Dinesh Thakkar- Sector specific views - Franchise Mart

Dinesh Thakkar- Sector specific views

Banking

The Union Budget extended the interest subvention scheme on short term crop loans to private sector banks (which hitherto was available to PSU banks, cooperative banks and RRBs), which will bring such banks on parity and encourage them to lend in these segments, however it remains to be seen whether they will actually lend, considering the risks of high NPA’s in such loans.

Banks have now been permitted to act as insurance brokers, which will slightly aid the fee income profile of banks, but the bigger positive would be for the insurance companies, as they will be able to push their products through multiple banks, as against the current practice of a tie-up with one bank only. An additional deduction of Rs. 1 lakh under Sec 24 (over and above Rs. 1.5lakh) will be available for a person taking loan upto Rs. 25 lakh for his first home from a bank or a housing finance company, which would aid retail loan growth outlook of these companies.

From the fiscal deficit point of view, despite being a pre-election budget, the government refrained from having any significant populist measures and the market borrowings number came largely on the expected lines. There was an expectation, that the budget this time, will introduce measures to encourage savings into financial instruments, but the budget disappointed on these fronts.

Infrastructure

The budget was neutral for Infrastructure sector. Few things were announced for Infrastructure which was positive; however, implementation of these measures remains the key. The announcement such as (a)Issuance of tax-free bonds through various institutions for financing infrastructure projects has been proposed at Rs. 50,000 crore in FY2013-14, (b) The road project worth 3,000kms from various states such as Gujarat, Maharashtra, Rajasthan, Madhya Pradesh, Rajasthan and Uttar Pradesh to be awarded in 1HFY2014, (c) Allocation for Ministry of Drinking Water and Sanitation in FY2013-14 is being stepped up by 17.4 percent to Rs. 15,260 crore and (d) If required, Delhi Mumbai Industrial corridor (DMIC) to be provided additional funds during FY2013-14 within the share of the Government of India in the overall outlay.

Construction work on two cities Dholera, Gujarat and Shendra Bidkin, Mahrashtra to be started in FY2013-14, were some announcement. However, all these measures are positive for infrastructure; the implementation remains the key as infrastructure companies continues to face persistent headwinds such as slower-than-anticipated revival in industrial capex, environment clearances, and high interest rate and land acquisition issues.

Oil & Gas

The budget was positive for Oil & Gas sector. Three things were announced for Oil & Gas which were positive for Oil & Gas sector; however, implementation of these measures remains the key. The government aims to provide clarity on Natural gas pricing which needs to be aligned to the international prices. There will be revenue sharing model for gas projects (learning from KG D6 experience) which would encourage exploration; at the same time will align government’s interests in line with corporates. Also, the government plans to come out with a policy on share gas exploration and production. All these measures are positive for oil explorers and producers such as Reliance Industries, ONGC, Cairn India and Oil India over the medium to long term.

Automobile

1. No hike in excise duty — In-line with expectations
2. Hike in excise duty for non-taxi SUV’s to 30 percent from the current rate of 27 percent — Marginally negative for M&M and Tata Motors. (Models to be impacted – Mahindra and Mahindra: Scorpio, Xylo, XUV5OO and Bolero/ Tata Motors: Safari, Safari Storme, Sumo, Sumo Grande and Aria)
3. Purchase of 10,000 buses under JNNURM — Positive for Tata Motors and Ashok Leyland
4. Import duty on motorcycles (engine: 800cc or more) hiked to 75 percent from 60 percent — Neutral
5. Import duty on luxury cars/ SUV’s hiked to 100 percent from 75 percent — Neutral
6. Increase in period of concession available for specified parts of electric/hybrid vehicles extended up to March 31, 2015
FMCG

Union Budget has increased the allocation to rural development programmes by 46 percent. This is favourable for FMCG players like, HUL, Dabur, Marico etc as it would increase income in the hands of rural consumers. SED on cigarettes has been increased by 18 percent in Union Budget 2013-14. Cigarette makers have in the past exhibited ability to increase prices whenever there is hike in excise duty. Thus, hike in SED on cigarettes is not expected to impact the profitability of cigarette makers like ITC although it might affect volumes in the near term.

Cement

For home loans upto Rs. 25 lakh taken in 2013-14, additional Income tax deduction of Rs. 1 lakh towards interest is allowed for one year. This move is positive for cement sector, as it is expected to favour cement demand. Uniform customs duty for steam and bituminous coal is positive for cement companies as cost of generating captive power would be cheaper.
IT Sector

The Budget 2013-14 was a non-event for IT sector. Apart from measures related to investments in improving the quality of education, the Budget did not outline any impact on the sector. The IT-education firms are expected to benefit from the increased allocation of funds for education, total of Rs. 65,867 crore, up 17 percent from last year, as it will boost business opportunities in ICT and vocational segments. The plan allocation for elementary education under the Sarva Shiksha Abhiyan increased to Rs. 27,258 crore from Rs. 25,555 crore last year.

Metals & Mining

The budget was a non-event for Metals & Mining sector. Except that Coal India will go for PPP (Private public partnership) to raise production, there was nothing much announced to talk about.

Capital Goods

Announcement: High value investments (i.e. greater than Rs. 100 crore) in Plant and Machinery, during the period 1st April 2013 to 31st March 2015, will be eligible for deduction of investment allowance of 15 percent (of the total investment). This will be in addition to the current rates of depreciation.
Impact: It would encourage companies to revive stalled projects and make new investments. Positive for all companies in capital goods sector.

Power

Announcement: Extension of tax exemption under Section 80-IA for power companies until FY2014
Impact: As per Section 80-IA exemption, power plants are eligible for a tax holiday of 10 years from the year of commissioning of the plants.
The exemption under this section was applicable to power plants commencing operations before FY2013 and has now been extended until FY2014. However, companies have to pay tax under MAT provisions. Extension of 80-IA benefits would have a positive impact on power generation companies.

Announcement: Proposed generation-based incentive for wind energy projects and allocation of Rs. 800 crore to Ministry of Non Renewable Energy for the same.
Impact: Positive for wind power generators.

Media

Announcement: Government proposes to add 839 new FM radio channels covering 294 cities. It will be auctioned in 2013-14.
Impact: Positive for radio operators such as ENIL.

Announcement: Custom duty on STBs increased from 5 percent to 10 percent.
Impact: Positive for domestic STB manufacturers. However, it is negative for cable and DTH operators as they mostly import STBs.

Dinesh Thakkar, Chairman & Managing
Director, Angel Broking

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