Union Budget FY2011-12

Balanced Workmanship

Budget Estimates FY2011-12

Revenues
Gross Tax receipts estimated at Rs 9,324bn Non-tax revenue receipts estimated at Rs 1,254bn

Expenditure
Total expenditure proposed at Rs 12 577bn 12,577bn Increase of 18.3 per cent in total Plan allocation. Increase of 10.9 per cent in Non-plan expenditure. Increase of 23 per cent in Plan and Non-plan transfer to States and UTs.

Deficit Estimates
Fiscal Deficit brought down from 5.5 per cent in BE 2010-11 to 5.1 per cent of GDP in RE 2010-11. Fiscal Deficit estimated at 4.6 per cent of GDP for 2011-12. Fiscal D fi it t b progressively reduced t 3 5 per cent b 2013 14 Fi l Deficit to be i l d d to 3.5 t by 2013-14. Effective Revenue Deficit estimated at 2.3 per cent of GDP in Revised Estimates and 1.8 per cent for 2011-12. Government Borrowing Net market borrowing in 2011-12 would be Rs 3.43lakh crs

Direct Tax Proposals

Exemption limit for the general category of individual male taxpayers enhanced from Rs 1,60,000 to Rs 1,80,000 A positive impact of Rs2,000 annually Exemption limit enhanced to Rs 2,50,000 and qualifying age reduced for senior citizens to 60 yrs Higher exemption limit of Rs 5,00,000 for Very Senior Citizens, who are 80 years or above. Corporate surcharge of 7.5 per cent on domestic companies proposed to be reduced to 5 per cent (positive impact for Corporate India as it reduces their tax outgo) Rate of Minimum Alternative Tax to be increased from 18 per cent to 18.5 per cent of book profits. Tax incentives extended to attract foreign funds for financing of infrastructure. Additional deduction of Rs 20,000 for investment in long-term infrastructure bonds proposed to be extended for one more year. Lower rate of 15 per cent tax on dividends received by an Indian company from its foreign subsidiary. Benefit of investment linked deduction extended to businesses engaged in the production of fertilisers. ( positive for fertiliser companies) A net revenue loss of Rs 11,500 crs estimated as a result of the direct tax proposals.

Indirect Tax Proposals

Direct Taxes Code (DTC) proposed to be effective from April 1, 2012. (clear timeline specified) Central Excise Duty to be maintained at standard rate of 10 per cent. (better than market expectations) Reduction in number of exemptions in Central Excise rate structure. Nominal Central Excise Duty of 1 per cent imposed on 130 items entering the tax net.( would be passed on to end consumers) Basic customs duty on goods currently attracting 2% has been increased to 2.5% and basic customs duty on those goods attracting 3% has been decreased to 2.5%. Concessional central excise duty rate of 4% is being increased to 5%. Thus, all goods currently attracting 4% duty will now attract 5%. Peak rate of Custom Duty held at its current level. Standard rate of Service Tax retained at 10 per cent Proposals relating t S i T estimated t result i net revenue gain of R 4 000 P l l ti to Service Tax ti t d to lt in t i f Rs 4,000crs Proposals related to Indirect Taxes estimated to result in net revenue gain of Rs 11,300crs

Setoral Impact p

Automobiles - Positive
Budget Provisions
Excise duty on the entire automobile sector maintained at 10%.

Impact
Positive

Impact On Stocks
We anticipate this move to positively impact all the auto stocks

1).Excise duty on parts of hybrid vehicles such as battery pack, battery charger, AC/DC electric motors etc. cut from 10% to 5%. 2).Basic customs duty and special CVD exempted for critical part/assemblies needed for hybrid vehicles 3). National Mission for hybrid and electric vehicles to be launched. Basic customs duty on caprolactum is being reduced from 10% to 7.5%, while that on nylon fibers also reduced from 10% to 7.5% Full exemption of excise duty extended to parts of power tillers when cleared to another factory of the same manufacturer for manufacturing power tillers. Basic customs duty reduced on rice transplanters from 5% to 2.5% p Basic customs duty reduced on micro-irrigation equipments from 7.5% to 5%

Positive

M&M (Scorpio Hybrid variants), Maruti(SX4 and Eeco hybrid variants), Tata Motors (Plans to launch Nano and Indicia hybrid variants)

Positive

Tyre companies like Apollo Tyres, JK Tyres, MRF, Ceat etc as Caprolactum and nylon fibbers are some of the raw materials required for manufacturing a t f t i tyre VST TillersTractors Ltd

Positive

Positive

M&M & Jain Irrigation

1). Allocation under Rashtriya Krishi Vikas Yojana increased from Rs6,755 cr to Rs7,860 cr j , , 2). Credit flow for farmers raised from Rs375,000 cr to Rs 475,000 cr 3). Interest subvention for farmers up from 2% to 3%

Positive

M&M, VST Tillers Tractors, Hero Honda, Maruti, TVS Motors as they have significant portion of y g p revenues coming from rural markets

BFSI
Provision
Banking Licenses Financial Inclusion Legislative amendments to the Banking Regulation Act to enable RBI to issue additional banking licenses to private sector players. RBI to issue guidelines for banking licenses before the close 2010-11 Capital infusion
To allocate Rs60 bn for some PSU banks to

Impact
Positive

Impact On Stocks
Mahindra Financial Services, L&T Finance, Bajaj Finserv, Shriram Transport etc Finserv

Positive

PNB, PNB Vijaya Bank, Allahabad Bank, Dena Bank Bank Bank Bank, Andhra Bank, Corporation Bank, BoM, BoB, Oriental Bank and Union Bank.

help them maintain Tier-I capital at 8%. during 2011-12

Cap infusion of Rs202 bn in PSU Banks during

2010-11 2010 11
Rs 6 bn to PSU banks to maintain mandatory

CRR.

Equity support to MFIs Creation of India Microfinance Equity Fund, of Rs1 bn with SIDBI, dedicated to providing equity to smaller MFIs. In order to help them maintain growth and achieve scale and efficiency in operations.

Positive

SKS MicroFinance

BFSI
Pre Budget
Housing Finance Impetus Rural housing fund increased by Rs10 bn to Rs30 bn. Extending the 1% interest subvention on housing loans to Rs1.5 mn (present limit of Rs1 mn) where the cost of the house does not exceed Rs2.5 mn (Rs2 mn). To enhance the existing housing loan limit from Rs2 mn to Rs2.5 mn for dwelling units under priority sector lending Encourage Farm loans The target of credit flow to the farmers increased from Rs3750 bn 2010-11 to Rs4750 bn in 201112 To continue existing interest subvention scheme of providing short term crop loans to farmers at 7% Increase the additional subvention from 2% to 3% in 2011-12 Negative Pressure on the overall banking sector to increase exposure to direct agri lending rather than th th through RIDF or MFI and b h MFIs d bear th the subvention burden. Larger banks such as SBI, PNB , BoB, ICICI, IDBI etc to face greater pressure on increased credit flow

Impact
Positive

Impact On Stocks
LIC housing, HDFC, Gruh Finance, ICICI Bank, SBI, Dewan Housing, GIC housing, Can Fin Homes etc

BFSI
Pre Budget
Financial sector reforms To move the following legislations in the financial sector: (i)The Insurance Laws (Amendment) Bill, 2008; (ii)The Life Insurance Corporation (Amendment) Bill, 2009; (iii)The revised Pension Fund Regulatory and Development Authority Bill, first introduced in 2005; (iv)Banking Laws Amendment Bill, 2011; (v)Bill on Factoring and Assignment of Receivables; (vi)The State Bank of India (Subsidiary Banks Laws) Amendment Bill, 2009; and (vii)Bill to amend RDBFI Act 1993 and SARFAESI Act 2002. FIIs allowed to invest in MF schemes. FII limit in corporate bonds has been raised by $20 billion to $40 bn Positive

Impact
Positive

Impact On Stocks
Sector reforms play a positive role in opening up of sectors, bringing in capital, value creation and clarity of accounting policies. Some stocks likely policies to benefit are Bajaj Finserv, ICICI Bank, SBI stc

Benefit to the financial services sector through improved liquidity in the system

Cement - Neutral
Budget Provisions
Reduction in custom duty on 2 critical raw material namely: Petcoke & Gypsum from 5% to 2.5%. 2 5%

Impact
Positive

Impact On Stocks
Positive for all cement companies.

30% increase in coal prices by Coal India

Negative

Negative for all cement companies, except Shree Cement & JK Cement which rely on domestic petcoke supplies from RIL, ONGC etc.

Excise duty to be replaced by 10% Ad Valoreum

MRP < Rs.190/50 kg bag 10% ad valoreum

Neutral

Impact of + Rs.15/ton to Rs.25/ton which is negligible for any cement company.

+ Rs.80/ ton.
MRP > Rs.190/50 kg bag 10% ad valoreum

+ Rs.160/ ton.

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Metals - Neutral
Budget Provisions
Increase in export duty on all types of Iron Ore to 20% v/s 15% earlier. Full export duty exemption on Iron Ore Pellets.

Impact
Negative for Iron Ore Companies & Positive for steel companies as this would discourage exports of Iron Ore to some extent resulting in better availability of key raw material. Positive

Impact On Stocks
Negative for Sesa Goa & NMDC, while it is positive for all domestic steel companies.

Reduction in custom duty on 2 critical raw material namely: Petcoke from 5% to 2.5%.

Positive for aluminum manufacturing companies like Hindalco & Nalco.

Basic customs duty is being fully exempted on Stainless steel Scrap

Positive

Positive for JSL Stainless Ltd.

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Construction & Infrastructure - Positive

Budget Provisions
Increased allocation towards Bharat Nirman by Rs 10,000cr Allocation of Rs2,14,000 crs for infrastructure in 2011-12. This is an increase of 23.3 per cent over 2010-11. Issuance of Tax free bonds of Rs30,000 crs by Government undertakings during 2011-12.

Impact
Positive

Impact On Stocks
IVRCL, Pratibha Industries as these companies are undertaking projects in rural roads and irrigation Most of the companies in the sector like NCC, HCC, L&T, IRB, ITNL etc

Positive

Positive

Most of the infrastructure players

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Software

There was no extension of STPI (under section 10A/B of the IT Act) for 1 more year in the Budget. In the event, IT companies moving to S SEZ, profits f f from new contracts ( (either f from the existing or f from new clients), under S ) Sec10AA of the IT f Act, Would be exempted 100% from tax for the first 5 years for the second 5 years 50% exemption is allowed and thereafter 50% of the ploughed back profits for the next 5 years. However, levy of minimum alternative tax on developers of SEZ and units operating in them, would have a negative impact on the cash flows. Neutral for the IT sector

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LKP Team
Research Team
Name S. Ranganathan Ashwin Patil Chaitra Bhat Ami Shah Deepak Darisi Dwaipayan Poddar Position Head of Research Research Analyst Research Analyst Research Analyst Research Analyst Technical Analyst Sectors Covered Pharmaceuticals , Agriculture Automobiles & Telecom Banking & Financial Services Cement & Sugar Energy Direct Line 6635 1270 6635 1271 6635 1211 6635 1247 6635 1220 6635 1272 E-mail s_ranganathan@lkpsec.com ashwin_patil@lkpsec.com chaitra_bhat@lkpsec.com ami@lkpsec.com deepak_darisi@lkpsec.com dwaipayan_poddar@lkpsec.com

Institutional Equities
Name Pratik Doshi Hardik Mehta Varsha Jhaveri Hitesh Doshi Kalpesh Vakharia Gurdarshan Singh Designation Director Sales Sales Sales Dealing Dealing Handheld 98210 47676 93203 08811 93241 47566 93222 45130 98193 08082 93228 61461 Direct Line 6635 1246 6635 1296 6635 1281 6635 1267 6635 1246 E-mails Id pratik_doshi@lkpsec.com pratik doshi@lkpsec com hardik_mehta@lkpsec.com varsha_jhaveri@lkpsec.com hitesh_doshi72@lkpsec.com kalpesh_vakharia@lkpsec.com gurdarshan_singh@lkpsec.com

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