Académique Documents
Professionnel Documents
Culture Documents
March 2012
Private & Confidential -1-
^Summary
Overallassessment:
Thedomesticpharmaceuticalindustrywouldremainrelativelyimmunetobudgetaryallocations;policychanges(suchasNELM)aremorerelevant
forthesector.
^Automobiles
Budgetexpectations:
Excisedutyondieselpassengervehiclesmaybehikedtodiscouragebuyersfromshiftingtowardsthesevehicles. Incentivesforelectricandhybridvehiclesarelikelytobeannouncedtoencouragefurtherinvestmentsbyautocompaniesinthesesegments.
Impactonthesector/companies:
Higherexcisedutyondieselpassengervehicleslikelytobepassedontoconsumers,negativelyimpactingsalesvolumesofpassengervehicle
companies.
Intheeventofarollbackinthestimuluspackage(cutinexcisedutyannouncedinDec08),salesvolumesoftwowheelerandpassengervehicle
companiesmaybenegativelyimpacted.
Anincreaseinthepersonalincometaxexemptionlimitislikely toboostsalesvolumesfortwowheelerandpassengervehiclecompanies.
SriRaghunandanNL;
raghunandan.nl@avendus.com
Private & Confidential -3-
^Cement
Budgetexpectations:
Simplificationoftheexcisedutystructurefromthecurrentthreestagestructuretoauniformrateofexcisedutypertonneoron advalorem
basis.
JimeshSanghvi; jimesh.sanghvi@avendus.com
Impositionofimportdutyof19%24%onpowerequipment. IncreaseinexemptionlimitforinvestmentininfrastructurebondsfromthecurrentINR20,000underSec80CCF. IncreasethelongtermfundavailabilitybyraisingtheannualINR300bndomestictaxfreeborrowinglimitandUSD30bnECBlimit. ExtensionofeligibilitynormsfortaxholidayincentivesforpowergenerationcompaniestoanothercoupleofyearsunderSec80IA. Increaseindepreciationratesforconstructionequipmentfromthecurrent15%to30%50%. Removethecascadingeffectofintercorporatedividenddistributiontaxbyprovidingtaxcreditatmultiplelevels. ImportdutyexemptiononColdRolledGrainOrientedelectricalsteelusedinmanufacturingoftransformers. AllowprovisionsforbaddebtsaspermissibledeductionsincalculatingbookprofitsandMATliability. ServiceTaxRateonWorksContractService,payableundertheCompositionScheme,bereducedfrom4%to3%. Measurestostreamlinestatutoryclearancesforinfrastructureprojectsandimprovetheexecutionofprojects.
Likelihoodofdemandsbeingmet:
Impositionofimportdutyof14%24%onpowerequipment. Increaseinoverseasborrowinglimit,budgetaryallocationforinfrastructureschemesanddepreciationsopstoarrestthefallinginvestmentrate.
Impactonthesector/companies:
^Financials
Budgetexpectations: RecapitalizationofpublicsectorbanksthroughsubscriptiontoTierIcapital. Banksmaybepermittedtoraisefundsthroughinfrastructurebonds. Reductionofthetenoroftermdepositsfrom5yearsto3years. IncreaseintaxlimitontaxsavinginfrastructurebondsofInfrastructureFinancecompanies(NBFCIFCs). ProvisionsforNPLsbyNBFCstobeeligiblefortaxdeduction. FiscalpackagetoaddressthefinancialhealthofStateElectricityBoards(SEBs). Likelihoodofdemandsbeingmet: Recapitalizationispositiveforpublicsectorbankswherethegovernmentholdsnearly51%andtheTierIratioislikelytofallbelow8%. Banksmayaskfortaxdeductiononinfrastructurebondstomakethemattractiveand,thereby,raiselongtermresources. Anincreaseinthetaxlimitoninfrastructurebondslikelytoprovideafundingboosttotheinfrastructuresector. The demand of tax deduction on provisions for NPLs by NBFCs could gain more weight this year, since it found a mention in the Usha Thorat committeerecommendations. Impactonthesector/companies: Wehaveaneutralviewonthesectorintheneartomediumtermwithnegativebiasforpublicsectorbanks. Theunderperformanceofpublicsectorbanksoverthepasttwoweekslikelytosustaininthenearterm. IncreaseintaxlimitandaddressingofissuesregardingthefinancialhealthofSEBslikelytobenefitNBFCIFCs. PositiveannouncementstoaddressissuesfacedbythepowersectormaydriveneartermoutperformanceofNBFCIFCs.
ChandanaJha;
chandana.jha@avendus.com
JayneeShah;
jaynee.shah@avendus.com
Private & Confidential -6-
^ IT Services
Budgetexpectations:
PriyaSunder;
priya.sunder@avendus.com
Private & Confidential -7-
Abolitionofimportdutyonthermalcoallikelytobenefitspongeironbasedsteelcompanies. Increaseinspendingonvariousinfrastructuredevelopmentschemestoboostdemandforflatandlongsteelproducts.
JimeshSanghvi; jimesh.sanghvi@avendus.com
Private & Confidential -8-
RemovalofNCCDoncrudeoilcouldreducetheannualunderrecoveryonsensitiveoilproductsbycINR5bn,0.5%ofFY13funderrecoveries.
SaurabhBharat; saurabh.bharat@avendus.com
Private & Confidential -9-
^Pharmaceuticals
Budgetexpectations:
ContinuedsupportthroughweighteddeductioninR&Dlikelytoactasanincentiveforinvestmentinresearch.
Impactonthesector/companies:
Thedomesticformulationsindustryislikelytoremainrelativelyimmunetobudgetaryallocations. NeartermfocuslikelytoshifttotheNLEMPolicy,whichcouldhaveanimpactondrugpricing.
MonicaJoshi;
monica.joshi@avendus.com
Private & Confidential - 10 -
^Telecom
Budgetexpectations: Indicativerevenuesforthegovernmentfromauctionof2Gspectrumand4Gspectrum. Clarityononetimefeeonexcessspectrum. Taxdeductionforentireexpenditureon3Gand4Gspectruminthesameyeartheauctionisheld. InfrastructureStatus fortelecomsector. Abolishmentofservicetaxoninternetandbroadbandservices. RationalizationofVATformobilephonesat4%. Extensionof80IAbenefitstooperationscommencedbeforeMar10(currentlyMar05). Likelihoodofdemandbeingmet: TheBudgetmayprovideindicativerevenuesforthegovernmentfrom2G,4Gspectrumandonetimefeeonexcessspectrum.However,clarityon thetimelineandtheapplicablerateforonetimefeeislikelytoemergeinNationalTelecomPolicy,2012. Taxdeductionforexpenditureon3Gand4Gspectruminthesameyearofauctionisunlikely. Extensionof80IAbenefitstooperationscommencedbeforeMar10isunlikely. Impactonthesector/companies: Auction of 2G and 4G spectrum implies cash outgo for telecom service providers (TSPs), thus leading to higher interest costs and amortization expense. Extensionofdatefor80IAbenefitsto31Mar10wouldbenefitnewplayers. RationalizationofVATonmobilephonesmayleadtoincreasedpenetrationofsmartphonesinthecountryand,thus,leadtobetterrevenuesfor TSPsfrom3Gservices.
AbhayMoghe
abhay.moghe@avendus.com
Private & Confidential - 11 -
^Utilities
Budgetexpectations:
Extensionof80IAbenefitstopowerplantscommencingoperationsbeyondMar11likelytobeapositive. IncreaseinallocationtotheRAPDRPandRGGVYschemeslikelytobenefitTransmission&Distributioncompanies.RAPDRPismeanttoreduce
T&Dlossesand,thus,wouldbenefitthepowersectoroverthelongterm.
Ifimportdutyisimposedonpowerequipment,whilesalestaxandVATonsuppliesforconstructionofmegapowerprojectsisnot exempted,it
wouldbenegativefortheprofitabilityofupcomingpowerprojects.
AbolishmentofdutyonimportedcoalforpowerplantswouldbebeneficialforprojectssourcingcoalfromoutsideIndia.
AbhayMoghe
abhay.moghe@avendus.com
Private & Confidential - 12 -
^Disclosures
AnalystCertification Thefollowinganalystsareprimarilyresponsibleforthisreport and,certifythattheopinionsonthesubjectcompaniesandits securitiesandanyotherviewsorforecastsexpressedhereinaccuratelyreflecttheirpersonalviews.They furthercertifythatnopartoftheircompensationwas,isorwillbedirectlyorindirectlyrelatedtothespecificrecommendationsorviewscontainedinthisresearchreport:Abhay Moghe,Anand Shanbhag,Chandana Jha,Devang Patel,Jaynee Shah,Jimesh Sanghvi,MonicaJoshi,Priya Sunder,Raghunandhan NLandSaurabh Bharat. Disclosures MeaningofAvendusSecuritiesPrivateLimitedsequityresearchratings Theratingrepresentstheexpectedchangeinthepriceofthestockoverahorizonof12months. Buy:morethan+20% Add:+10%to+20% Hold:10%to+10% Reduce:10%to20% Sell:lessthan20%
Proportionofratingsineachcategoryandinvestmentbankingrelationships
At the end of December 2011 Proportion of ratings in each category Proportion of companies to whom material investment banking services were offered during the previous 12 months Buy 32% 0% Add 24% 13% Hold 29% 5% Reduce 7% 0% Sell 0% 0% NR 7% 20% Total 100% 6%
Analystdisclosures Noneoftheanalystsinvolvedinthepreparationofthisresearchreportoramemberofhis/herhouseholdisanofficer,directororsupervisoryboardmemberofanyofthecompany(ies)thatis/arethesubjectofthisresearchreport. Noneoftheanalystsinvolvedinthepreparationofthisresearchreportormembersofhis/herhouseholdholdanyfinancialinterestinthesecuritiesofthecompany(ies)thatis/arethesubjectofthisresearchreport.Noneofthe analystsinvolvedinthepreparationofthisresearchreporthavereceivedorpurchasedsharesofthesubjectcompanypriortothepublicofferingofthoseshares. DisclosuresonpotentialconflictsofinterestforAvendusSecuritiesPrivateLimitedand/oritsassociatecompanies(Avendus)ason12March2012 Asontheabovementioneddate,theshareholdingsofAvendusdoesnotexceed5%ofthetotalissuedsharecapitalofanyofthecompaniesmentionedinthereport.Avendusdoesnotholdanyotherfinancialinterestinanyofthe companiesmentionedinthereportthatissignificantwithregardtotheresearchrecommendation.Asontheabovementioneddate,theshareholdingofanyofthecompaniesmentionedinthereportdoesnotexceed5%ofthe totalissuedsharecapitalofAvendus.Avendusisnotamarketmakerorliquidityproviderinthesecuritiesoftherelevantissuerorinanyrelatedderivatives.Avendushasnotbeenaleadmanagerorcoleadmanagerofapublicly disclosedofferofsecuritiesofanyofthecompaniesmentionedinthereportorinanyrelatedderivativesoverthepast12months.Overthepast12months,Avendushasnotbeenpartytoanagreementwithanyofthecompanies mentionedinthereportwithregardtotheprovisionofotherinvestmentbankingservicesthatdonotentailthedisclosureofanyconfidentialcommercialinformation.Avendusisnotpartytoanagreementwiththesubject company(ies)ofthisresearchreportwithregardtotheproductionofthisresearchreport.
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