Index

Budget FY2015 - a good start 1

Sectoral Impact
Automobile 5
Banking 6
Capital Goods 8
Consumer Goods 9
I f t t 10 Infrastructure 10
Metals & Mining 11
Oil & Gas 12
Pharmaceutical 13
Power 14
Real Estate 15
Top Picks 16
Budget FY2015 - a good start
Budget FY2015 highlighted the new governments rational approach towards policies for taxation, government
spending and growth. Infrastructure, housing and finance sectors were amongst the biggest winners, with key
measures announced to improve fund availability for low cost housing (through National Housing Bank [NHB]) measures announced to improve fund availability for low-cost housing (through National Housing Bank [NHB]),
real estate projects (through Real Estate Investment Trusts [REITs]) and infrastructure development (through banks
and infrastructure investment trusts). Amongst other key positives, foreign direct investment (FDI) limit in defense
equipment and insurance sectors has been increased to 49%.
Fiscal prudence was maintained, sticking to a 4.1% fiscal deficit target. While the tax revenue assumptions may
still be a bit on the optimistic side, but a key area where the budget math differed from the vote on account was
in its assumption of higher non-tax receipts. This indicates the new governments resolve to accelerate the
disinvestment agenda amongst other things. It has set the disinvestment target at `58,425cr for FY2015. disinvestment agenda amongst other things. It has set the disinvestment target at `58,425cr for FY2015.
In line with the governments election manifesto, smart cities, industrial corridors, higher education, low cost
housing and various roads, ports, airports and other infra projects are expectedly going to be the thrust areas.
The budget also indicated areas on which policy measures can be expected in the coming year such as coal
availability, gas pipelines, urea, ship-building, etc. All in all, there is a lot in the budget that creates optimism of
continued policy impetus yet to come across a range of sectors.
With the immense low-hanging fruits and huge decisive mandate, in our view, policy impetus is likely to continue
i th k d th t O ll i t i t l iti i th k t ith ti d in the weeks and months to come. Overall, we maintain our strongly positive view on the market with a continued
preference for domestic cyclicals such as banking, infrastructure, capital goods, auto, cement as well as quality
midcap stocks across a range of sectors.
1
Revenue and Expenditure break-up
Revenue (in crores) FY14 Actual FY15 VOA FY15 BE FY15 BE/FY14A FY15 BE/FY15 VOA
Revenue Receipts 10,29,252 11,67,131 11,89,763 15.6% 1.9%
Tax Revenue (net) 8,36,026 9,86,417 9,77,258 16.9% -0.9%
Non-Tax Revenue 1,93,226 1,80,714 2,12,505 10.0% 17.6%
Capital Receipts 5,61,182 5,96,083 6,05,129 7.8% 1.5%
Of which Disinvestment 24,000 51,925 58,425 143.4% 12.5%
Borrowings and other liabilities 5,24,539 5,28,631 5,31,177 1.3% 0.5%
Total Receipts 15,90,434 17,63,214 17,94,892 12.9% 1.8%
Expenditure (in crores) FY14 Actual FY15 VOA FY15 BE FY15 BE/FY14A FY15 BE/FY15 VOA
Non-Plan Expenditure 11,14,902 12,07,892 12,19,892 9.4% 1.0%
On Revenue Account 10,27,689 11,07,781 11,14,609 8.5% 0.6%
On Capital Account 87,214 1,00,111 1,05,283 20.7% 5.2%
Plan Expenditure 4,75,532 5,55,322 5,75,000 20.9% 3.5%
On Revenue Account 3,71,851 4,42,273 4,53,503 22.0% 2.5%
On Capital Account 1,03,681 1,13,049 1,21,497 17.2% 7.5%
Total Expenditure 15,90,434 17,63,214 17,94,892 12.9% 1.8%
Expenditure (in crores) FY14 Actual FY15 VOA FY15 BE FY15 BE/FY14A FY15 BE/FY15 VOA Expenditure (in crores) FY14 Actual FY15 VOA FY15 BE FY15 BE/FY14A FY15 BE/FY15 VOA
Revenue Expenditure 13,99,540 15,50,054 15,68,111 12.0% 1.2%
Of which Subsidies 2,55,516 2,55,708 2,60,658 2.0% 1.9%
Capital Expenditure 1,90,894 2,13,160 2,26,781 18.8% 6.4%
2
Fiscal Deficit and Key fiscal
indicators (as % of GDP) ( )
FY14 Actual FY15 VOA FY15 BE FY15 BE/FY14A FY15 BE/FY15 VOA
Fiscal Deficit (in crores) 5,24,539 5,28,631 5,31,177 1.3% 0.5%
% GDP FY2014 FY15 VOA FY15 BE
Tax Revenue (Net) 7.4% 7.7% 7.6%
Non-Tax Revenue 1 7% 1 4% 1 7% Non Tax Revenue 1.7% 1.4% 1.7%
Plan Expenditure 4.2% 4.3% 4.5%
Non-Plan Expenditure 9.8% 9.4% 9.5%
Fiscal Deficit 4.6% 4.1% 4.1%
Revenue Deficit 3.3% 3.0% 2.9%
3
Sectoral Impact
4
Positive
Automobile
Impact Announcement
Increase in exemption limit for direct tax by Positive for the sector as it will increase the Increase in exemption limit for direct tax by
`50,000 to `2,50,000 for individuals and to
`3,00,000 for senior citizens. Exemption
under section 80C raised by
` 50,000 to `1,50,000 for individuals.
Positive for the sector as it will increase the
disposable income of individuals, thereby
boosting demand in personal mobility
segments like two-wheelers and hatchbacks
(positive for companies like Hero MotoCorp, ` 50,000 to `1,50,000 for individuals.
Agricultural growth maintained at 4%;
allocation of `8lakh cr for agricultural credit
(positive for companies like Hero MotoCorp,
Maruti Suzuki, Bajaj Auto, TVS Motors).
Agricultural reforms will drive demand for
tractors. Demand for two-wheelers in non
in FY2015 and `25,000cr for increasing
warehousing capacity.
urban areas will likely get a boost. Thus, a
positive for companies like Mahindra &
Mahindra, Hero MotoCorp, VST Tillers, and
Kirloskar Oil Engines.
15% additional allowance for investment
above `25cr in plant in Manufacturing sector
for 3 years (till 31.03.2017).
Revival in investment cycle.
5
Positive
Banking
Impact Announcement
Banks to be permitted to raise long term By exempting banks from regulatory Banks to be permitted to raise long term
funds for lending to infrastructure sector with
minimum regulatory pre-emption such as
CRR, SLR and Priority Sector Lending.
By exempting banks from regulatory
requirements of CRR, SLR and Priority Sector
Lending, vis--vis infrastructure lending,
current regulatory burden in the form of
lower blended yield by about 150-200bp will lower blended yield by about 150 200bp will
be eliminated. The move is a positive for all
banks. IDFC could be one of the biggest
beneficiaries as it was expected that CRR and
SLR requirement will affect its profitability
The composite cap in the insurance sector is
to be increased to 49% from 26% earlier with
SLR requirement will affect its profitability
once it converts into a bank.
Increase in cap to 49% will enable insurance
firms to get capital from overseas players
full Indian management and control through
the FIPB route.
All f N l k
and this will lead to value unlocking. Positive
for companies like Max India, HDFC, Exide,
Elpro, Reliance Capital and ICICI Bank.
P iti f h i fi i lik
Allocation for National Housing Bank
increased to `8,000cr to support rural
housing and `4,000cr for urban housing.
Positive for housing finance companies like
Repco Home Finance and Can Fin Homes.
6
Banking
Impact Announcement
Tax on long term capital gains increased
from 10% to 20% for Debt Mutual Funds and
This will reduce tax arbitrage as compared
to bank FDs thereby affecting mutual fund from 10% to 20% for Debt Mutual Funds and
eligibility for LTCG indexation benefit
increased to 3 year tenure.
Interest on loan in respect of self occupied
to bank FDs, thereby affecting mutual fund
industry including companies like Reliance
Capital.
Positive for all the banks. p p
house property raised from `1.5 lakh to `2
lakh.
Amount Yield (%) Interest
Current blanded yield for infra lending
NDTL 100.0
CRR 4.0 - -
SLR 22.5 7.5 1.7
PSL 25.7 9.0 2.3
Infra loan 47.8 11.5 5.5
Blended yield 9.5 9.5
7
Positive
Capital Goods
Impact Announcement
The government has increased the composite Positive for the sector as it will accelerate The government has increased the composite
cap of foreign investment in the defense
sector from 26% to 49%. This would be
applicable for companies with full Indian
management and control.
Positive for the sector as it will accelerate
investments in the defense sector. Defense
equipment manufacturing companies like
Bharat Forge, Astra Microwave Products,
Pipavav Defence etc. will be beneficiaries. management and control.
Allocation of `1,000cr for development of
rail connectivity in the North East region.
Pipavav Defence etc. will be beneficiaries.
Positive for companies involved in
manufacturing signals, locomotives and also
contractors. KEC international, BHEL, ABB etc
would stand to benefit.
8
Mixed
Consumer Goods
Impact Announcement
An increase in the specific excise duty on It is a negative for cigarette manufacturing An increase in the specific excise duty on
cigarettes has been proposed, which will be
in the range of 11% to 72%.
Reduction in excise duty on footwear from
It is a negative for cigarette manufacturing
companies like ITC, Godfrey Phillips and VST
Industries.
It is a positive for footwear manufacturing
12% earlier to 6%.
Custom duty on fatty acids, crude palm
t i RBD d th l t i d
companies like Bata India and Relaxo
Footwear.
Positive for soap and Oleo manufacturers.
Thi ld b fit Adi Fi h HUL stearin, RBD and other palm stearin, and
specified industrial grade crude oils reduced
from 7.5% earlier to Nil.
This could benefit Adi-Finechem, HUL,
GCPL.
9
Positive
Infrastructure
Impact Announcement
`14,389cr has been provided for the Pradhan National Building Construction Corporation `14,389cr has been provided for the Pradhan
Mantri Gram Sadak Yojna(PMGSY).
Infrastructure Investment Trusts (InvITs) have
been proposed for infrastructure projects
National Building Construction Corporation
would be a beneficiary since it draws
construction orders from the government.
This is a positive for Build Operate Transfer
(BOT) players as they can encash their been proposed for infrastructure projects. (BOT) players as they can encash their
operating portfolios for further investment in
other project or to reduce their debt.
Companies like IRB Infrastructure Developers,
IL&FS Transportation Networks and Ashoka
An investment of `37,880cr in national
highways and state roads has been proposed
which includes an allocation of `3 000cr for
IL&FS Transportation Networks and Ashoka
Buildcon could be huge beneficiaries.
Positive for companies which are into
engineering procurement and construction
(EPC) of roads IRB Infrastructure Developers
which includes an allocation of `3,000cr for
the North East. A target of national highway
construction of 8,500km has been announced
(vs 4,000km in the 2013-14 budget)
(EPC) of roads. IRB Infrastructure Developers,
IL&FS Transportation Networks & Ashoka
Buildcon would be beneficiaries.
f l k h b
Allocation of `3,600cr fund for safe drinking
water through community water purification
plants in next 3 years.
Positive for companies like VA Tech Wabag,
Thermax, etc which are into EPC and
maintenance of water treatment plants.
10
Negative
Metals & Mining
Impact Announcement
Revision of royalty on minerals to ensure Negative for the sector as it will increase the Revision of royalty on minerals to ensure
greater revenue for State Governments.
Increase in basic customs duty on imported
flat-rolled stainless steel products from
Negative for the sector as it will increase the
procurement cost of raw materials.
Positive for domestic steel manufacturers as
demand for locally manufactured steel will
5% to 7.5%.
Increase in export duty on bauxite from 10%
earlier to 20%.
rise.
Positive for domestic aluminium
manufacturers.
Increase in custom duty in metallurgical coal
from nil to 2.5%.
Negative for steel manufacturers.
11
Positive
Oil & Gas
Impact Announcement
Proposal to develop an additional 15,000km This will help increase the usage of gas and Proposal to develop an additional 15,000km
of pipelines through public-private
partnership (PPP) model.
This will help increase the usage of gas and
reduce dependency on oil as a transport
fuel. Thus, a positive for companies like
GAIL, Petronet LNG, IGL, Welspun Projects
and GSPT. and GSPT.
12
Positive
Pharmaceuticals
Impact Announcement
Investment allowance at the rate of 15% to a The measure is positive for the sector, but the Investment allowance at the rate of 15% to a
manufacturing company that invests more
than `25cr in any year in new plant and
machinery. The benefit would be available
for three years, ie for investments upto
The measure is positive for the sector, but the
effect will be more pronounced in small
companies like Indoco Remedies and
Dishman Pharmaceuticals & Chemicals,
which will see their earnings inch higher. for three years, ie for investments upto
March 31st, 2017. This will enhance
investments in the sector, and hence the
sectors growth.
which will see their earnings inch higher.
Indoco Remedies stock price is expected to
rise higher by 8-10% on this account.
13
Positive
Power
Impact Announcement
Additional benefits announced for the Power This will be a positive for companies whose Additional benefits announced for the Power
sector including an extension of the 10-year
tax holiday.
This will be a positive for companies whose
power projects are near completion.
Companies like CESC, ReliancePower,
Jaiprakash Power and Adani Power will be
beneficiaries.
Reduction in basic customs duty from 10% to
5% on forged steel rings used in the
manufacture of bearings of wind operated
beneficiaries.
It will reduce the cost of setting up wind
power projects. This could be beneficial for
Suzlon Energy.
electricity generators.
14
Positive
Real Estate
Impact Announcement
Incentives for Real Estate Investment Trusts This would bring investment in rental Incentives for Real Estate Investment Trusts
(REITs). Complete pass through for the
purpose of taxation.
This would bring investment in rental
properties. Therefore companies like DLF,
Prestige Estate and Nesco, which have a
substantial rental properties portfolio, can
encash these properties and pay off their
Additional allocation for National Housing
Bank of `4,000cr for low cost housing (total
encash these properties and pay off their
piled up debts.
This would be beneficial for companies like
Poddar Developers and Puravankara Projects
allocation now stands at `12,000cr).
Extended additional tax incentive on home
loans shall be provided to encourage
people, especially the young, to own houses.
among others, which operate in the low cost
housing segment.
15
Top Picks
Sector / Company CMP (`) Target Price (`) Upside
India Cement 104 168 61.0%
ICICI Bank 1,391 1,974 41.9%
South Indian Bank 33 44 31.6%
C t G 191 250 30 8% Crompton Greaves 191 250 30.8%
Siyaram Silk Mills 562 723 28.7%
Dr Reddy's 2,652 3,399 28.2%
St Bk of India 2,548 3,239 27.1%
TVS Srichakra 619 786 27.0%
HCL Tech 1,471 1,859 26.3%
Larsen & Toubro 1,655 2,090 26.3%
LIC Housing Finance 325 408 25.4%
Bl St 295 367 24 4% Blue Star 295 367 24.4%
ACC 1,458 1,727 18.4%
Note: CMP as of July 10, 2014
16
Research Team Tel: 022 - 3935 7800 E-mail: research@angelbroking.com Website: www.angelbroking.com
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