Angel Broking: Post Budget Views on Various Sectors

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Automobile

Overall, the Union Budget 2011-12 is positive for the Automobile sector as the central excise duty has been kept unchanged. Further, special incentives has been announced for companies manufacturing hybrid vehicles in India. Moreover, broader measures like increased focus on rural and infrastructure spending would support long term growth of the sector.

IT

The Union Budget 2011-12 was a low key affair for the Software Sector. The Budget did not mention extension of fiscal benefits under the STPI Scheme for Export of Software Services, which is due to expire in FY2011. Plan allocation for School Education increased by 24% to `52,057cr in FY2011-12. This would boost business opportunities for the IT-Education companies in terms of ICT and PPP in K-12 and Vocational Segments. viz. Educomp, Everonn and NIIT Ltd. Overall, the budget was Neutral for IT sector.

Infrastructure

The Union Budget 2011-12 continued to lay stress on infrastructure development, as the allocation for the sector has been increased by 23% yoy to `2,14,000cr which is 48.5% of the planned expenditure. Further, steps like tax free infra bonds worth `30,000cr by various government undertakings, creation of infra debt funds are positive for the sector. Also, MAT rate has been hike from 18% to18.5% which would nullify the benefit from surcharge reduction from 7.5% to 5%. The tax benefit under Section 80IA and `20,000 investment in Infrastructure Bonds has been extended by one year.

Metals & Mining

Export duty on export of iron ore has been raised to ad valorem 20% on lumps as well as fines. Currently, lumps are taxed at 15% and fines are taxed at 5%. This is negative news for iron ore exporters such as Sesa Goa (~90% of total sales from exports) and NMDC (~15% of  total sales from iron ore exports). Nevertheless, no imposition of mining tax (26% at PBT) is a positive for mining companies as well as steel companies with captive mines.

Pharma

The Budget is neutral for the pharmaceutical sector. Allocation to Ministry of Health & Family Welfare have been increased by 20% to 26,760 crore for FY2012 from Rs 22,300 crore. There was no extension provided on the weighted deduction on the in-house R&D which stands at 200% and available till FY2012 only, which was a disappointment for the Pharma companies actively involved in R&D activities. Although MAT has been increased to 18.5% from 18%, it would be totally nullified by the decrease in the surcharge to 5% from 7.5%. MAT levied on the SEZ developers would impact the companies that were placed to benefit from the same. There were no indications on the extension of the EOU benefit which is available only till FY2011, which could be a negative for the sector, especially companies that have been not or have been slow in expansion through SEZ.

Capital Goods

The Budget 2011-12, though it did not have many significant direct measures for the Capital Goods sector, it sent a positive signal with regards to the continued impetus being provided to the Infrastructure and Power Sector of the country. As regards the specific demand by BHEL and L&T to increase import duty on foreign equipment, which cited the lack of a level playing field for domestic manufacturers, the Finance Minister has ignored the same and kept the rates unchanged. However, parallel excise duty exemption for domestic suppliers producing capital goods needed for expansion of existing mega or ultra mega power projects have been granted.

FMCG

Focus continues on rural development and agricultural growth. Schemes introduced to boost disposable income with consumers. Unchanged excise rate (at 10%) and marginal revision in overall MAT rate to 20% (earlier 19.93%) was a huge positive to companies like HUL, ITC and GCPL. Increased allocation for– 1) cultivable land for the produce of palm oil (positive for HUL and GCPL) and 2) cold storages (positive for food processing industry) was other positives from the budget. No conducive roadmap on GST (negative for the industry).

Media

Budget did not touch upon media industry too much, however waiver on the excise duty for jumbo rolls for cinematographic film is positive for all film production companies like UTV, Eros and PVR (through its division PVR pictures). CVD extension to mailroom equipment (forms 15-20% of the total equipment procurement capex) for newspaper industry has a neutral impact on companies like DB Corp, HT Media and Jagran Prakashan.  

Power

One of the major announcements concerning power sector is the extension of tax exemption under 80-IA for power generation companies till FY2012. This announcement would have a marginally positive impact on both public and private sector power generation companies. Some of the companies, which would be benefitted include NTPC, Adani Power, Tata Power etc. Another announcement was regarding a parallel excise duty exemption for domestic suppliers producing capital goods needed for expansion of existing mega or ultra mega power projects. This move too is marginally positive for power generation companies.

Sector: Cement

Various measures introduced in the budget to stimulate rural growth in infrastructure and an increased allocation in various infrastructure projects is expected to improve the demand. Import duty cut from 5% to 2.5% on pet coke & gypsum will have marginal positive impact on few companies.

Cement sector will now attract 10% ad valorem plus Rs 160 per tonne (Earlier 10%  excise duty on retail sale price ) for above Rs 190 per bag while 10% ad valorem plus Rs 80 per tonnes (Rs290/tonne) which is negative for the sector. The change in duty structure on cement is likely to have a impact of Rs8 per bag for cement sold above Rs190 and minimum Rs8 for cement sold below Rs190. We expect all players except to pass on the hike in the short term (2-3 months).On account of sluggish demand and overcapacity we expect margins of the cement players to get negatively impacted.