Union Budget 2016-17

UNION BUDGET 2016-17
February 29, 2016
Table of content
Page No.
Sector Impact
Agriculture: Key focus area for FY17 (Higher spending + new schemes)
Auto: Farm/Rural/Infra focus - positive for overall sector; infra cess

Auto: - negative for cars/UVs
4-5
Banking: Benefits from rural reforms to benefit banks over medium term
6-7
Cement: It is easier said than done!

Industrials: Headlines draw a long bow!
8
9-10
IT Services: Positives from Digital India and SEZ benefits till 2020
11
Oil and Gas: Higher linkages of Cess to crude oil price disappoints
12
Disclaimer & Disclosures
13-14
POSITIVE
Agriculture: Key focus area for FY17 (Higher spending + new schemes)
Measure
Impact
Stocks Impacted
Raised agriculture credit limit to Rs9,00,000cr
It would increase agriculture income and
Positive
+Rs35,984cr for farmer welfare fund+

Rs38,500cr allocated under MGNREGS+
Rs86000cr on irrigation projects over 5 years .
various schemes and benefit under it would

encourage farmers to improve yield and
productivity.
Setting
up dedicated irrigation fund of

Rs20,000cr under NABARD+ Implementation
of 89 irrigation projects on faster track.
Pick-up in volumes and better demand recovery
for all agro-chemical companies

primarily Dhanuka, Monsanto India, Meghmani
Organics, PI Industries, Rallis India etc.
Positive for Irrigation companies such as Jain
Irrigation, EPC Industries.
of agro-chemical products and other agri

related products.
Positive for Agri piping players such as Finolex
Rs60,000cr for water resources management
Industries, Supreme Industries.
+Rs15,000cr provision towards interest

subvention on farm loans+ E-platform to
connect wholesales agri markets.
Valuation
Companies
Stocks under Coverage
Finolex Industries Ltd
Supreme Industries Ltd
Non Coverage (Agrochem)
Dhanuka Agritech Ltd
PI Industries Ltd
Monstanto India Ltd
Meghmani Organics Ltd
Irrigation
Jain Irrigation Ltd
EPC Industries Ltd
CMP
(Rs)
TP
(Rs)
Reco
Mkt Cap
(Rs mn)
Revenues (Rs mn)

FY16E
FY17E
EBITDA (Rs mn)

FY16E
FY17E
EPS (Rs)
PER (x)
P/B (x)
EV/EBITDA (x)
ROE (x)
FY16E FY17E FY16E FY17E FY16E FY17E FY16E FY17E FY16E FY17E
306
339
410
865
BUY
BUY
37,973
85,012
25,436
43,190
27,676
51,441
3,979
6,647
4,838
7,869
15.4
25.8
21.9
32.0
19.9
13.1
14.0
10.6
4.1
4.5
3.5
3.9
10.5
13.5
8.4
11.3
22.3
25.0
26.9
26.4
540
579
1,568
19
NR
NR
NR
NR
NR
NR
NR
NR
26,985
79,376
27,068
4,882
8,102
21,151
5,172
13,338
9,304
25,007
6,051
14,922
1,401
4,371
879
2,894
1,683
5,268
1,214
3,268
19.4
20.96
46
3.2
23.1
25.4
65
3.6
27.8
27.6
34.1
6.0
23.4
22.8
24.1
5.3
5.7
6.9
7.4
0.8
4.8
5.5
7.3
0.7
19.0
18.3
29.0
3.7
15.0
15.2
21.0
3.3
21.8
27.9
21.7
14.0
22.2
26.9
30.2
14.5
55
125
NR
NR
NR
NR
24,194
3,455
65,197
2,006
72,691
2,975
8,500
82
9,747
217
2.73
2.5
4.82
6.25
20.0
50.0
11.3
20.0
1.0
2.6
0.9
2.3
7.5
40.0
6.5
15.2
5.6
5.8
9.2
11.8
Source: IDBI Capital Research; Bloomberg; NR Not Rated
NEUTRAL
Auto: Farm/Rural/Infra focus - positive for overall sector; infra cess negative for cars/UVs
Enhancing expenditure in farm, rural and infra sectors as priority areas will lead to increase in farm income which in turn will boost demand of
tractors, two-wheelers, passenger vehicles especially small cars and commercial vehicles.
However, infra cess of 1%-4% on different categories of passenger vehicles may impact demand for a while. Also, TDS @ 1% will be deducted on
purchase of luxury cars exceeding value of Rs10 lakhs. We believe, Maruti Suzuki will be worst impacted due to these announcements.
Concessional excise duty of 6% on specified goods for the use in the manufacture of electric and hybrid vehicles is being extended without time
limit. This will encourage manufacturers like M&M to work aggressively towards green vehicles. .
Our top picks in the sector are: M&M, Tata Motors and Ashok Leyland.
Measure
Meaning
Stock Impact
Enhancing expenditure in farm, rural and
Will increase demand of tractors, two-
Positive for M&M, Hero Motocorp, Maruti
infra sectors as priority areas
Increasing spending on the road sector

(Rs97,000 cr), rural sector (Rs87,765 cr)
including MGNREGS (Rs38,500 cr),
Agriculture and farmers welfare
(Rs35,984 cr) including provision towards
interest subvention (Rs15,000 cr)
Infrastructure cess, of 1% on petrol/LPG/
CNG vehicles of length <4m and engine

capacity <1200cc, 2.5% on diesel vehicles
of length <4m and engine capacity
<1500cc and 4% on other higher engine
capacity vehicles.
wheelers, passenger vehicles especially cars

and commercial vehicles
Will impact demand of vehicles across
Suzuki, Ashok Leyland, Eicher Motor, Tata

Motors
Negative for Maruti, M&M, Tata Motors
passenger vehicle industry due to increase

in prices
3-wheelers, electric and hybrid vehicles,

vehicles registered for use solely as taxi
and ambulances have been kept out of
this tax.
4
NEUTRAL
Auto: Farm/Rural/Infra focus - positive for overall sector; infra cess negative for cars/UVs
Measure
Meaning
Stock Impact
Tax to be deducted at source at the rate
Will impact demand of cars falling in this
Negative for Maruti Suzuki (S-Cross)
of 1 % on purchase of luxury cars

exceeding value of Rs10 lakh.
category
6% concessional excise duty on specified
goods for the use in the manufacture of

electric and hybrid vehicles is being
extended without time limit.
Will encourage manufacturers to work
Positive for M&M
aggressively towards green vehicles
Valuation
Companies
Ashok Leyland
Revenue (Rs mn)
EBITDA (Rs mn)
TP
(Rs)
(Rs)
Reco
(Rs bn)
FY16E
FY17E
FY16E
95
BUY
88
EPS (Rs)
FY17E FY16E
PER (x)
EV/EBITDA (x) RoE (%) RoCE (%)
FY17E FY16E FY17E FY16E FY17E
FY17E
FY17E
249,299
184,789
232,547
21,302
27,208
3.7
5.1
23.7
17.3
12.9
9.7
22.2
22.9
2,632 ACCUMULATE
636,723
222,092
259,292
46,379
52,951
124.8
138.2
17.6
15.9
12.1
10.3
29.8
36.2
18,895 18,769 ACCUMULATE
513,205
119,238
149,821
17,983
23,033
364.2
476.6
51.9
39.6
27.7
21.2
33.6
35.1
Bajaj Auto
Eicher Motors
Mkt Cap
CMP
2,200
Hero Motocorp
2,500
2,677 ACCUMULATE
499,149
274,971
301,437
43,097
46,974
152.8
168.0
16.4
14.9
10.8
9.9
39.1
49.3
Mahindra & Mahindra
1,227
1,353
BUY
761,956
379,382
436,012
52,232
64,112
57.2
72.8
21.5
16.8
14.3
11.4
18.0
18.6
Maruti Suzuki India
582,127
703,506
3,243
4,400
BUY
979,525
90,575 107,636
159.8
205.7
20.3
15.8
10.9
9.2
20.8
24.2
Tata Motors
300
393
BUY
866,883 2,638,498 3,185,630 371,948 459,413
36.2
48.4
8.3
6.2
3.3
2.6
21.5
19.2
TVS Motor Co
268
257
REDUCE
Amara Raja Batteries
852
Exide Industries
128
Shivam Autotech
42
80
BUY
4,235
4,498
Gabriel India
76
103
BUY
10,931
14,230
127,181
112,257
129,657
7,653
10,945
9.7
14.8
27.6
18.1
16.3
10.9
32.4
34.2
941 ACCUMULATE
145,575
46,978
56,374
8,373
10,002
29.7
36.2
28.7
23.5
17.2
14.3
26.1
33.9
136 ACCUMULATE
108,800
66,807
71,083
9,954
10,325
6.8
7.1
18.7
18.0
10.9
10.5
13.2
18.5
5,282
823
1,016
2.6
3.8
16.0
11.1
7.6
6.0
18.0
14.9
15,710
1,238
1,428
4.8
5.8
15.9
13.1
8.8
7.6
20.7
25.2
Source: IDBI Capital Research
NEUTRAL
Measure
Impact
Stocks Impacted
Allocation of Rs250bn for
This follows the recapitalisation
All PSBs except BOB, which specifically
recapitalisation of public sector banks.

The budget however has assured that
additional capital requirement, if any,
shall receive necessary support from
the government.
General insurance companies owned
by the government to be listed.
100% FDI in ARCs (74% currently with
individual sponsor cap at 50%) and

permission to FPIs to hold up to 100%
tranche of SRs (49% currently with a
limit of 10% per tranche per FII)
MUDRA loan target of Rs1.8tn (Rs1tn
outstanding in FY16)
roadmap disclosed in the

Indradhanush plan in Aug15. The
expectations had risen in the run up to
budget about possibility of a higher
allocation for recapitalisation. The
sentiment therefore has somewhat
dampened due to the status quo.
This is likely to be a part of the
governments disinvestment program

wherein Rs360bn is targeted to be
raised.
Likely to spur interest in the stressed
asset market
Expected to spur small businesses, non-
has requested the government to not

infuse any equity in FY17E. (Impact:
Neutral)
GIC Re, National Insurance Company ,
New India Assurance Company,

Oriental Insurance Company, United
India Insurance Company. (Impact:
Neutral)
PSBs, which hold the maximum stock
of stressed assets (NPAs + restructured

assets), select private banks like AXSB
and ICICIBC (Impact: Positive)
Mainly PSBs (Impact: Neutral)
refinanced loans (from MUDRA) have a

healthy 10-11% yield, healthy risk adj.
returns going forward important
POSITIVE
Valuation
Companies
CMP
TP
(Rs)
(Rs)
Mkt Cap
Reco
(Rs mn)
Operating Inc. (Rs mn)

FY16E
FY17E
PAT (Rs mn)

FY16E
FY17E
EPS (Rs)
BVPS (Rs)
PER (x)
P/B (x)
ROE(%) ROA(%)
FY16E FY17E FY16E FY17E FY16E FY17E FY16E FY17E
FY17E
FY17E
Axis Bank
375
483
BUY
893,366
262,821
301,351
83,505
95,090
35.2
40.1
217
250
10.7
9.4
1.7
1.5
17.2
1.6
HDFC Bank
973
1,224
BUY
2,458,004
377,976
446,921
120,508
146,087
48.1
58.3
284
329
20.2
16.7
3.4
3.0
19.0
1.8
IndusInd Bank
831
1,083
BUY
494,292
71,981
89,746
22,112
27,841
37.6
47.3
293
336
22.1
17.6
2.8
2.5
15.0
1.9
Yes Bank
688
957
BUY
289,270
67,973
81,922
22,802
26,833
54.6
64.2
323
375
12.6
10.7
2.1
1.8
18.4
1.6
NEUTRAL
Cement: It is easier said than done!

Measure
Impact
Stocks Impacted
Push towards affordable housing.
Augurs demand for cement.
ACC IN, ACEM IN, UTCEM IN, SRCM IN
100% deduction for profits to an
Though it is far from clear how it can
undertaking in housing project for

flats upto 30 sq. metres in four metro
cities and 60 sq. metres in other cities.
This is approved during June 2016 to
March 2019 and completed in three
years.
Deduction for additional interest of
Rs50,000 per annum for loans up to
Rs3.5 mn sanctioned in 2016-17 for
first time home buyers, where house
cost does not exceed Rs5.0 mn.
Distribution made out of income of
SPV to the REITs and INVITs having
specified shareholding will not be
subjected to Dividend Distribution
Tax.
solve the current real estate scenario,

we remain bullish for cements in the
long-run.
De-minimis for cement.
Nil
This spurs the different structure to
create real estate and other allied

projects. Should entail demand for
cement.
Valuation
Companies
ACC Ltd
Ambuja Cement
Shree Cement
Ultratech Cement
CMP
TP
Mkt Cap
Revenue (Rs mn)
(Rs)
1,191
188
10,078
2,767
(Rs)
Reco
1,240
HOLD
196
HOLD
10,341
HOLD
3,052 ACCUMULATE
(Rs mn)
223,633
291,679
351,079
759,342
FY16E
FY17E
FY16E
127,195 145,646 13,673 18,671
35.5
52.3
33.6
22.8
2.6
2.4
16.1
11.5
10.9
107,298 122,698 17,844 20,600
8.0
8.8
23.5
21.3
2.5
2.3
15.0
12.9
11.3
76,111
92,907 17,103 23,181 167.1 315.0
60.3
32.0
6.0
5.0
20.6
15.1
17.1
248,724 298,280 49,088 64,151
83.2 115.9
33.3
23.9
3.6
3.2
17.6
13.6
14.2
EBITDA (Rs mn)
EPS (Rs)
PER (x)
P/B (x)
EV/EBITDA (x) RoE(%)
RoCE(%)
FY17E
12.2
10.4
16.3
14.5
NEUTRAL

Measure
Impact
Stocks Impacted
The total outlay for Infrastructure is
With subdued private capex, 12th five year
Negative for all Industrial stocks
plan was a miss. While addressing the

supply side issues, Govt. Should have
focused on higher deficit.
A thrust for civil work component
Positive for E&C players.
Land titles will be clear.
Positive for all Industrial stocks
Disappointing. Physical targets have not
Neutral for E&C players.
Rs2.2tn
Fast tracking 89 irrigation projects under
AIBP. A dedicated Long Term Irrigation

Fund with an initial corpus of about
Rs200bn.
National Land Record Modernization
Programme has been revamped.
Plans to award 10,000 Kilometers. Yet the
allocation of Rs550bn is c2x of last year
Action plans for revival of un-served and
underserved airports.
To provide calibrated marketing freedom
in order to incentivize gas production.

Comprehensive plan, spanning 15-20
years, to augment the investment in

nuclear power generation to be drawn up.
Public Utility (Resolution of Disputes) Bill
will be introduced during 2016-17/
Guidelines for renegotiation of PPP
Concession Agreements will be issued.
moved up. Presumably, Govt. Wants to dole

out more for land acquisition cost.
Though the fine print is far from clear, we
believe that this will come up through E&C
route. With excess regulations, PPP looks
difficult.
Again, the fine print is unclear. And it is too
early to conclude a free market driven gas
pricing.
The jury is out. The entire proposal is fluid
for the time being.
A much needed move to air the doubts
Positive for E&C players.
Positive for Engineers India -- certainly not
in the short run.

Positive for Industrial stocks -- TMX IN, LT
IN.
Positive for all Industrial stocks
lingering on policy uncertainty.
NEUTRAL

Valuation
Companies
ABB India
CMP
TP
(Rs)
(Rs)
Reco
Mkt Cap
Revenue (Rs mn)
EBITDA (Rs mn)
(Rs mn)
FY16E
FY16E
FY17E
EPS (Rs)
PER (x)
1,015
921
REDUCE
215,151
87,890
96,679
8,513
9,014
21.1
Bharat heavy Electricals
91
123
BUY
222,976
261,912
312,416
(7,631)
14,374
(1.8)
Engineers India
150
184
BUY
50,490
16,581
16,021
1,781
2,321
8.6
10.7
J Kumar Infraprojects
267
322
BUY
20,184
14,232
20,854
2,691
3,810
13.8
Cummins India
809
993
BUY
224,393
46,350
54,998
8,472
10,431
KNR Constructions
464
545
BUY
13,044
9,637
13,297
1,686
Kalpataru Power Transmission
165
198
BUY
25,290
74,045
88,137
8,132
Larsen & Toubro
P/B (x)
EV/EBITDA (x) RoE(%) RoCE(%)
22.2
FY17E
48.1
45.7
6.4
5.7
24.7
23.2
13.2
21.6
8.2 (50.6)
11.1
0.7
0.6 (21.9)
12.4
5.8
0.8
17.4
14.0
1.7
1.6
14.5
9.9
11.7
6.6
23.3
19.4
11.4
2.3
1.9
8.2
5.6
18.4
27.3
28.3
33.1
28.6
24.5
7.0
6.1
26.4
21.4
26.7
29.7
1,867
44.6
34.6
10.4
13.4
1.4
1.3
11.9
11.3
10.2
6.6
9,514
11.9
16.2
13.8
10.2
1.1
1.0
8.7
8.0
10.0
9.3
1,005,298 1,035,052 1,079,766 115,314 133,904
50.1
55.1
21.5
19.6
2.3
2.1
17.1
15.5
11.3
7.1
1,079
1,224
ACCUMULATE
NBCC
867
1,036
BUY
103,986
59,829
77,130
3,950
5,335
27.6
37.9
31.4
22.9
6.6
5.4
21.4
15.0
26.1
30.4
Siemens
989
1,153
BUY
352,043
108,511
124,677
11,243
14,196
19.5
24.9
50.7
39.7
6.5
6.0
30.1
23.6
15.8
20.6
Thermax
752
739
HOLD
89,606
53,284
54,285
5,302
5,571
25.3
28.2
29.7
26.6
3.8
3.5
16.9
15.7
13.6
14.4
10
NEUTRAL
IT Services: Positives from Digital India and SEZ benefits till 2020
Governments focus on Digital India and Smart cities to provide new opportunities for IT services companies in the domestic market.
IT services companies can now avail tax benefits from units commenced in SEZ before end-FY20.
Our top picks in the sector are: Infosys and HCL Technologies
Measure
Impact
Stocks Impacted
Allocation of Rs73 bn for development of
Provides new opportunities in the domestic
Infosys, TCS, HCL Technologies, Wipro and
100 Smart Cities & Atal Mission for

Rejuvenation & Urban Transformation.
market for IT services providers
Tech Mahindra
Allocation of Rs21 bn for Digital India

programme and E-learning, E-panchayat,
Land records modernisation
Amendment of section 10AA of the
Income-tax Act extending the sunset date

to 31/03/2020 for units commenced in a
Special Economic Zone (SEZ)
Positive for all IT Services companies
Companies setting up units in SEZ before
providing services from units commenced

in SEZ before 31/03/2020
31/03/2020
Valuation
CMP
Companies
TP
Mkt Cap
Revenue (Rs mn)
EBITDA (Rs mn)
EPS (Rs)
PER (x)
EV/EBITDA (x)
RoE (%)
RoCE (%)
(Rs)
(Rs)
Reco
(Rs bn)
FY16E
FY17E
FY16E
FY17E
FY16E
FY17E
FY16E
FY17E
FY16E
FY17E
FY17E
FY17E
Tata Consultancy Services
2,182
2,642
BUY
4,299,277
1,078,433
1,211,437
306,382
335,338
121.6
132.1
17.9
16.5
13.2
11.7
35.8
41.8
Infosys Ltd
1,084
1,380
Wipro Ltd
520
599
BUY
2,489,314
618,964
706,924
168,491
201,092
58.3
69.0
18.6
15.7
12.5
10.2
24.6
29.2
ACCUMULATE
1,284,463
505,347
550,562
108,122
122,144
36.2
40.0
14.4
13.0
10.1
8.6
20.5
19.2
HCL Technologies
812
1,022
Tech Mahindra
415
533
ACCUMULATE
BUY
1,145,516
421,396
478,888
92,225
109,261
55.0
64.4
14.8
12.6
10.9
8.8
28.9
32.1
401,484
263,259
289,079
41,221
45,787
32.6
36.1
12.7
11.5
8.8
7.5
20.4
21.6
Cyient Ltd
419
523
BUY
47,086
30,997
35,214
4,530
5,423
32.1
37.4
13.0
11.2
9.5
7.6
18.3
18.6
11
NEGATIVE
Oil and Gas: Higher linkages of Cess to crude oil price disappoints
Measure
Impact
Stocks Impacted
Cess to be replaced from current
Cess level translates at US$9/bbl at
Positive for upstream companies till
Rs4,500/tonne to 20% of the crude oil

price.
Rs4,500/tonne. Therefore, till crude oil

price remains below US$45/bbl it would
have the positive impact on upstream
companies. However, we were
expecting much more relief for the
companies.
Neutral for PSU oil companies.
Subsidy burden came in line with
Total subsidy budgeted at Rs269.5 bn
crude oil price remains below

US$45/bbl and negative once it crosses
this level. However, this came as a
disappointment as we were expecting
a better linkages to crude oil price.
expectation.
for FY17 which is expected to cover

complete under-recoveries if crude
averages below US$45/bbl in FY17.
Valuation
Companies
CMP
TP
(Rs)
(Rs)
Reco
Mkt Cap
Revenue (Rs mn)
EBITDA (Rs mn)
(Rs mn)
FY16E
FY16E
FY17E
FY17E
Bharat Petroleum Corp
770
959
BUY
556,630 1,836,122 2,016,131 113,184 133,209
Cairn India
118
140
BUY
221,515
87,160
80,881
31,964
Gail India
305
424
BUY
386,315
549,682
563,686
Hindustan Petroleum Corp
688
824
BUY
233,026 1,784,853 1,791,281
Indian Oil Corporation
367
439
BUY
Oil & Natural Gas Corp
194
213
HOLD
Oil India
310
330
HOLD
Petronet LNG
234
290
BUY
Reliance Industries Ltd
967
1,200
BUY
Gujarat State Petronet
126
162
BUY
EPS (Rs)
PER (x)
P/B (x)
EV/EBITDA (x) RoE(%) RoCE(%)
FY16E FY17E FY16E FY17E FY16E FY17E FY16E FY17E
FY17E
FY17E
85.9
98.3
9.0
7.8
1.8
1.5
6.1
4.3
20.9
18.8
24,523
5.7
1.8
20.7
65.7
0.4
0.4
4.6
6.4
0.6
(1.9)
52,638
66,717
21.7
29.6
14.0
10.3
1.0
1.0
10.2
7.8
9.9
9.3
74,548
75,247 101.5 101.6
6.8
6.8
1.4
1.2
6.5
6.0
18.7
12.9
891,666 3,065,789 2,953,114 214,193 205,743
49.3
45.0
7.4
8.2
1.1
1.0
5.8
5.5
12.9
10.5
1,660,621 1,349,418 1,373,387 471,590 486,512
18.2
18.8
10.7
10.3
0.9
0.8
4.0
3.9
8.4
8.0
186,052
96,009
93,194
32,492
30,215
36.0
34.2
8.6
9.1
0.8
0.8
6.0
6.2
9.1
6.8
175,838
272,853
243,160
16,088
21,145
10.9
15.0
21.4
15.6
3.0
2.8
11.4
8.5
18.8
17.7
3,131,043 2,788,244 2,781,935 434,823 472,881
90.1
95.7
10.7
10.1
1.2
1.1
10.6
9.6
11.0
8.1
8.1
10.6
15.7
11.9
1.7
1.5
8.1
6.0
13.5
16.9
71,234
10,465
12,819
9,092
11,401
12
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UNION BUDGET 2016-17