Budget Review 2012-13 Promises > Expectations; Conviction < Realism : Emkay PDF link

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Budget Review 2012-13 Promises > Expectations; Conviction < Realism n     First impression of pro-growth and consolidation: The combination of 13.1% growth in expenditure  (vs our expectation of 10%) at Rs 14.9tn and a robust tax revenue growth 19.5%, afforded by the 200bp increase in excise duty/service tax to 12% and measures to increase service tax collections, gives an impression of fiscal consolidation in Union Budget for FY13. The fiscal deficit target for FY13 at Rs 5.1tn or 5.1% of GDP is a decline from 5.9% in FY12. In addition the higher allocation under capital account at 30% yoy also gives a first impression of a investment and growth oriented budget. n     But fails to convince in reality: ·      Higher than expected expenditure budget, intent for fiscal consolidation should have reflected in meaningful cuts in non-plan expenditure ·      Understatement of fuel subsidy; In Rs436bn provided as petroleum subsidy for FY13BE, we believe about Rs400bn is spill over of FY12. In addition, the budget is silent on fuel price hikes ·      Optimistic assumption for gross tax collections, non-tax revenue and disinvestment targets ·      Growth of 19.5% in gross tax collections is a steep target (looking at the weakening industrial production) even after taking into account 200bp increase in the excise duty and service tax ·      Non-tax revenue receipts are estimated at Rs1.6tn, including ~Rs420bn from the 2G license re-auctions. We are uncertain about the receipt of same in FY13 given multiple legal hurdles that could delay the auction. ·      Divestment targets set at Rs300bn could also be at risk given that in FY12RE the mobilization was far less than initial Rs400bn target n     Unlikely to provide much comfort: Even as the budget seems to be investment oriented, against the backdrop of likely under performance on the revenue front and higher revenue spending, the investment orientation may eventually be compromised. As the budget stands, it would fail to provide comfort to the RBI in initiating rate cuts soon Budget Winners and Losers:  Sector Winners/Losers Agri Input Customs duty scraped; capex deduction enhanced to 150% for the sector Positive for players like Chambal, Tata Chemical, RCF, National Fertiliser, Zuari Automobiles Excise duty on CVs raised by 2% to 12% and additional 3% for  vehicles sold in chassis form Positive for Ashok Leyland due to higher production from tax free plants. Excise duty on UVs changed to ad valorem rate of 27% Negative for UV manufacturers No additional tax on diesel vehicles Sentimentally, positive for M&M Customs duty on import of large cars/UVs above USD 40k – 60% to 75% Marginally negative for Tata Motors (to the extent of JLR imports) Banking and Financial Services Recapitalization fund of Rs159bn Positive for PSU banks primarily those constrained with Tier I Capital - , UNBK, CBI, BOI, SBI, IDBI, IOB Proposed two way fungibility in IDRs# Big positive for StanChart IDR No mention of Rs20000 deduction in taxable income u/s80CCF Negative for IDFC Cement Excise duty at a unified rate of 12 % + Rs120/t for Large cement plants. Duty to be charged on the Retail Sale Price less abatement of 30% Effective excise duty to come down by ~Re1/bag or Rs20/ton.Positive from expectation perspective 5% Import duty on Coal abolished Positive for Ambuja, Ultratech, India Cement & Madras Cement Consumers Reduced import duty by 250 bps to 7.5% on Titanium dioxide Positive for Asian Paints and Berger Paints, Gives gross margin lever of 50 bps Enhanced custom duty on standard gold bar to 4%, non standard gold to 10% and excise duty on refined gold to 3% Negative for Titan and other branded gold companies Metals & Mining Full exemption of basic custom duty and reduction in CVD to 1% on thermal coal Positive for Nalco, Sterlite Ind, Hindalco, Tata Steel and JSW Steel by 0.2% to 1.3% Cess on crude oil production increased to Rs 4575 per ton Cairn India’s  EPS to be down by 11% - to have negative impact on fair value of Sesa Sterlite and thus to Sterlite Industries Oil & Gas Custom duty on LNG 5% to Nil Positive for Petronet LNG and GAIL as they import LNG and Gas Transmission companies like GSPL & GAIL as transmission volume would increase in the future.  Cess on crude oil production increased to Rs 4575 per ton Negative for Oil Producers like ONGC, OIL and Cairn India Pharmaceuticals AMT rate applicable for Partnership Firms based in SEZs Negative for Sun Pharma & Cadila Healthcare. Applying 20% MAT on profits from partnership firms, the additional tax burden will impact FY13 EPS by Rs2.5 for Sun Pharma and by Rs4.4 for Cadila Power 0% basic customs duty and 1% CVD on imported coal Positive for JSW Energy (7%), CESC (1.5%), Lanco (3.5%), IB Power (1.5%), NBVL (4.5%), KSK (1.5%) Click here to read report: Budget Review 2012-13