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FY13 budget impact
Most measures announced for the power sector in the FY13 Budget were
expected. The reduction of import duty on coal (from 5% to 0%) is an
important move and leads to 5-13% EPS upgrade for JSW Energy and
Adani Power for FY13-14. The tax holiday under the Section 80IA got
extended by one more year and there was no change in MAT this year.
Overseas borrowings (ECBs) would have a lower interest burden due to
the reduction in the withholding tax. While no duty was imposed on
import of generation equipment, the possibility of this happening post
budget cannot be ruled out. No change in our recommendations.
Cut in import duty on thermal coal and LNG
q Customs duty on coal has been reduced to 0% from 5.2% earlier for a period of
two years.
q The companies which have untied power would benefit from this. Key beneficiaries
would be JSW Energy, Adani Power.
q There would not be any benefit for the companies which are importing coal but
have tied up all power in PPAs like Tata Power or NTPC. Under PPAs this would
qualify as “change in law” and the benefits of no customs duty on coal would need
to be passed on to the procurers.
q The basic duty on LNG for power generation has also been exempted to bring down
the cost of power.
q SEBs (State owned distribution companies) would be biggest beneficiaries of the
above as their cost of power procurement would go down.
No change in MAT; Section 32 benefit extended to power sector
q There was no change in Minimum Alternate Tax (MAT) rate in the budget after
many years. The effective MAT rate remains at ~20%.
q Benefit of Section 32 of the Income Tax Act has been extended to power sector
which will allow assesse engaged in the business of generation or generation and
distribution of power an initial depreciation at the rate of 20% of actual cost of new
machinery or plant – this will help in reducing the tax burden.
ECBs allowed for re-financing; withholding tax cut from 20% to 5%
q External Commercial Borrowings (ECBs) would be allowed to part finance the INR
debt of existing power projects.
q Given the state of Indian Power sector as of now we are sceptical if many projects
would be able to attract foreign lenders for re-financing.
q The rate of withholding tax on ECBs has been cut to 5% from 20% which will help
reduce the interest burden for the power companies.
5-13% EPS upgrade for ADANI.IN and JSW.IN; Maintain SELL on both
q We are upgrading FY13-14 earnings for Adani Power by 5-7% and for JSW Energy
by 11-13% to factor in the cut in import duty on thermal coal.
q The magnitude of upgrade is higher for JSW as it sells more power in the short
term market. Our TP for JSW is now Rs42/sh.
q We maintain SELL on both the stocks.
No import duty on generation equipment in the budget
q It was expected that the government will impose an import duty of 19% (against
which domestic suppliers would pay 10%+ excise duty and central cess) on import
of power generation equipment. This is a near term negative for BHEL and L&T.
q Our discussion with industry participants suggests that there was opposition to this
from both utilities and equipment makers. Equipment makers believe current level
of duties being proposed are not sufficient and want higher duties.
q Though import duty on power equipment did not come through in the budget, it is
quite likely to be imposed on a later date.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
FY13 budget impact
Most measures announced for the power sector in the FY13 Budget were
expected. The reduction of import duty on coal (from 5% to 0%) is an
important move and leads to 5-13% EPS upgrade for JSW Energy and
Adani Power for FY13-14. The tax holiday under the Section 80IA got
extended by one more year and there was no change in MAT this year.
Overseas borrowings (ECBs) would have a lower interest burden due to
the reduction in the withholding tax. While no duty was imposed on
import of generation equipment, the possibility of this happening post
budget cannot be ruled out. No change in our recommendations.
Cut in import duty on thermal coal and LNG
q Customs duty on coal has been reduced to 0% from 5.2% earlier for a period of
two years.
q The companies which have untied power would benefit from this. Key beneficiaries
would be JSW Energy, Adani Power.
q There would not be any benefit for the companies which are importing coal but
have tied up all power in PPAs like Tata Power or NTPC. Under PPAs this would
qualify as “change in law” and the benefits of no customs duty on coal would need
to be passed on to the procurers.
q The basic duty on LNG for power generation has also been exempted to bring down
the cost of power.
q SEBs (State owned distribution companies) would be biggest beneficiaries of the
above as their cost of power procurement would go down.
No change in MAT; Section 32 benefit extended to power sector
q There was no change in Minimum Alternate Tax (MAT) rate in the budget after
many years. The effective MAT rate remains at ~20%.
q Benefit of Section 32 of the Income Tax Act has been extended to power sector
which will allow assesse engaged in the business of generation or generation and
distribution of power an initial depreciation at the rate of 20% of actual cost of new
machinery or plant – this will help in reducing the tax burden.
ECBs allowed for re-financing; withholding tax cut from 20% to 5%
q External Commercial Borrowings (ECBs) would be allowed to part finance the INR
debt of existing power projects.
q Given the state of Indian Power sector as of now we are sceptical if many projects
would be able to attract foreign lenders for re-financing.
q The rate of withholding tax on ECBs has been cut to 5% from 20% which will help
reduce the interest burden for the power companies.
5-13% EPS upgrade for ADANI.IN and JSW.IN; Maintain SELL on both
q We are upgrading FY13-14 earnings for Adani Power by 5-7% and for JSW Energy
by 11-13% to factor in the cut in import duty on thermal coal.
q The magnitude of upgrade is higher for JSW as it sells more power in the short
term market. Our TP for JSW is now Rs42/sh.
q We maintain SELL on both the stocks.
No import duty on generation equipment in the budget
q It was expected that the government will impose an import duty of 19% (against
which domestic suppliers would pay 10%+ excise duty and central cess) on import
of power generation equipment. This is a near term negative for BHEL and L&T.
q Our discussion with industry participants suggests that there was opposition to this
from both utilities and equipment makers. Equipment makers believe current level
of duties being proposed are not sufficient and want higher duties.
q Though import duty on power equipment did not come through in the budget, it is
quite likely to be imposed on a later date.
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