impressive
at levels of 32.4% and 33.8% respectively. We believe that Infrastructure creation is
critical and unless we keep the pace of capital formation at around 30%, it would be
difficult to sustain the growth rate of GDP at 7 to 8% plus. In this Budget, Roads,
Infrastructure spending to see a big power, telecom and drinking water projects have been accorded higher plan outlays
boost which all promise a better infrastructure base ahead. We hence believe that Power
Projects, roads and water projects are the clear beneficiaries of the Budget. The
power sector will benefit from the expected new ultra mega projects, besides the
Golden Quadrilateral project is also fast moving towards completion. On the other
hand the water and Irrigation projects will not only benefit construction companies
but also the domestic capital goods players as well as pumps and generator set
manufacturers.
Fiscal health continues to be in good shape –

The Indian economy is in the midst of its best ever growth phase, with the GDP
growth as per the Central Statistical Organization (CSO) likely to grow by 9.2% in
FY07E from 8.99% recorded last year. What makes this growth look more re-assuring
is that it has come off on a higher base from the previous year which makes it the 4 th
consecutive year since 2004 onwards of sustained higher GDP growth for the economy.
The health of the Indian Economy A major driver to this growth has been the Manufacturing Sector which contributes
continues to be robust around 25% of the GDP and grew by 11.3% as compared to 9.3% last year, followed
by other sectors like construction, hotels, transport etc
On the back of a buoyant economy, the government is aiming to raise its tax revenues
from Rs.3459.7 bn to Rs.4038.7 bn, an increase of 16.7%. However, overall receipts
are likely to grow by 10.9%. Tighter control on non-Plan expenditure will ensure that
it does not go up beyond 16.3% of revised estimates for FY07. On the other hand,
Plan expenditure has been increased to Rs. 2051 bn, up by 18.7%.
This leaves the government with a fiscal deficit of Rs. 1409.5 bn i.e. 3.3% of GDP as
compared to 3.7% in FY07 as per revised estimates. The Fiscal deficit is targeted at
3.3% of GDP while revenue deficit is targeted at 1.5%, down from 2% on the revised
Fiscal deficit as percentage to GDP FY07E. We also observe that government borrowings are estimated to reduce by
is 3.3% as per revised estimates 0.9% to Rs.1509.5 bn. This is largely positive and with a large part of capital
expenditure going in for asset formation, it is likely to yield positive results in the
medium-to-long-term perspective.
Bharat Nirman… continued thrust on Infrastructure

creation –
The government has continued its thrust on improving the Agriculture growth of rural
India by reinforcing higher commitment for the six components of Bharat Nirman.
Bharat Nirman Programme Overall outlay has been increased by a whopping 54% from Rs.122bn to Rs.187bn.
aggresively pushed by the On the other hand we also expect that since FY08E is the first year of the 11 th Five
government Year Plan (2008-2013) which envisages huge investments in roads, power and other
infrastructure projects is likely to witness a significant rise in expenditure on
infrastructure sectors. The Bharat Nirman Programme has continued to get continued
focus from the government since we believe that these programmes would not only
help the common man but also provide a big opportunity for corporate India.
Public Health & Education – the other two foundation

blocks
We believe that, the other two important foundation blocks of the Indian economy
namely Public Health and Education have rightly been given due importance in this
budget. This is even more important if we note that India would have the largest
working population in the years to come. A healthy and educated population would,
therefore, be very important contributor to the economy, which will make the growth
rate sustainable in long-term.
As earlier stated by us in our Pre Budget report, that more than the changes in
taxes and tariffs, the focus of the FM would largely be on the tax reforms and
simplified processes. Overall tax collection has shown a healthy trend so far and
the tax-to-GDP ratio, which is estimated to be at 10.5% for FY06 & is further expected
Tax to GDP ratio improves to 11.4% to touch 11.4% in FY07.
in FY07 from 10.5% earlier
Tax Proposals:
Indirect Taxes –
In line with aligning the customs duty and bringing it at par with the ASEAN levels,
peak customs duty has been reduced from 12.5% to 10%. Despite reduction in
Peak Import duty cut to 10% from peak customs duty, overall custom collection is expected to go up by 20.7%, primarily
12.5% due to a sharp jump in the countervailing duty by over 20.7% from Rs. 380.4 bn to
Rs. 459.25 bn. This indicates that duty protection will largely continue for the
industries. A duty cut according to us will be beneficial for the metals & iron ores,
chemicals, plastics and packaging sectors.
On the excise duty front, the FM has kept the CENVAT unchanged at 16%. We
believe that reduction in the excise duty will be more than compensated by increased
volumes and profitability. The excise receipts are projected to increase by 11% in
FY08E from Rs. 1172.6 bn in current year. The service tax which accounts for
12.4% of total taxes collected has seen its scope being widened to new segments
like Renting of immovable property, Design services, Asset management services,
Development and supply of content for use in telecom and advertising purposes and
Services outsourced for mining of mineral, oil or gas.
Direct Taxes –
The FM has kept corporate tax and personal income tax rates unchanged while not
introducing any new taxes for FY07. We are however surprised to observe a increase
Dividend Distribution Tax from 12.5% to 15%. On the positive side capital gains tax
and the securities transactions tax (STT) have remained at same levels which earlier
there was anticipation that there could be a increase here. Education Cess on the
other hand has been increased by 1% from 2% earlier, which has been basically
justified to fund secondary level education. The Education cess is estimated to
collect Rs 119.3 bn in FY08 from Rs 81.9 bn in FY07.
Macro Issues which could not see the light of the day
Some of the macro issues, which did not get mentioned by the Finance Minister in
this Budget, included Public Sector Investment Divestment, foreign direct investments
increase in Insurance, Aviation etc, also were not considered.
Market Outlook – Long-term positive

We rate the Budget as progressive and a balanced exercise with the focus being on
long term sustainable and balanced economic growth. We believe that, higher visibility,
thrust on capital formation for long-term growth, fiscal prudence and tax reforms, will
attract investors to the equity market with a long-term focus. Corporate numbers
Market outlook - Long Term Trend have been broadly in line with expectations but we expect marginal changes on the
continues to be positive downside to our earning estimates in the light of the Budgetary recommendations.
This ensures higher visibility of earnings and helps investors in taking a long-term
call on the stocks as well as on the market. However although we remain positive on
the long-term prospects of the market, we do not rule out the possibility of a short-
term correction. Liquidity, in the short term particularly from foreign institutional
investors (FIIs), would be a deciding factor in the short term. However the long-term
investment time frame and reasonably good risk to reward expectations are primary
reasons, which we believe are attracting FII investment in the Indian equity market
and we do not see any change in this trend, at least in the medium to long term.
Sectorially we believe the stocks from FMCG, Food Processing, Telecom, Hotels,
Capital Goods, Power, Oil & Gas/Allied services players to be impacted positively.
Hence it is quite clear that Infrastructure, Consumption and Agri related sectors
would be the major beneficiaries of the process.
Our Top Picks

Infrastructure, consumption and Agri
In large Caps we like Bajaj Auto, Mahindra & Mahindra, Amtek Auto, Kirloskar Oil
related sectors to benefit most.
Engines, Infosys, Tech Mahindra. ACC, UltraTech, L&T.
In the Mid Cap space, we continue to be positive on Ratnamani Tubes, RPG

Transmission, Automotive Axles, Paradyne Infotech, Tanla Solutions, Tata Elxsi,
Global Vectra, Royal Orchid Hotels, Gabriel, Sujana Metal, Shree Cement, Mangalam
Cement, Pratibha, Patel Engineering, Paper Product, Great Offshore, Jindal Drilling,
BL Kashyap, Ansal Housing and Peninsula Land.
CENTRAL GOVERNMENT FINANCES (Rs bn)
(Particulars) FY06 FY07BE FY07RE YoY (%) FY08BE YoY (%)

REVENUE RECEIPTS
Tax Revenue
Union Excise Duties 1,120.00 1,190.00 1,172.66 4.7 1,302.20 11.0
Customs 642.15 770.66 818.00 27.4 987.70 20.7
Corporation Tax 1,035.73 1,330.10 1,464.97 41.4 1,684.01 15.0
Income Tax 662.39 774.09 825.10 24.6 987.74 19.7
Service Tax 230.00 345.00 381.69 66.0 502.00 31.5
Taxes of Union Territories 8.49 9.03 13.41 58.0 14.42 7.5
Other taxes & duties 2.65 2.65 2.65 - 3.15 18.9
Gross Tax Revenue 3,701.41 4,421.53 4,678.48 26.4 5,481.22 17.2
Less: NCCD for financing
National Calamity
Contigency Fund 16.00 15.00 15.00 (6.3) 18.00 20.0
Less: States' share 944.02 1,134.48 1,203.77 27.5 1,424.50 18.3
Centre's Net Tax Revenue [A] 2,741.39 3,272.05 3,459.71 26.2 4,038.72 16.7
Non-Tax Revenue
Interest Receipts 212.45 192.63 201.31 (5.2) 193.08 (4.1)
Dividends & Profits 254.81 275.00 304.38 19.5 339.25 11.5
External Grants 30.19 26.16 24.69 (18.2) 21.35 (13.5)
Other Non-Tax Revenue 238.37 260.71 235.98 (1.0) 264.71 12.2
Non-Tax Revenue of Union Territories 7.53 8.10 7.24 (3.9) 7.11 (1.8)
Total - Non Tax Revenue [B] 743.35 762.60 773.60 4.1 825.50 6.7
Total Revenue Receipts [C=A+B] 3,484.74 4,034.65 4,233.31 21.5 4,864.22 14.9
CAPITAL RECEIPTS
Recoveries of Loans 117.00 80.00 54.50 (53.4) 15.00 (72.5)
Misc Capital Receipts 23.56 38.40 5.28 (77.6) 416.51 7,788.4
Debt receipts to finance fiscal deficits 1,461.75 1,486.86 1,523.28 4.2 1,509.48 (0.9)
Total Capital Receipts [D] 1,602.31 1,605.26 1,583.06 (1.2) 1,940.99 22.6
Total Receipts [C+D] 5,087.05 5,639.91 5,816.37 14.3 6,805.21 17.0
NON-PLAN EXPENDITURE
Revenue Expenditure
Interest Payments 1,300.32 1,398.23 1,461.92 12.4 1,589.95 8.8
Defense 486.25 515.42 515.42 6.0 540.78 4.9
Subsidies 468.74 462.13 534.63 14.1 543.30 1.6
Grants to State and U.T. Governments 303.90 353.61 361.52 19.0 384.03 6.2
Admin & Social Responsibility 702.21 714.91 748.34 6.6 777.40 3.9
Total Revenue Non-Plan Expenditure [E] 3,261.42 3,444.30 3,621.83 11.1 3,835.46 5.9
Capital Expenditure
Defence 330.75 374.58 344.58 4.2 419.22 21.7
Other Non-Plan Capital Outlay 36.35 78.53 108.06 197.3 493.14 356.4
Loans to Public Enterprises 20.17 14.80 15.20 (24.6) 7.67 (49.5)
Others 0.45 0.42 (0.60) (233.3) (1.28) 113.3
Total Capital Non-Plan Expenditure [F] 387.72 468.33 467.24 20.5 918.75 96.6
Total Non Plan Expenditure [G=E+F] 3,649.14 3,912.63 4,089.07 12.1 4,754.21 16.3
PLAN EXPENDITURE
Revenue Expenditure
Central Plan 828.36 1,074.69 1,040.49 25.6 1,287.27 23.7
Central Assistance for State & UT Plans 313.17 362.93 405.35 29.4 456.27 12.6
Total Revenue Plan Expenditure [H] 1,141.53 1,437.62 1,445.84 26.7 1,743.54 20.6
Capital Expenditure
Central Plan 244.17 238.15 224.61 (8.0) 262.12 16.7
Central Assistance for State & UT Plans 52.21 51.51 56.85 8.9 45.34 (20.2)
Total Capital Plan Expenditure [I] 296.38 289.66 281.46 (5.0) 307.46 9.2
Total Plan Expenditure [J=H+I] 1,437.91 1,727.28 1,727.30 20.1 2,051.00 18.7
Total Expenditure [G+J] 5,087.05 5,639.91 5,816.37 14.3 6,805.21 17.0
Revenue Deficit [H+E-C] 918.21 847.27 834.36 (9.1) 714.78 (14.3)

% of GDP 2.6 2.1 2.0 1.5
Fiscal Deficit 1,461.75 1,486.86 1,523.28 4.2 1,509.48 (0.9)
% of GDP 4.1 3.8 3.7 3.3
Primary Deficit 161.43 88.63 61.36 (62.0) (80.47) (231.1)
% of GDP 0.5 0.2 0.1 (0.2)
Source: Ministry of Finance, Annual Budget FY2007-08
ECONOMIC DATA CHARTS

Where the Rupee comes from Where the Rupee goes
Capital Outlay Loans

Borrowings Union Excise 0%
6%
18% Duties State share of tax &
16% Subsidies
duties
Non debt capital 7%
17%
receipts
Defence
5%
Customs 12%
12%
Non Tax Revenue Grants to State and

10% U.T. Govts
5%
Plan Expenditure
Other Taxes 25%
0%
Admin & Social
Service Tax Resp
Corporation Tax Interest
6% Income Tax 9%
21% 19%
12%
Fiscal deficit (Rs bn) Revenue deficit (Rs bn)
% %
1200 5
1600 7
5
1400 6 1000
4
1200 4
5 800
1000 3
4
800 600 3
3 2
600 400
2 2
400
1
1 200
200 1
0 0 0 0
E
E
01
02
03
04
05
06
01
02
03
04
05
06
R
R
B
B
07
08
07
08
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
Fiscal Deficit (Rs.bn) % of GDP Revenue Deficit (Rs.bn) % of GDP
GDP Growth by constituents (%) Gross domestic savings & capital formation (%)
13
36
11
34
9
32
7
5 30
3 28
1
26
-1 2000-01 2001-02 2002-03 2003-04(P) 2004-05(P) 2005-06(Q) 2006-07
24
-3 (AE)
-5 22
-7 20
Agriculture Manufacturing Services Gross domestic product at factor cost 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05(P) 2005-06(Q)
Gross domestic saving Gross domestic capital formation
Source: Government of India, Annual Budget FY2007-08, Economic Survey FY2006-07
INDIRECT TAX PROPOSALS

Customs Duty / Export Duty
n Peak rate for non-agricultural products from 12.5% to 10%.
n Import duties on most chemicals and plastics from 12.5% to 7.5%.
n Reduction in duty on seconds and defectives of steel from 20% to 10%.
n Full exemption in duty for all coking coal irrespective of the ash content.
n Customs duty on polyester fibres and yarns from 10% to 7.5%.
n Customs duty on raw-materials such as DMT, PTA and MEG will also be reduced from 10% to 7.5%.
n Duty on cut and polished diamonds down from 5% to 3%, rough synthetic stones from 12.5% to 5% and on
unworked corals from 30% to 10%.
n Full exemption in import duty on dredgers.
n Reduction in duty on drip irrigation systems, agricultural sprinklers and food processing machinery from 7.5% to 5%.
n general rate of import duty on medical equipment reduced to 7.5% from 12.5%.
n Crude as well as refined edible oils exempted from the additional CV duty of 4%.
n Reduction in duty on sunflower oil, both crude and refined, by 15 percentage points.
n Reduction in duty on pet foods from 30% to 20%.
n Reduction in duty on watch dials and movements as well as umbrella parts from 12.5% to 5%.
n For the pharmaceutical and biotechnology sector the duty on 15 specified machinery proposed to be reduced from
7.5% to 5%.
n Import duty of 3% on all private import of aircraft including helicopters. Such import will also attract countervailing
duty and additional customs duty.
n Export duty of Rs.300 per metric tonne on export of iron ores and concentrates and Rs.2,000 per metric tonne on
export of chrome ores and concentrates.
Excise Duty & Service Tax

n No change in the general CENVAT rate or in the service tax rate.
n Reduction in ad valorem component of excise duty on petrol and diesel from 8% to 6%.
n Exemption limit for small scale industry (SSI) from Rs.1 crore to Rs.1.5 crore.
n Full exemption from excise duty biscuits whose retail sale price does not exceed Rs.50 per kilogram.
n Full exemption from excise duty all kinds of food mixes including instant mixes.
n Reduction in excise duty on umbrellas and parts of footwear from 16% to 8%.
n Reduction in excise duty on plywood from 16% to 8%.
n Full exemption in excise duty for biodiesel.
n Full exemption from excise duty for water purification devices operating on specified membrane based technologies
as well as domestic water filters not using electricity.
n Extension of excise duty exemption to all pipes of diameter exceeding 200 mm used in water supply systems.
n Reduction in present rate of excise duty of Rs.400 per metric tonne to Rs.350 per metric tonne on cement which is
sold in retail at not more than Rs.190 per bag. On cement that has a higher MRP, the excise duty will be Rs.600 per
metric tonne.
n Increase in specific rates of excise duty on cigarettes by about 5%. Excise duty (excluding cess) on biris will be
raised from Rs.7 to Rs.11 per thousand for non-machine made biris and from Rs.17 to Rs.24 per thousand for
machine made biris.
n Excise duty on pan masala not containing tobacco will be reduced from 66% to 45%.
n Rise in the exemption limit for small service providers from Rs.400,000 to Rs.800,000. Consequently, 200,000
assessees out of a total of 400,000 assessees will go out of the service tax net.
n New services under service tax net :
n Services outsourced for mining of mineral, oil or gas;
n Renting of immovable property for use in commerce or business;
n Development and supply of content for use in telecom and advertising purposes;
n Asset management services provided by individuals;
n Design services.
n Levy of service tax on services involved in the execution of a works contract with option of composition scheme under
which service tax will be levied at only 2% of the total value of the works contract.
n Exemption of clinical trial of new drugs from service tax.
DIRECT TAX PROPOSALS

n Income tax rates remain unchanged
n STT untouched
n The threshold limit of exemption in the case of all assessees increased by Rs.10,000
n The deduction in respect of medical insurance premium under section 80D be increased to a maximum of Rs.15,000
and, in the case of a senior citizen, a maximum of Rs.20,000.
n Removal of surcharge on income tax on all firms and companies with a taxable income of Rs.1 crore or less.
n Cross country natural gas distribution network, including gas pipeline and storage facilities integrated to the network
and navigation channel in the sea to be included in list of infrastructure facilities eligible for deduction u/s 80IA
n 5-year holiday from income tax for hotels upto 4 star hotels, as well as for convention centres with a seating capacity
of not less than 3,000 built in Delhi, Faridabad, Gurgaon, Ghaziabad or Gautam Budh Nagar during the period April 1,
2007 to March 31, 2010.
n Deduction under section 35(2AB) relating to in-house research and development extended until March 31, 2012.
n Extension of MAT to income in respect of which deduction is claimed under sections 10A and 10B of the Income Tax
Act.
n Rise in the rate of dividend distribution tax from 12.5% to 15% on dividends distributed by companies.
n Rise in the dividend distribution tax on dividends paid by money market mutual funds and liquid mutual funds to 25%
for all investors.
n Exclusion of expenditure on free samples as well as expenditure on displays from the scope of FBT.
n ESOPs under the ambit of FBT.
n Exemption limit for individuals and HUFs for Banking Cash Transactions Tax (BCTT) increased from Rs.25,000 to
Rs.50,000.
n Increase in education cess by 1%
n Tax exemption on aviation turbine fuel sold to turbo prop aircraft extended to all small aircraft less than 40,000 kg.
n Benefits of investment in venture capital funds confined to undertakings in biotechnology; information technology
relating to hardware and software development; nanotechnology; seed research and development; research and
development of new chemical entities in the pharmaceutical sector; dairy industry; poultry industry; and production of
bio-fuels.
SECTOR SUMMARY
Sector Budget Impact Top Picks
Automobiles Neutral Mahindra & Mahindra Ltd, Bajaj Auto Ltd
Auto Components Neutral Ahmednagar Forgings, Automotive Axles, Amtek Auto, Gabriel
Capital Goods / Power Equipment Positive Ratnamani Metal, Bharati Shipyard, Kirloskar Oil Engines,
RPG Transmission, Sujana Metal Products
Cement Negative ACC, Shree Cements, Ultra Tech, Mangalam Cements
Construction Negative L&T, Madhucon Projects, Pratibha Industries, Patel Engineering
FMCG Positive Paper Products, Cosmo Films
Hospitality Positive Royal Orchid, Kamat Hotels, Hotel Leelaventure
IT/Software Negative Infosys, Tech Mahindra, Tanla Solutions,Tata Elxsi,
Paradyne Infotech, NIIT Technologies
Media Negative --
Oil & Gas and Allied Services Positive Global Vectra, Great Offshore, Jindal Drilling
Realty Neutral NESCO, BL Kashyap, Ansal Housing, Peninsula Land
Telecom Positive --
Source: Emkay Private Client Research
SECTOR IMPACT
ANALYSIS
BUDGET IMPACT : NEUTRAL AUTOMOBILES
BUDGET HIGHLIGHTS
Total Vechicle Production n Deduction on R&D expenditure u/s 35 (2AB) extended till 31st March 2012.
n Farm credit target raised to Rs225,000 cr in 2007-08 from earlier Rs190,000 cr
in 2006-07.
n Increase in the provision for the National Highway Development Programme
(NHDP) from Rs.9,945 crore in 2006-07 to Rs.10,667 crore next year.
n A Secondary and Higher Education Cess on imported goods at 1% of aggregate
duties of customs excise and income tax has been imposed in addition existing
Source : SIAM cess of 2%.
Auto Market Composition IMPACT ON THE SECTOR

MPVs
Utility Vehicles 5% n Deduction u/s 35 (2AB) was going to expire on 31st March 2007 and Extension
15% of section 35 (2AB) till 31st March 2012 is a positive development for OEMs like
Tata Motors, M&M, Ashok Leyland, Bajaj Auto, Hero Honda and TVS Motors.
These companies would continue to claim benefits of 150% deduction on R&D
expenditure incurred during the year.
n Increase in farm credit target by 18% to Rs225,000cr would continue to drive
Passenger demand for tractors and is a positive for companies like M&M.
Cars
80%
n Increase in provision for the NHDP will increase the highway network in India and
Source : SIAM is positive for demand growth for commercial vehicles in the long term.
n The impact of Increase in education cess will be negligible on the companies.
TOP PICKS
n Mahindra & Mahindra Ltd and Bajaj Auto Ltd
Impact on EPS
Price EPS (Rs)
Company (Rs) FY07E FY08E Reco Remarks
Pre Budget Post Budget
Mahindra & Mahindra* 806 54.6 68.3 68.3 BUY Increase in farm credit is positive
for M&M in the long term
Bajaj Auto 2617 127.5 160.1 160.1 BUY Extension of sec. 35 (2AB) would
be positive for Bajaj Auto
Source: Emkay Private Client Research / * Consolidated
BUDGET IMPACT: NEUTRAL AUTO ANCILLARIES
BUDGET HIGHLIGHTS
n Peak Customs Duty has been reduced from 12.5% to 10%
Auto Component Exports USD mn.
2000 1800
n Optional excise duty on nylon filament yarns has been increased from 8% to
1400
12%.
1500
1000 760
1020
578 duties of customs, excise and income tax has been imposed in addition existing
500
cess of 2%.
0
FY02 FY03 FY04 FY05 FY06*
IMPACT ON THE SECTOR

Source : ACMA, * Estimated figure
n Reduction in peak customs duty is likely to increase the competition for domestic
auto component players compared to other emerging countries like Thailand
and China. But we don’t expect it will impact earnings of any auto component
players under our coverage.
Auto Comp Industry Investment n Increase in excise duty on nylon filament yarns from 8% to 12% will increase
USD mn. the input prices for tyre companies.
5,000
4,400
4,000 3,750 n The impact of Increase in education cess will be negligible on the companies
3,100
3,000 2,645
2,300
2,000
Auto Component Market ($ bn) Indian Auto Component Exports ($ bn)
1,000
FY02 FY03 FY04 FY05 FY06* 50
Source : ACMA, * Estimated figure 40
40 CAGR 17% 30
25
25
30 20
CAGR 34%
15
20
10
10
10 5 1.8
0
0 CY2006 CY2014
CY2006 CY2014
Source: Emkay Private Client Research, ACMA
TOP PICKS
n Amtek Auto, Ahmednagar Forgings, Automotive Axles & Gabriel
Impact on EPS
Price EPS (Rs)
Amtek Auto* 372 22.9 28.1 28.1 BUY No impact
Ahmednagar Forgings 260 19.1 26.6 26.6 BUY No impact
Automotive Axles 590 37.9 48.1 48.1 BUY No impact
Gabriel India 31.65 2.7 3.9 3.9 BUY No impact
Source: Emkay Private Client Research / * Consolidated
BUDGET IMPACT: POSITIVE BANKING & FINANCE
BUDGET HIGHLIGHTS
n Ceiling for TDS deduction on FD at increased to Rs.10,000
n Benefit of Sec 72A extended to voluntary mergers
n Transfer now limited to 20%

n Will help to mobilise more resources and reduce operational hassles
n Will help consolidation in the industry and will benefit private as well as foreign
banks
n Mildly negative of housing finance and infrastructure financing companies
Overall View on Stocks-

Positive for all banks especially Private Sector Banks
Source: Emkay Institutional Research
BUDGET IMPACT : POSITIVE CAPITAL GOODS / POWER EQUIPMENT

BUDGET HIGHLIGHTS
n Increase in budgetary support for APDRP from Rs650crs in 2006-07 to Rs800crs
IIP Capital Goods in 2007-08. APDRP is being restructured to cover all district headquarters and
towns with a population of more than 50,000.
500 400
400
n Raised allocation for Rajiv Gandhi Grameen Vidyutikaran Yojana from Rs3000crs
300
300
to Rs3900crs
200
200 n Exemption of excise duty on pipes used for taking water from water treatment
100
100
plant. This exemption will be application irrespective of whether they are used for
0 0
taking water from treatment plant to the first storage point or from one storage
May
July
Nov
Apr
Mar
Aug
Sept
Oct
Dec
June
Jan
Feb
point to another storage point.

FY06 FY07 n Subsidy allocation for non-central PSU shipyards and private sector shipyard
Source:CSO has been increased to Rs132crs in 2007-08 from Rs25crs in 2006-07.
n Excise duty exemption on high speed cold-set web offset printing machines
with a minimum speed of 70,000 copies per hour is being withdrawn and 8%
excise duty is being imposed.
duties of customs, excise and income tax has been imposed in addition existing
cess of 2%.
n Two new ultra mega power projects are likely to be awarded by July 2007. Ministry
of Power will also take initiatives for facilitating setting up of merchant power
plants by private developers and private participation in transmission projects.

n Increase in budgetary support for APDRP will help to monitor power usage and
is likely to benefit meter manufacturers
n Increase in allocation for Rajiv Gandhi Grameen Vidyutikaran Yojana will be
beneficial for equipment suppliers
n Exemption of excise duty on pipes used for taking water from water treatment
plant will benefit to companies like Ratnamani Metals and Tubes which has
presence in saw pipes
n Increase in subsidy allocation for non-central PSU shipyards and private sector
shipyard is positive direction for private shipbuilding players like Bharati Shipayrds
Ltd. as it reduces the uncertainty of extension of subsidy offered by government
to private shipbuilding players beyond October 2007.
n Cold-set web offset printing machines with minimum speed of 70,000 copies per
hour will attract 8% excise duty from FY08 and prices of web offset printing
machines will go up. Manugraph India currently manufactures web offset printing
machines upto 55,000 copies per hour and would not impact Manugraph India.
n The impact of Increase in education cess will be negligible on the companies
n Two new ultra mega power projects and inititatives taken by Ministry of Power
will improve the demand for power equipment suppliers and transmission
companies.
TOP PICKS
Impact on EPS n Ratnamani Metal and Tubes, Bharati Shipyards & Kirloskar Oil Engines
Price EPS (Rs)

Ratnamani Metal 700 76.0 107.2 109.5 BUY Exemption on excise duty on
pipes on water projects will be Positive
Bharati Shipyards 372 24.8 37.4 37.4 BUY Increase in allocation for subsidies is
positive direction
Manugraph India 188 17.3 22.8 22.8 BUY The excise duty announcement will not
impact Manugraph
Kirloskar Oil Engines 242 15.6 17.6 17.6 BUY No Impact
BUDGET IMPACT: NEGATIVE CEMENT
BUDGET HIGHLIGHTS
Reduction of Excise Duty on Cement
Consumption (Mn Tonnes)
35.00 Excise duty on cement sold in retail market has been changed from fixed – specific
30.00
charge to a differential based charge
Mn Tonnes
25.00
20.00 Apr-Dec'06
15.00
10.00
Apr-Dec'05 For large cement plant,
5.00
0.00 n Selling cement at a price below Rs 190 per 50-Kg bag (Rs 3800 per tonne),
excise duty has been reduced from Rs 400 per tonne to Rs 350 per tonne.
rt h
rt s
t
ra
as
es
ut
nt
No
po
So
E
Ce
Ex
Regions
Source: CMA
n However, if the selling price of the cement is above Rs 190 per 50-Kg bag (Rs
3800 per tonne), excise duty has been increased from Rs 400 per tonne to Rs
600 per tonne.
For mini- cement plant,
n Selling cement at a price below Rs 190 per 50-Kg bag (Rs 3800 per tonne),
excise duty has been reduced from Rs 250 per tonne to Rs 220 per tonne.
n However, if the selling price of the cement is above Rs 190 per 50-Kg bag (Rs
3800 per tonne), excise duty has been increased from Rs 250 per tonne to Rs
370 per tonne.

n The impact of the cement price increase remains negative.
n Cement prices currently in most markets are currently at above Rs 200 levels.
An increase in excise duty by Rs 200 per tonne translates to only Rs 10 per 50-
Kg bag.
n Given the robust cement demand, we expect an increase of Rs 10 per 50-Kg
bag can easily be passed on to the final consumers.
TOP PICKS
n ACC, Shree Cements, Ultra Tech, Mangalam Cements
Impact on EPS
Price EPS (Rs)
ACC 900 73.7 70.5 58.1 Hold --
Shree Cements 1147 106.7 148.6 121.2 Hold --
Ultra Tech 891 71.7 80.9 61.6 Hold --
Mangalam Cements 176 14.4 36.2 27.1 Hold --
BUDGET IMPACT: POSITIVE CONSTRUCTION
BUDGET HIGHLIGHTS
Positive
300
n Allocation to Bharat Nirman for FY07-08 increased by 31.6% to Rs 246.03 bn
250
200
n Budgetory support for NHDP to Rs 126.67 bn against 99.45 bn.(up by 27.2%)
150 n RIDF XIII (Rural Infrastructure Development fund) has been allocated Rs 40 bn
100 for rural roads.
50 n JawharLal Nehru National Urban Rebewal Mission budgetary allocation increased
0
Bharat NHDP AIBP JNNURM RIDF
to Rs 49.87 bn against Rs 45.95 bn.
Nirman
FY06 FY06
n AIBP(Acclerated Irrigation Benefit Programme) allocation increased by 54.4%.
FY07
to Rs 110 bn against Rs 71.21 bn 06-07,. Of this, the grant component to State
Governments will be Rs.3580 crore an increase from Rs.2,350 crore
n Rajiv Gandhi Drinking Water Mission - from Rs46.8bn to Rs58.5bn (up by 25%)
n NHDP-III, NHDP-V and NHDP-VI are in advanced stages of planning or
implementation and Northern-Eastern region (NE) only 450 km has been awarded
in 06-07 and is expected to fully award in 07-08.
n Few projects like the road-cum-rail bridge at Bogibeel, Assam, over the
Brahmaputra, will be taken up as a national project.
n Under the Viability gap funding out of 37 Proposal, 21 has been sanctioned and
intended to set up a Rs1bn revolving fund to accelerate growth (PPP) which at
present is moving at slow pace.
n Funds of NSSF (National Small Savings Fund) now to be utilized by India
Infrastructure Finance Company Ltd for financing of Infrastructure Projects.
n Use of foreign exchange reserve to finance Infrastructure facility without monetary
expansion
n Additional irrigation potential of 2,400,000 hectares, including 900,000 hectares
under AIBP, will be created;
n World Bank has signed a loan agreement with Tamil Nadu for Rs.21.84 bn to
restore 5,763 water bodies having a command area of 400,000 hectares.
Preparation for similar projects for Andhra Pradesh, Karnataka, WB, and Orissa.
Negatives
n Sec80IA(4) amended : The purpose of the tax benefit has all along been for
encouraging private sector participation by way of investment in development of
the infrastructure sector and not for the persons who merely execute the civil
construction work or any other works contract. Accordingly, it is proposed to
clarify that the provisions of section 80-IA shall not apply to a person who executes
a works contract entered into with the undertaking or enterprise referred to in the
said section. Thus, in a case where a person makes the investment and himself
executes the development work i.e., carries out the civil construction work, he
will be eligible for tax benefit under section 80-IA. In contrast to this, a person
who enters into a contract with another person [i.e., undertaking or enterprise
referred to in section 80-IA] for executing works contract, will not be eligible for
the tax benefit under section 80-IA.
The above section will be implemented with retrospective effect from Assessment
year FY00-01.

n Higher allocation to Infrastructure sector will boost Infrastructure company in the
long run.
n Government taking measures with innovative idea of funding infrastructure sector
will also help Infrastructure Company to finance projects.
n After interacting with companies in infrastructure segments we believe that
n prospective impact of Sec 80IA(4) will be high in comparison to retrospective
effect. The Section specifies that EPC contractors will not be exempted as
before, which signify that the tax rate of the company’s will increase from existence
of 15%-22% to 24%-28% depending on the revenue mix .
TOP PICKS:
Madhucon Projects, Patel Engineering and Pratibha
Impact on EPS
Price EPS (Rs)
Madhucon Projects 201 10.9 24.4 20.2 Buy Buy with Target Price of Rs 305.
Patel Engineering 347 22.0 27.5 21.2 Hold --
Pratibha 183 15.0 38.3 28.0 Hold --
BUDGET IMPACT: NEGATIVE Fertilisers & Chemicals
BUDGET HIGHLIGHTS
n Peak Custom duty reduced to 10%
n Dividend distribution tax increased to 15%

Domestic prices to realign downward in line with landed cost - marginal negative
Likely to have negative impact

POSITIVE
GNFC, Tata Chemicals, Deepak Fertiliser,
NEGATIVE
Cormandel Fertiliser, GSFC
BUDGET IMPACT: POSITIVE FMCG
BUDGET HIGHLIGHTS
n Reduction in customs duty on food processing machinery from 7.5% to 5%;
n Full exemption from excise duty biscuits whose retail sale price does not exceed
Rs.50 per kilogram;
n Full exemption from excise duty all kinds of food mixes including instant mixes.
n Crude as well as refined edible oils exempted from the additional CV duty of 4%.
n Customs Duty on crude sunflower oil down from 65% to 50% and on refined oil
from 75% to 60%

n Reduction in customs duty on food processing machinery shall induce higher
investments in food processing industry;
n Exemption in excise duty on biscuits will be positive for biscuit manufacturers
like Britannia, ITC, etc who make biscuits falling in this range.
n Exemption from excise duty all kinds of food mixes including instant mixes will
benefit food processing companies like HLL, ITC, Nestle, Dabur, MTR Foods,
etc
n Reduction of customs duty on sunflower shall help higher offtake of sunflower oil
and may help sunflower oil marketing companies.
TOP PICKS
n Paper Products, Cosmo Films
Impact on EPS
Price EPS (Rs)
Paper Products 363 31.5 40.5 40.5 BUY Target Price : 478
Cosmo Films 75.4 11.3 15.3 15.3 BUY Target Price : 100
BUDGET IMPACT: POSITIVE HOSPITALITY
Foreign Tourist Arrivals (Apr-Dec'06) BUDGET HIGHLIGHTS

Mn Nos
3.5
n Increase in spending on building tourist infrastructure from Rs 423 crore in 2006-
3.2
3 2.8 07 to Rs 520 crore in 2007-08;
2.5
2.5
2
n Introduction of new section 80ID under the Income Tax Act for providing 5 year
1.5 holiday from IT for hotels upto 4 star hotels, as well as for convention centres
1 with a seating capacity of not less than 3,000 built in Delhi, Faridabad, Gurgaon,
0.5
Ghaziabad or Gautam Budh Nagar during the period April 1, 2007 to March 31,
0
2004 2005 2006
2010;
Source : Ministry of Tourism n Applicability of service tax on renting / leasing of immovable property for use in
commerce or business;
n Tax benefit of Venture Capital investment extended to investments in hotel-cum-
convention centres of a certain description and size.
n Higher allocation for building tourist infrastructure shall have a long-term positive
impact on the tourism sector in terms of larger number of tourists;
n Introduction of a 5 year tax holiday u/s 80ID shall induce higher investments in
building hotels in specified areas and shall improve the profitability of the project;
n Service tax on leasing / renting of property shall have a marginal negative impact
hotel companies with asset-light strategy for there operations.
n Including investments in hotel-cum-convention centres by venture capital funds
for tax benefits shall get higher investments in the sector.
TOP PICKS
n Hotel Leela Venture, Royal Orchid Hotel, Kamat Hotel
Impact on EPS
Price EPS (Rs)
Hotel Leela Venture 57 2.4 3.4 3.4 BUY Target Price : 84
Royal Orchid Hotel 196 11.8 14.8 14.8 BUY Target Price : 243
Kamat Hotel 175 13.7 20.9 20.9 BUY Target Price : 230
BUDGET IMPACT: NEGATIVE IT/SOFTWARE
BUDGET HIGHLIGHTS
Offshore Mix and Effective tax rate
n Minimum Alternate Tax (MAT): Minimum Alternate Tax (MAT) to be extended
80.0%
to income in respect of, which deduction is claimed under sections 10A and
70.0%
60.0% 10B.
50.0%
(in %)
40.0% n Inclusion ESOP under FBT: Employees’ Stock Option Plan (ESOP) has been
30.0% brought under the Fringe Benefit Tax (FBT) in the Budget 2007-08, applicable
20.0%
10.0% after April 2008.
0.0%
n Dividend Distribution Tax: Dividend distribution tax for companies has been
S
ch
ro
a
am
s
dr
TC
sy
ip
Te
raised from 12.5 per cent to 15 per cent.

ty
in
W
fo
ah
Sa
L
In
M
H
ch
Te
n Thrust on e-Governance: e-governance allocation to increase from Rs. 300

Offshore as a % of Revenue Effective Tax Rate crore in 2006-07 to Rs. 500 crore in 2007-08 and also education outlay to increase
by 34% to Rs 34252 crore.
Source: Company and Emkay PCG

n Imposition of MAT on IT-ITES company would have a negative impact of around
150-200 bps on the net margins, depending on the company’s exposure to tax
shelter units, However, those company’s which are paying tax outside India will
get some respite, on account of double taxation avoidance treaty, as they can
set off the tax paid outside India against MAT.
n Inclusion of ESOPS under FBT, would impact the net margins, as it is a regular
norms of the Indian IT companies to issue ESOPs, in order to reward the
employees and reduce the attrition rate.
n Hiked in the dividend distribution tax from 12.5% to 15%, would have a negative
impact on retained earning of the company, as IT companies use to pay higher
dividend.
n No discussion on extension of Tax benefits under sec 10A/10B has been made
in the current budget.
TOP PICKS
n Infosys, Paradyne Infotech, Tata Elxsi, Tanla Solutions, NIIT Technologies
Impact on EPS
Price EPS (Rs)
Infosys 2078 68.3 91.1 87.8 BUY Minor negative
Tata Elxsi 275 16.4 23.7 22.9 BUY Minor Impact
Tanla Solutions 317 16.7 24.8 24.0 BUY Minor impact, would set
Off against tax paid outside
India.
NIIT Technologies 397 29.7 40.7 40.1 BUY Minor negative, tax rate
would Up by around 300 bps
Paradyne Infotech 86 12.5 18.6 18 BUY Minor negative would
benefits from Incremental
\spending in e-Governance
Projects
BUDGET IMPACT: POSITIVE MEDIA
BUDGET HIGHLIGHTS
Growth of the Indian Entertainment

n Inclusion ESOP under FBT: Employees’ Stock Option Plan (ESOP) has been
Industry brought under the Fringe Benefit Tax (FBT) in the Budget 2007-08.
n Service Tax: Extension of service tax for development and supply of content for
use in telecom and advertising purposes.
n Service Tax: Sale of space or time for advertisement service, to specifically
include sale of space in business directories, yellow pages and trade catalogues
which are primarily meant for commercial purposes;

Source: Industry
n There is still parity in service tax of 12% on sale of space and time for
advertisement in electronics media and print media, there is no change in for
same in the current budget, however services tax extended to sale of space in
business directories, yellow pages and trade catalogues which are primarily
meant for commercial purposes, would not impact the any of the listed print
media company, like HT media, Deccan Chronical, Jagran Prakashan.
n Inclusion of ESOPS under FBT would impact the Media Companies, having
ESOPS schemes outstanding.
Note: No stock under active courage.
BUDGET IMPACT: NEUTRAL METALS
BUDGET HIGHLIGHTS
n No Change in import duty
n Export duty of Rs300/t on Iron Ore and Concentrates
n Export duty of Rs1,000/t on Chrome Ore and Concentrates
n Import duty on coking coal removed irrespective of ash content
n Reduction in import duty from 20% to 10%
n There has been no further tax changes for Non Ferrous metals post Jan 23,
2007 notification reducing metals import duty from 7.5% to 5%

n Neutral
n Negative for iron ore exporters like Sesa Goa, NMDC as export prices are
based on import price parity. Levy of export duty will decrease their profits by
Rs300/t
n Negative for Chrome Ore exporters like Tata Steel as export prices are based on
import price parity. Levy of export duty will decrease their profits by Rs1,000/t
n Largely neutral as integrated producers are mostly buying coking coal with
<12% ash content, which attracted nil customs duty
n Landed price of secondary and defective imports to come down, benefit largely
for mini mills and re-rollers

POSITIVE
SAIL, Tata Steel, JSW Steel, Monnet Ispat
NEGATIVE
Sesa Goa, NMDC, Gujarat NRE
BUDGET IMPACT: POSITIVE OIL & GAS AND ALLIED SERVICES
BUDGET HIGHLIGHTS
Allocation of blocks under NELP n Reduction in ad valorem component of excise duty on petrol and diesel from 8
programme
(excl. relinquished blocks):
per cent to 6 per cent.
Series Onshore Shallow Deep n Cross country natural gas distribution network, including gas pipeline and storage
Water Water facilities integrated to the network and navigation channel in the sea to be included
NELP - I 1 13 7 in list of infrastructure facilities eligible for deduction u/s 80IA
NELP - II 4 7 7
NELP - III 8 6 9
n Import duty of 3% on all private import of aircraft (excludes import by Govt &
NELP - IV 10 0 10
Scheduled Airlines) including helicopters. Such import will also attract
NELP - V 10 2 6
countervailing duty and additional customs duty.
NELP - VI 25 6 24
Total 58
Source : http://dghindia.org
34 63
n Reduction in ad-valorem excise duty on petrol and diesel shall have no immediate
impact as the reduction shall be adjusted in the recent reduction of rates done
by the government. In the longer term however increase in rates will have a
lesser duty impact to the extent of reduction;
n Inclusion of setting up of gas distribution pipeline in list of infrastructure facilities
eligible for deduction u/s 80IA will be beneficial to companies involved in
implementing city gas projects. Companies like Reliance Industries, GAIL and
GSPL shall benefit.
n Imposition of 3% import duty on all private import of aircrafts including helicopters
may impact helicopter logistic companies as they operate under a Non-Scheduled
Operators Permit from the DGCA, although clarity is awaited on the issue. There
may be marginal negative impact on Global Vectra.
TOP PICKS
n Global Vectra, Great Offshore and Jindal Drilling.
Impact on EPS
Price EPS (Rs)
Global Vectra 246 15.2 26.1 26.1 BUY Target Price : 334
Great Offshore 576 35.8 56.9 56.9 BUY Target Price : 1153
Jindal Drilling 430 20.7 31.0 31.0 BUY Target Price : 786
BUDGET IMPACT: POSITIVE PHARMACEUTICALS
BUDGET HIGHLIGHTS
n Increased allocation on Health spending @ 21.9% to Rs.152.91 bn
n Increased Allocation of funds for HIV/ AIDS treatment to Rs. 9.69 bn
n Increase allocation on Polio eradication to Rs. 12.90 bn
n Exemption of clinical trails from service tax
n Custom duties on Chemicals and Medical equipment is reduced from 12.5% to
7.5%
n Tax incentive for R&D has extended for 5 years ( 150% Weighted Average Tax)
n FBT on Free samples and Display has excluded

n Positive for Max India and Apollo Hospital.
n Companies like Cipla,Wockhard,Ranbaxy, Aurbindo and Novarities will be
benefited.
n Positive for Panacea.
n Positive for Research and CROs companies.
n Positive for API manufacturing companies, Apollo hospital and Max india will be
benefited
n Positive for MNCs and companies like Ranbaxy, Sun Pharma, Dr. Reddy’s,
Glenmark and Biocon.
n Positve impact on Pharma companies.

POSITIVE
n Panacea, Cipla, Ranbaxy, Dr Reddys, Wockhard, Biocon, Sun Pharma, Apollo
Hospital and Max India
BUDGET IMPACT: NEUTRAL POWER
BUDGET HIGHLIGHTS
n Seven More UMPPs to be Awarded
n Extended by one year to 31st March 2008
n Increased Allocation to Rs.3,983 crore
n Increased Allocation to Rs.800 crore

n Increased demand for electrical equipments from companies like BHEL,
Siemens, ABB
n Benefit to companies like Ratnagiri Gas & Power (Dhabhol) [unlisted]
n T&D companies to be key beneficiaries of higher orders and demand for
equipments

NEUTRAL
Tata Power, Reliance Energy, NTPC, BHEL, Siemens, KEC, Jyoti Structures,
Kalpataru, RPG Transmission
BUDGET IMPACT: NEUTRAL PAPER
BUDGET HIGHLIGHTS
n Custom duty reduced to 10%
n Education outlay increased by Rs 34.2% to Rs 324 bn

n Negative to neutral since expenditures on stores, consumables and chemicals
will also come down
n Slight Positive impact

Neutral
TNPL, BILT, JK Paper, Andhra Paper
BUDGET IMPACT: POSITIVE TELECOM
All India cellular subscriber figures BUDGET HIGHLIGHTS

120 120
n Committee for review: Department of Telecom to commission a study for
(SubscribersinMn)
100 100
working out a unified tax structure for the sector. The annual revenue share
80 80
ranges between 6-10 per cent of their revenues depending upon the circle where
60 60
they operate. A unified tax structure has been a long-standing demand of telecom
40 40
companies
20 20
0 0 n Service Tax: Extension of service tax for development and supply of content for
Dec-Dec-Dec-Dec-Dec-Dec-
01 02 03 04 05 06
use in telecom and advertising purposes
All India YoY Growth n Rural connections: 15,054 villages have been covered under rural telephony
and efforts to be made to complete the target of covering 20,000 villages by
World’s 10 largest mobile markets 2006-07.
by net addition in 2006
China 77,997,000
India 53,784,800 IMPACT ON THE SECTOR
Russia 27,199,600
Pakistan 26,600,500 n Currently service providers pay 6% to 10% AGR in different circles as license
USA 24,017,200 fees. Part of this is apportioned towards USO fund, with the unified rate of 6%
Indonesia 16,802,500 would further reduce the tariffs and increase the wireless penetration, which
Brazil 15,671,600 inherently benefits players like, Bharti, R-Com, Idea.
Ukraine 12,206,500
Nigeria 10,359,800
Bangladesh 10,340,000
Source: Industry
BUDGET IMPACT: POSITIVE TEXTILES
BUDGET HIGHLIGHTS
n TUFS extended for 11th five year plan with an allocation of Rs 9110mn for FY08
n Customs duty on polyester fibres and yarns reduced from 10 per cent to 7.5 per
cent. The customs duty on DMT, PTA, MEG also reduced from 10% 7.5%
n Increased allocation towards TUF provides support to industry for the large
investments planned
n Reduction in customs duty on these products to bring down the cost of PSF
and VSF
OVERALL VIEW ON STOCKS-

POSITIVE
n Lakshmi Machine Works, Rajasthan Spinnin
Emkay’s Network
AHMEDABAD GANGANAGAR Weston Street Raviwar Peth
079-26448727/29 9351793000 033-22118369 0253- 3203888
C.G.Road GOA Tagore Street 60 ft. Rd
079-26424848/26422466 to69 0832 - 6650770 033 - 22597938 0253-2598310
ALLAHABAD GULBARGA Tarachand Dutta Street, NAMAKKAL
0532-2452388 08472 32850 033- 26501114 04286 - 275494/ 95
ALWAR GUWAHATI Grant Lane PANIPAT
9414454123 9954070377 09830667686 0180-6451645
AURANGABAD GURGAON Mukherjee Road PERUMBAVOOR
09860498897 Old Railway Rd. 033 24668300 0484-2640046
BANGALORE 0124-3250629 KOTA PONDICHERRY
Cunninghum Road Sheetla Mata Rd. 0744-2502877 0413-6450006/ 4500006
080-41220915 0124-4081346 LUCKNOW PUNE
Malleswaram HARYANA 9839552211 D.P. Road
080-23464173 Rohtak MADURAI 9850818986
Shimoga 01262-268701 0452-3018691/92/93/94/ Karve Road
0818-2221031/221027 Jhajjar 0452- 4379688 9325505031
Vijaynagar 01251-253028 MYSORE Rasta Peth
9341327222 HOSHIARPUR 0821 4250696 020-26123351
BHOPAL 01882-326767 MUMBAI Satara Rd.
09301189603 HYDERABAD Borivali 9520-24220031
BARODA Ameerpet 022-28334629 Sadashiv Peth
Alkapuri 040- 23731230/31 Borivali 9520-30947224
0265 6640551 Banjara Hill 022-56610312 Shaniwar peth
Sayaji Gung 040- 6553 4261 Borivali 020- 255303387
0265-3918069 - 74 HARIDWAR 9867697105 RAJAHMUNDRY
Karelibaug 01334-329563 Borivali 9396456406
0265-3918021 - 24 INDORE 9867129422 RAJKOT
Manjalpur Racecourse Road Dadar Dr. Yagnik Rd
0265-3206663 0731-3918624/ 9893894415 022-32605528 0281 - 2464535
BHAVNAGAR R. N. T. Marg Dhobi Talao Phulchab Chowk
9898001945 0731-4068098 022-56023723 0281-2452875
CHENNAI JABALPUR Fort Rampur
Adyar Agga Chowk 022-22653471/22875805 9897537945
044-42300788 0761-4067239 Fort RATLAM
Anna Nagar Vikas Bazaar 022-22704710 07412-329878
044-42127298 0761-4031955 Ghatkopar SRINAGAR
Ramarao Street JAIPUR 022-25122448 9419074424/ 9906679327
044- 42605604 Bhawani Singh Lane Goregaon SALEM
T Nagar 0141-2361438 022-28770991 0427-2336881
044- 42605604 JAIPUR J B Nagar SAGAR
044-42024672 0141-2378661 9892343344 0758-2401647
Gandhi Nagar Modi Nagar Khar SANGLI
044-42607611 0141-2811118, 2810501 022-26049302 0233- 6616010/11
Thiruvanmiyur Sardar Patel Marg Lokhandwala SARDARSHAHAR
044-42178646 0141 2376886 022-56778638/39 01564-512108
Nanganallur M.I. Road Malad (E) SONIPAT
044-42056685 0141- 4022256 022-28820352 9812059933
North Usman Road JAMNAGAR Malad (W) SIRSSA
044-45502496 0288-2561522 022-28891770 09888333639
Sowcarpet JAMMU Malad (W) SURAT
044-30966268 0191-2454764 022-28777679 0261-2369996
CHANDIGARH JHARIA Masjid Bunder Ghod Dod Road
0172-5052424 0326-2361720 022-56357597 0261- 3993010
Chandigarh - Sec47 JHARKHAND DHANBAD Masjid Bunder THENI
0172-5072123 0326 2361720 9224575600 9362113579
COCHIN JODHPUR Mulund TRICHY
0484-3949749 0291-5101900 022-25614154 0431- 4220713/14/15
COIMBATORE Jalori Gate Mumbadevi Srirangam
100 Feet Rd 0291-2627749 23460060 / 61 /62 0431-6454377/88/99
0422-2493536 Paota Oshiwara Thiruverumbur
R.S Puram 0291-3209090 9821233777 0431-2511787 / 6453898
0422-4370489 Mandore Mandi Powai TIRUPUR
DELHI 0291-5121134 022-28573098 0421-4336995
Nehru Place Mandore Mandi Santacruz THRISSUR
011-32474709 0291-5100995 9869102930 Kokalai
SSK LATUR Santacruz (w) 0487 2428793
011 42267259 0238 - 2255996 / 2249066 26616085 / 7075 Patturakkal
Barakhamba Road MORADABAD Ulhasnagar 0487 6450233
11 43575757 05912424090 95251-3952746 TRIVANDRUM
Dehradun JUNAGADH Versova 04713257010
9219698600 0285-2629489 022-26360617-18 UDAIPUR
DIBRUGARH KARNAL Vile Parle 0294-2415405
0373-2322607 9255248404 022-26714805 VISAKHAPATNAM
DIMAPUR KOTTAYAM NAGPUR 0891 2730730
03862-225832 04812563033/44 0712-2538191 VARANASI
DINDORI KARAIKUDI NELLORE 0542-5521383
07644-234261 04565-224221 0861-2330841 VIJAYAWADA
ERODE KAYAMKULAM Sitabuldi 0866-2579266
0424-22212823 0479-3953222 0712-2558455 WARANGAL
Brough Road KOLKATA NASHIK 0870-6450793/94/95
09894719071 033-39511666 0253-5607814/15 YAVATMAL
FARIDABAD C.B. Street Gangapur Rd 09422892827
0129-4068303 033-22428734 9326173938
Name Sector Tel No E-mail id

Avinash Gorakshakar Head of Research +91 22 6612 1206 avinash@emkayshare.com
Umesh Karne,CFA Auto, Auto Ancillary, Capital Goods, Power Equipment +91 22 6612 1281 umesh.karne@emkayshare.com
Manish Balwani Cement, Construction +91 22 6612 1278 manish.balwani@emkayshare.com
Sanjeev Hota IT, Telecom, Media +91 22 6612 1243 sanjeev.hota@emkayshare.com
Pratik Dalal Hotels, Packaging, Retail +91 22 6612 1280 pratik.dalal@emkayshare.com
Suman Memani Mid-caps, Construction & Realty +91 22 6612 1279 suman.memani@emkayshare.com
Sunita Karwa Research Associate +91 22 6612 1282 sunita.karwa@emkayshare.com
Manas Jaiswal Technical analyst +91 22 6612 1274 manas.jaiswal@emkayshare.com
Rajesh Manial Associate Technical analyst +91 22 6612 1275 rajesh.manial@emkayshare.com
Zeal Mehta Derivative Analyst +91 22 6612 1276 zeal.mehta@emkayshare.com
DISCLAIMER
Emkay Share & Stock Brokers Limited (Emkay) has two separate independent equity research groups: Institutional Equities and Private Client Group. This document has been prepared by Emkay – Private
Client Group (Emkay -PCG). Affiliates of Emkay Institutional Group may have issued other reports that are inconsistent with and reach different conclusions from the information presented in this report. The
views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating and target price of the Institutional Equities Research Group of Emkay Share & Stock
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Analyst’s holding in the stocks mentioned in the report: NIL
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Emkay Budget

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Emkay

Private Client Research

Emkay Union Budget Analysis 2007-08

A Cleverly Balanced Budget

The Union Budget for FY2007-08 announced by Finance Minister P Chidambaram in

Agriculture to be a big focus area Agriculture – Big Focus Area

Infrastructure Spending to accelerate further —

Fiscal health continues to be in good shape –

Bharat Nirman… continued thrust on Infrastructure

Public Health & Education – the other two foundation

Market Outlook – Long-term positive

Our Top Picks

In the Mid Cap space, we continue to be positive on Ratnamani Tubes, RPG

CENTRAL GOVERNMENT FINANCES (Rs bn)

(Particulars) FY06 FY07BE FY07RE YoY (%) FY08BE YoY (%)

Revenue Deficit [H+E-C] 918.21 847.27 834.36 (9.1) 714.78 (14.3)

ECONOMIC DATA CHARTS

Capital Outlay Loans

Non Tax Revenue Grants to State and

Fiscal deficit (Rs bn) Revenue deficit (Rs bn)

Fiscal Deficit (Rs.bn) % of GDP Revenue Deficit (Rs.bn) % of GDP

Gross domestic saving Gross domestic capital formation

Source: Government of India, Annual Budget FY2007-08, Economic Survey FY2006-07

INDIRECT TAX PROPOSALS

Excise Duty & Service Tax

n Renting of immovable property for use in commerce or business;

n Asset management services provided by individuals;

DIRECT TAX PROPOSALS

BUDGET IMPACT : NEUTRAL AUTOMOBILES

Auto Market Composition IMPACT ON THE SECTOR

BUDGET IMPACT: NEUTRAL AUTO ANCILLARIES

IMPACT ON THE SECTOR

Source: Emkay Private Client Research, ACMA

BUDGET IMPACT: POSITIVE BANKING & FINANCE

IMPACT ON THE SECTOR

Overall View on Stocks-

Source: Emkay Institutional Research

BUDGET IMPACT : POSITIVE CAPITAL GOODS / POWER EQUIPMENT

point to another storage point.

IMPACT ON THE SECTOR

Price EPS (Rs)

BUDGET IMPACT: NEGATIVE CEMENT

IMPACT ON THE SECTOR

BUDGET IMPACT: POSITIVE CONSTRUCTION

IMPACT ON THE SECTOR

BUDGET IMPACT: NEGATIVE Fertilisers & Chemicals

IMPACT ON THE SECTOR

Overall View on Stocks-

Source: Emkay Institutional Research

BUDGET IMPACT: POSITIVE FMCG

IMPACT ON THE SECTOR

BUDGET IMPACT: POSITIVE HOSPITALITY

Foreign Tourist Arrivals (Apr-Dec'06) BUDGET HIGHLIGHTS

BUDGET IMPACT: NEGATIVE IT/SOFTWARE

raised from 12.5 per cent to 15 per cent.

n Thrust on e-Governance: e-governance allocation to increase from Rs. 300

IMPACT ON THE SECTOR

BUDGET IMPACT: POSITIVE MEDIA

Growth of the Indian Entertainment

IMPACT ON THE SECTOR

Note: No stock under active courage.

Source: Emkay Institutional Research

BUDGET IMPACT: NEUTRAL METALS