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Budget impact
Apart from imposition of minimum alternate tax, the budget 2012 was
quite neutral for the pharmaceutical and healthcare sectors. The budget
brought partnership firms under gamut of MAT thereby negatively
impacting Sun Pharma and Cadila in the pharma sector. We estimate
FY13 EPS downgrade of Sun Pharma by c. 12% and Cadila by c. 9%.
Among other provisions, marginal increase in excise duty would most
likely be passed on to consumers and in any case a number of India firms,
being based out of excise exempt zones, do not get impacted. Weighted
deduction on R&D at 200% has been extended for another five year
period. This is a positive though was on expected lines.
MAT applicable on partnership firms
q Budget has included under minimum alternate tax (MAT) all persons other than
companies claiming profit linked deductions.
q Sun Pharma has been using partnership structure for more than a decade thereby
not coming under MAT.
q Cadila started using this structure with commissioning of Sikkim facility two years
back.
q Both companies would be negatively impacted with MAT being applied on
partnership structures.
q With this Sun Pharma’s tax rate goes up from 7-9% to c. 17% and Cadila tax rate
goes up from 14-15% to c. 20%.
q In case MAT is implemented on partnership structures, we see c. 12% EPS
downgrade in Sun Pharma earnings and c. 9% downgrade in case of Cadila’s
earnings.
q Our EPS estimates for Sun Pharma are at Rs26.9/share for FY13 and Cadila at
40.3x FY13. We expect these to come down to c. Rs23.7/ share for Sun Pharma
and c. Rs36.6/ share for Cadila.
Marginal increase in excise duty (5% to 6%)
q Most companies have a large proportion of domestic sales coming from excise
exempt locations and hence the impact is marginal for the sector with slightly
higher impact on MNCs.
q Excise duty on bulk also increases with CENVAT rate moving up from 10% to 12%.
q Most companies are likely to pass on hike in excise duties.
Other measures in the budget
q Weighted deduction on R&D at 200% has been extended for another five year
period. This is a positive though was on expected lines.
q Healthcare services continue to be exempt from service tax.
q No change in MAT rate remains positive as most Indian pharma companies (except
MNCs) are below corporate tax rate.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Budget impact
Apart from imposition of minimum alternate tax, the budget 2012 was
quite neutral for the pharmaceutical and healthcare sectors. The budget
brought partnership firms under gamut of MAT thereby negatively
impacting Sun Pharma and Cadila in the pharma sector. We estimate
FY13 EPS downgrade of Sun Pharma by c. 12% and Cadila by c. 9%.
Among other provisions, marginal increase in excise duty would most
likely be passed on to consumers and in any case a number of India firms,
being based out of excise exempt zones, do not get impacted. Weighted
deduction on R&D at 200% has been extended for another five year
period. This is a positive though was on expected lines.
MAT applicable on partnership firms
q Budget has included under minimum alternate tax (MAT) all persons other than
companies claiming profit linked deductions.
q Sun Pharma has been using partnership structure for more than a decade thereby
not coming under MAT.
q Cadila started using this structure with commissioning of Sikkim facility two years
back.
q Both companies would be negatively impacted with MAT being applied on
partnership structures.
q With this Sun Pharma’s tax rate goes up from 7-9% to c. 17% and Cadila tax rate
goes up from 14-15% to c. 20%.
q In case MAT is implemented on partnership structures, we see c. 12% EPS
downgrade in Sun Pharma earnings and c. 9% downgrade in case of Cadila’s
earnings.
q Our EPS estimates for Sun Pharma are at Rs26.9/share for FY13 and Cadila at
40.3x FY13. We expect these to come down to c. Rs23.7/ share for Sun Pharma
and c. Rs36.6/ share for Cadila.
Marginal increase in excise duty (5% to 6%)
q Most companies have a large proportion of domestic sales coming from excise
exempt locations and hence the impact is marginal for the sector with slightly
higher impact on MNCs.
q Excise duty on bulk also increases with CENVAT rate moving up from 10% to 12%.
q Most companies are likely to pass on hike in excise duties.
Other measures in the budget
q Weighted deduction on R&D at 200% has been extended for another five year
period. This is a positive though was on expected lines.
q Healthcare services continue to be exempt from service tax.
q No change in MAT rate remains positive as most Indian pharma companies (except
MNCs) are below corporate tax rate.
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