Union Budget 2012 - 13 Review


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Union Budget 2012 - 13 Review

  1. 1. Union Budget 2012-13 ReviewNidhi Kedia || Research Analyst ||nidhi.kedia@bmastock.comMarch 19, 2012
  2. 2. Topics Fiscal Consolidation??? Key Budget Incentives Detailed Sectoral Review | 1
  3. 3. Topics Fiscal Consolidation??? Key Budget Incentives Detailed Sectoral Review | 2
  4. 4. Fiscal Consolidation??? • The Fiscal deficit of the Government for FY12 came in at 5.9% as against the budgeted target of 4.6%. This was primarily caused by a fall in tax revenue collections and an increase in subsidy bill combined with the shortfall in the divestment targets • Given the fiscal slippage in FY12, the path of fiscal consolidation has been adversely affected. However, no substantial reforms to boost the economic growth have been announced in the budget. The Budget 2012-13 has failed to make the much required attempt to foster growth by reviving fiscal consolidation. • The Government has budgeted a fiscal deficit target of 5.1% in FY13. It will achieve this target by raising its sources of revenue with an increase in excise duty and service tax across the board. However, its targeted expenditure still remains high. Thus any slippage in its revenue collection or increase in subsidies would make it difficult to achieve the targeted fiscal deficit of 5.1% in FY13 • Some of its move to raise the excise duty and service tax combined with the recent increment in railway freight charges are broadly inflationary. This in turn would pressurize the Central Bank not to reduce the interest rates which in turn would make a toll on the economic growth. | 3
  5. 5. What the budget failed to do? • No timeline announced for the implementation of tax reforms, the Goods and Services Tax (GST) and the Direct Tax Code (DTC) • No hike in the foreign direct investment (FDI) limit in some of the sectors like aviation, insurance and retail • Failure to contain the market borrowings at the current level. | 4
  6. 6. Topics Fiscal Consolidation??? Key Budget Incentives Detailed Sectoral Review | 5
  7. 7. Key Budget Incentives • Benefit to the individual tax payer • Exemption limit for the general category of individual taxpayers enhanced from Rs.1,80,000 to Rs.2,00,000 giving tax relief of Rs.2,000 • Deduction of up to Rs. 10000from interest from Savings Bank Account • The 20% tax slab raised from Rs. 8,00,000 to Rs. 10,00,000 resulting in a tax savings of Rs. 20,000 to the higher income group. • Deduction of upto Rs.5,000 for preventive health check up • Introduction of Rajiv Gandhi Equity Savings Scheme for a 50% income tax deduction to new retail investors, who invest up to Rs. 50,000 directly in equities and whose annual income is below Rs. 10 lakh. • Central Excise and Service Tax being harmonized • Standard rate of excise duty and service tax raised from 10% to 12% • Service tax levy on all goods except those on the negative list comprising 17 heads (by and large all service provided by the Government or local authorities) | 6
  8. 8. Key Budget Incentives • Capital Market Incentives • Reduction in Securities Transaction Tax (STT) by 20% from 0.125% to 0.1% on cash delivery transactions • Introduction of Rajiv Gandhi Equity Savings Scheme for a 50% income tax deduction to new retail investors to generate additional flow of funds to the equity markets • Steps to attract foreign inflows by allowing qualified financial institutions (QFIs) to access the Indian bond market • Move to encourage corporates in raising finances abroad • Rate of withholding tax on interest payments on ECBs reduced from 20% to 5% for 3 years for certain sectors viz Infrastructure, Real Estate, Power sectors • Allowed ECB to part finance project costs • Subsidies • Endeavour to keep subsides under 2% of GDP in FY13. Further bringing it down to 1.75% in FY15 • ‘Food security’ to be fully covered by the Government. | 7
  9. 9. Topics Fiscal Consolidation??? Key Budget Incentives Detailed Sectoral Review | 8
  10. 10. Automobile sector Negative Announcement Impact CommentsBasic Excise duty hiked to 12 percent from 10percent The rise in the excise duty would result in price hikesExcise duty on large cars increased from 22 Marginally negative for two wheelers, four across all the segments in the passenger carpercent to 24 percent wheelers and Auto ancillary companies as industry, which consecutively would dent the demand the increase was on expected linesDuty on cars attracting mixed rate of (22% + by some extentRs 15,000) increased to an ad valorem rate of27%Excise duty on specified parts of hybrid This would promote the manufacture, sale and usage Positive for the manufacturers of hybridvehicles reduced from 10% to 6% of such vehicles in India vehicles like Mahindra & MahindraBasic custom duty on imported large cars/ The rise in custom duty on imported completely built Negative for MNC car players as well asMUVs/SUVs whose value exceeds USD 40,000 units of large cars and SUVs will lead to a domestic players like M&M and Tata Motorsper vehicle increased to 75% from 60% considerable rise in prices of luxury cars and UVsRs 10,000 is to be charged on building of This would increase the cost of production thereby Negative for Tata Motors, Ashok Leylandcommercial vehicle chassis in addition to the affecting margins and Auto Ancillary companiesapplicable ad valorem duty of 3%Increase in income tax exemption limit from Demand for two wheeler & lower end four wheeler to Positive for Hero Motor Corp, Bajaj Auto,Rs. 180,000 to Rs. 200,000 be impacted positively with an increase in disposable TVS Motors, Maruti Suzuki, etc incomeHike in customs duty on bicycles from 10% to This would increase the competitiveness of domestic Positive for Tube Investments30% and on bicycle parts from 10% to 20% bicycle manufacturers200% weighted deduction on in-house R&D This will incentivize investment in R&D and Positive for all auto companies.extended for a further period of five years encourage new drug developmentSOURCE: Capitaline, BMA Research | 9
  11. 11. Automobile sector Negative Announcement Impact CommentsInterest subvention schemes on short-term Continuation of interest subvention scheme would Positive for auto companies having a ruralcrop loans continued at 7% for another one lead to higher farm income with small farmers and presence, such as M&M and Hero Hondayear. Further, additional subvention of 3% thereby push the demand for mid-size and smallwill be available for prompt payment tractorsAllocation of Rs. 25,360 crore for NHDP Aggressive investments towards infrastructure Positive for MHCV players like Tata Motors,proposal development would drive the demand for M&HC ALL, Eicher Motors VehiclesTax on repatriation of dividends from foreign Players having their profit making foreign subdiaries, Positive for companies like Apollo Tyres,subsidiaries allowed at a lower tax rate of which distribute profits to their holding companies in Tata Motors, Mothersun Sumi15% as against 30% for one more year India will be benefited from this provisionSOURCE: Capitaline, BMA Research | 10
  12. 12. Banking & Financial Services sector Positive Announcement Impact CommentsRecapitalization of PSU Banks, RRBs and Capital infusion would help banks in regulatory Positive for PSU banks like SBI, IOB, UBI,other financial institutions to the tune of Rs compliance and fund business growth BOI etc15,888 croreInterest subvention schemes on short-term This is likely improve the payment discipline in the Neutral to positive for PSU bankscrop loans continued at 7% for another one agri segment, which has seen a sharp rise in theyear. Further, additional subvention of 3% NPAs. It will also increase the demand for farm loanswill be available for prompt paymentSaving Bank interest deductible up to This is likely to improve the savings bank deposits for Positive for the overall banking sectorRs10,000 the banksGovernment borrowings marked at Rs 4.79 Since market borrowings will be higher than the Negative for overall banking sectorlakh crore (net) FY2012 borrowings it will add pressure to bond yieldsReduction in withholding tax on interest This will raise demand for low cost funds from some Positive for the infrastructure financepayment on ECBs from 20% to 5% stressed infrastructure sectors companies like IDFC, REC and PFC.Rise in overall limit of issuance of tax free Financial Institutions to benefit from cost effective Positive for financial institutions such asbonds from Rs. 30000 crore last year to Rs. funding avenues NHAI, IRFC, IIFCL, HUDCO, NHB and60000 crore SIDBIIntroduction of Rajiv Gandhi Equity Savings This will increase the retail participation in equity Positive for the financial services sectorScheme for a 50% income tax deduction market and improve the depth of the domestic capital marketReduction in STT from 0.125 percent to 0.1 This will have a positive impact on the investors and Positive for all brokerage companiespercent on cash delivery transactions increase volumes in the equity marketSOURCE: Capitaline, BMA Research | 11
  13. 13. Capital Goods sector Positive Announcement Impact CommentsIncreased spending on major infrastructure Higher allocation will result in all-round growth for the Positive for the entire sectorprojects sector as it will encourage more capital investmentIncreased allocation to Defence at Rs. It will revive demand for the sector Positive for BEL, M&M, Tata Motors,193,407 crore Pipavav Shipyard, BEML, L&T etcCapital investment in sectors such as Would help in attracting private investment in PPPfertilizers, telecom towers and oil and gas projects. Steps to ease funding constraints in newhas been made eligible for viability gap project investments would help revive the assetfunding creation cycle through order inflows, thus benefiting the sectorPower sector to issue tax-free bonds worth These reforms will boost investment in the power and Positive for the entire sectorRs. 10,000cr for financing projects; ECBs to infrastructure sectors, resulting in a surge in orderspart finance rupee debt of power projects; for the capital goods segmentCustoms duty on imported coal to be waivedoffSOURCE: Capitaline, BMA Research | 12
  14. 14. Cement sector Positive Announcement Impact CommentsExcise duty on cement cleared from mini Largely neutral as the duty hike was already Neutral on cement manufacturerscement plants in packaged form will be 6% anticipatedplus Rs. 120/tonne; while duty on cementcleared from other than mini cement plantwill be 12% along plus Rs. 120/tonne. Theduty will be charged on the retail selling pricewith an abatement of 30%Customs duty on coal has been exempted Marginal reduction in the input cost Positive for the cement players like India Cements, Madras Cement and UltraTech CementsVarious initiatives like interest subvention of The continued focus of the government on affordable Positive for the industry as a whole1% and allowing ECB for low cost affordable housing will lead to volume growth for cementhousing projects companiesAllocation towards PMGSY has been Increased allocation towards infrastructure projects is Positive for the industry as a wholeincreased by 20% to Rs. 24,000 crore positive for the cement playersAllocation for Road Transport and Highways Increased allocation towards infrastructure projects is Positive for the industry as a wholefor road development increased by 14% to positive for the cement playersRs. 25,360 croreSOURCE: Capitaline, BMA Research | 13
  15. 15. FMCG sector Neutral Announcement Impact CommentsIncrease in standard excise duty from 10% to Minimal impact as most FMCG companies have low Negative for HUL and Asian Paints as a12% single-digit excise payouts as their facilities are higher proportion of their sales come from located in excise-free zones excisable facilitiesIncrease in allocation to NRLM by over 34 per This will lead to an increased demand for FMCG Positive for FMCG companies whose 30-cent to Rs. 3,915 crore and to Employment products from the rural population 50% of total revenues comes from ruralGeneration programme by 23 per cent to Rs. India1,276 croreTax on repatriation of dividends from foreign Players having their profit making foreign subdiaries, Positive for FMCG companies, whichsubsidiaries allowed at a lower tax rate of which distribute profits to their holding companies in receive dividend from their foreign15% as against 30% for one more year India will be benefited from this provision subsidiariesIncrease in Tax Slabs Higher disposable income in the hands of consumers Positive for the entire sector will be positive to FMCG and consumer durable industryCustoms duty on titanium dioxide reduced to It will improve the operating margins of the paint Positive for Asian Paints, Berger Paints,7.5% from 10% industry as the raw material is imported Kansai Nerolac, Akzo Nobel etcIncrease of excise duty by 10% on cigarettes This will result in an increase in duty. However, Neutral for the players like ITC, VST players with strong pricing power can pass on the Industries, Godfrey Phillips duty hike through further price hikes in its cigarette portfolioSOURCE: Capitaline, BMA Research | 14
  16. 16. Construction & Infrastructure sector Positive Announcement Impact CommentsAllocation to tax free bond for financing This will help in meeting the long-term needs of the Positive for the entire infrastructure sector.infrastructure projects doubled from Rs. sector and will boost infrastructure development in30,000 crore to Rs. 60,000 crore railways, ports, housing and highways developmentInfrastructure spending to go up to Rs 50 This will result in larger number of new orders getting Positive for the entire infrastructure sector.lakh crore during 12th period five year plan announced resulting in a robust order book of the L&T to be the major beneficiary construction companiesVGF scheme extended to irrigation, capital It will push large projects under these sectors and will Positive for Ramky Infra, IVRCL, RCF,investment in fertiliser sector, oil and gas help in attracting higher private investment into the Chambal fertilizer, GAIL, Bharti Airtel, IDEA,pipelines, telecommunication towers etc sector GTL Infra etcBoost infrastructure development in railways, Better highways would aid efficient and timely Positive for IL&FS Transport, IRB Infra,ports, housing and highways development delivery of cargo for road logistics Players IVRCL Infra, etcECB for capital expenditure on the This move will encourage public private partnerships Positive for IL&FS Transport, IRB Infra,L&T,maintenance and operations of toll systems in road construction projects NCC,etcfor roads and highwaysIncrease in allocation by 13% of Rs. 14,242 This will help in building the rural infrastructure and Positive for companies like Pratibhacrore to AIBP; Further focus to mobilize will be beneficial for the entire construction sector Industries, Unity Infra, Ramky, IVRCL,funds, in Irrigation and Water Resources; NCC, SPML Infra, etcAllocation of Rs. 14000 crore towards ruraldrinking water and sanitation; 20% increasein allocation to PMGSY to Rs24,000 croreReduction in the rate of withholding tax on Will lower the interest outgo on ECBs thus effectively Positive for the entire sectorinterest payments on ECBs from 20% to 5% reducing the cost of debtsfor three years in sectors like power; airlines;roads & bridges; ports and shipyards;affordable housing; fertilisers; and damsSOURCE: Capitaline, BMA Research | 15
  17. 17. Real Estate sector Positive Announcement Impact CommentsAllowed to raise money through ECBs for low Easier access to funds at a lower rate of interest Positive for Parsvnath, Puravankara, Sobhacost affordable housing projects Developers and other Small developersReduction in withholding tax on interest This should lower the borrowing cost of developerspayments on ECBs from 20% to 5% for three raising money through ECBs for the construction ofyears for affordable housing affordable housesService tax rate increased from 10% to 12% This would result in an increase in the cost to the end Negative for the entire sector user as the cost of development will go upExtension of 1% interest subvention on Such incentives would spur up the demand for Positive for all realty companies catering tohousing loan upto Rs 15 lacs where the cost residential projects and continue to benefit this segment, mainly in tier II and III citiesof the house does not exceed Rs 25 lacs developers having low-cost affordable housing projectsIncrease in the investment-linked deduction This would help stimulate more investments in theof capital expenditure on low-cost housing to mass housing segment150% from 100%Increase in income-tax slab Higher disposable income in the hands of consumers Positive for the entire sector will lead to increased demand for the entire sectorSOURCE: Capitaline, BMA Research | 16
  18. 18. Oil & Gas sector Negative Announcement Impact CommentsIncrease in cess on Crude petroleum oil Will increase the cost of production, thereby Negative for Oil Exploring companies likeproduced in India from Rs. 2500/ metric tonne impacting margins Cairn India, Reliance, ONGC, Oil India etcto Rs 4500/ metric tonneEstimated fuel subsidy for FY2013 set at Rs. The subsidy estimate of Rs43,580 crore (for Negative for the PSU upstream companies43,580 crore as against 50% of the total government) could be less than 50% of the total like ONGC, Oil India and Gailunder-recoveries earlier under-recoveries in FY2013. Hence it may increase the burden of the PSU upstream companies and also affect marginally the OMCsOil & Gas pipeline infrastructure eligible for The proposal would act like a catalyst thereby Positive for GAIL, GSPL, IGL“viability gap funding” increasing investments into the pipeline infrastructureRemoval of 5 per cent custom duty on LNG This will benefit importers of LNG including power, Marginally Positive for Petronet LNG, Gailimports sponge iron and fertilizer Companies etcSOURCE: Capitaline, BMA Research | 17
  19. 19. Pharmaceuticals sector Positive Announcement Impact CommentsIncrease in Service tax from 10% to 12% This would make the healthcare services more Negative for the entire sector costlier200% weighted reduction in in-house R&D This will incentivize investment in R&D and Positive for Dr. Reddy’s, Biocon, SPARC,extended for a further period of five years encourage new drug development Piramal Life, Sciences, RanbaxyMAT announced for partnership units Negative for companies that have partnership unit, as Negative for Sunpharma, Cadila Healthcare it would result in higher tax outflowAllocation for NRHM proposed to be This will strengthen the rural health infrastructure Positive for all pharmaceutical companiesincreased from by 15% to Rs. 20,822crExemption from income tax of upto Rs. 5,000 Exemption for check-up expense will help healthcare Positive for all pharmaceutical companiesspent on preventive health check-up servicesProposal to continue to allow repatriation of Most of the frontline players have their profit making Positive for all pharmaceutical companies,dividends from foreign subsidiaries of Indian foreign subsidiaries, which distribute profits to their mainly Indian companies, as they generatecompanies at a lower tax rate of 15% up to holding companies in India. These companies will be the highest revenue from export marketsMarch 2013 benefited from this provisionSOURCE: Capitaline, BMA Research | 18
  20. 20. Utilities sector Positive Announcement Impact CommentsWaiver of basic custom duty on coal This will benefit the companies with imported coal Positive for NTPC, Adani Power, Tata based projects Power, JSW Energy, GMR Infra, GVK Power and NPCILAllowing External Commercial Borrowings The private and public power producers can avail Positive for the sector(ECB) to part finance Rupee debt of existing benefit of comparatively cheaper ECB loans topower projects and cut in withholding tax on reduce overall financing costsECBsSunset clause for claiming 100% deduction of The extension of 80IA sunset clause offers Positive for the sectorprofits for 10 years extended by another one opportunity for power developers to commissionyear power plants in the next year and avail the benefit. The benefit of 20% additional depreciation to benefit power producers with competitive based power projectsCIL advised to sign fuel supply agreements, It brings comfort of fuel availability for independent Positive for companies like CESC, Lancowith power plants that have entered into power producers Infra, Reliance Power, Adani Power,long-term PPAs with DISCOMs and would get Indiabulls Power ,NTPCcommissioned on or before March 31, 2015Exemption of Custom duty on plant and Positive impact on the sector struggling due to high Positive for the entire sectorequipment required to set up solar thermal prices of imported fuelprojects and a concessional CVD of 1% tosteam coal for a period of two years till March2014; full customs duty exemption for naturalgas and LNGTax free bonds of Rs. 10000 crore to be It would help to improve funding for the sector Positive for the whole power sectorallowed for financing Power sector in 2012-13SOURCE: Capitaline, BMA Research | 19
  21. 21. Disclaimer This document is for private circulation only. Neither the information nor any opinion expressed constitutes an offer, or any invitation to make an offer, to buy or sell any securities or any options, future or other derivatives related to such securities. BMA Wealth Creators Ltd. or any of its associates or employees doesn’t except any liability whatsoever direct or indirect that may arise from the use of the information herein. BMA Wealth Creators Ltd. and its affiliates may trade for their own accounts as market maker, block positional, specialist and/or arbitrageur in any securities of this issuer (s) or in related investments, may be on the opposite side of public orders. BMA Wealth Creators Ltd. and its affiliates, directors, officers, employees, employee benefit programs may have a long or short position in any securities of this issuer (s) or in related investments no matter content herein may be reproduced without prior concert of BMA. While there report has been prepared on the basis of published/other publicly available information considered reliable, we are unable to accept any liability for the accuracy of its contents.Nidhi Kedia || Research Analyst ||nidhi.kedia@bmastock.comMarch 19, 2012