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Technology
We do not expect the Software Technology Parks of India (STPI)
clause to be extended. Hence, neutral for India’s IT Services sector
as this has already been factored in. However, we expect the
government to increase spending on education, e-governance and
Defence.
Fig 20 – Budget expectations and possible impact on companies
Expected Measures Impact Companies impacted
Unlikely that the sunset clause on tax
exemption would be extended
Neutral Indian IT Services
Greater spending on education (SSA) Positive Educomp, Everonn, NIIT, Aptech, Core
Projects
Increase in e-governance and spending on
Defence
Positive Infotech Enterprises, Rolta India, Vakrangee
Software
Source: Anand Rathi Research
We do not expect the Software Technology Parks of India (STPI) clause to
be extended; this would be neutral for the Indian IT Services sector. Tax
rates for all IT companies in the IT sector would rise. This has already been
factored into our estimates. Mid-cap IT companies to be the most
impacted, since they have single-digit or low double-digit tax rates and are
lagging behind in expansions through SEZ.
However, since the Direct Tax Code is likely only from FY13, the IT
industry is demanding extension of tax benefits now, for a year.
Expectations – STPI extension
Tax benefits under section 10A/10B unlikely to be extended. Tax
relief for export-oriented units (EoUs) unlikely to be taken up.
Impact on sector
Sharp rise in tax rates in FY12, factored in. For large-cap IT companies,
tax rates would be ~16-20% in FY11; then ~20-27% in FY12. Infosys
would be the least affected since it already has a high effective tax rate.
Neutral for Indian IT companies.
Companies affected
Neutral on IT Services – Infosys, TCS, Wipro, HCL Tech, Tech Mahindra,
MphasiS and other outsourcing companies.
Expectation – greater spending on education
The Plan allocation would increase by 15-16% from `310bn to `360bn.
This is in line with the “The Right to Education Bill, 2009”, which seeks to
provide every child of six to fourteen years the right to free and
compulsory education in a neighbourhood school until completion of
elementary education. Hence, this is positive for companies providing ITrelated
services to the education sector.
In addition, we expect allocation to states for elementary education would
increase from `36.8bn to `40bn. We feel this would open up more publicprivate
partnerships in education.
Companies affected
Positive impact on Educomp, Everonn, NIIT, Aptech and Core projects.
Expectation – Increase in government spending on e-governance and
Defence
We expect the Budget to throw up a roadmap to convert physical land
records to an electronic format. The Right to Information (RTI) Act, 2005,
by the Government of India mandates all government departments to
digitize physical documents so that information required by citizens could
be provided to them within the stipulated time.
Using ITES for scanning, digitalization, and retrieval of documents would
prove beneficial for companies in the government vertical and provide
document-management services. Companies in the geo-spatial area across
verticals and which provide services such as imaging, photo-grammetry,
map-making and finishing services to government would also benefit.
We expect double-digit growth in capital expenditure on Defence.
Companies affected
Positive impact on companies providing geo-spatial services (Rolta,
Infotech Enterprises) and document-management services (Vakrangee
Software).
For Infotech Enterprises, geo-spatial services brought in 31% of its TTM
revenue.
Rolta obtained 50% of its TTM revenue from geo-spatial services and a
part of its revenue comes from the Indian Defence sector.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Technology
We do not expect the Software Technology Parks of India (STPI)
clause to be extended. Hence, neutral for India’s IT Services sector
as this has already been factored in. However, we expect the
government to increase spending on education, e-governance and
Defence.
Fig 20 – Budget expectations and possible impact on companies
Expected Measures Impact Companies impacted
Unlikely that the sunset clause on tax
exemption would be extended
Neutral Indian IT Services
Greater spending on education (SSA) Positive Educomp, Everonn, NIIT, Aptech, Core
Projects
Increase in e-governance and spending on
Defence
Positive Infotech Enterprises, Rolta India, Vakrangee
Software
Source: Anand Rathi Research
We do not expect the Software Technology Parks of India (STPI) clause to
be extended; this would be neutral for the Indian IT Services sector. Tax
rates for all IT companies in the IT sector would rise. This has already been
factored into our estimates. Mid-cap IT companies to be the most
impacted, since they have single-digit or low double-digit tax rates and are
lagging behind in expansions through SEZ.
However, since the Direct Tax Code is likely only from FY13, the IT
industry is demanding extension of tax benefits now, for a year.
Expectations – STPI extension
Tax benefits under section 10A/10B unlikely to be extended. Tax
relief for export-oriented units (EoUs) unlikely to be taken up.
Impact on sector
Sharp rise in tax rates in FY12, factored in. For large-cap IT companies,
tax rates would be ~16-20% in FY11; then ~20-27% in FY12. Infosys
would be the least affected since it already has a high effective tax rate.
Neutral for Indian IT companies.
Companies affected
Neutral on IT Services – Infosys, TCS, Wipro, HCL Tech, Tech Mahindra,
MphasiS and other outsourcing companies.
Expectation – greater spending on education
The Plan allocation would increase by 15-16% from `310bn to `360bn.
This is in line with the “The Right to Education Bill, 2009”, which seeks to
provide every child of six to fourteen years the right to free and
compulsory education in a neighbourhood school until completion of
elementary education. Hence, this is positive for companies providing ITrelated
services to the education sector.
In addition, we expect allocation to states for elementary education would
increase from `36.8bn to `40bn. We feel this would open up more publicprivate
partnerships in education.
Companies affected
Positive impact on Educomp, Everonn, NIIT, Aptech and Core projects.
Expectation – Increase in government spending on e-governance and
Defence
We expect the Budget to throw up a roadmap to convert physical land
records to an electronic format. The Right to Information (RTI) Act, 2005,
by the Government of India mandates all government departments to
digitize physical documents so that information required by citizens could
be provided to them within the stipulated time.
Using ITES for scanning, digitalization, and retrieval of documents would
prove beneficial for companies in the government vertical and provide
document-management services. Companies in the geo-spatial area across
verticals and which provide services such as imaging, photo-grammetry,
map-making and finishing services to government would also benefit.
We expect double-digit growth in capital expenditure on Defence.
Companies affected
Positive impact on companies providing geo-spatial services (Rolta,
Infotech Enterprises) and document-management services (Vakrangee
Software).
For Infotech Enterprises, geo-spatial services brought in 31% of its TTM
revenue.
Rolta obtained 50% of its TTM revenue from geo-spatial services and a
part of its revenue comes from the Indian Defence sector.
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