Budget 2012

UNION BUDGET
SIMPLIFIED
POST BUDGET ANALYSIS REPORT 2012-13

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. UNION BUDGET ANALYSIS FY2012-13 BUDGET HIGHLIGHTS FY2012-13 BUDGET AT A GLANCE SECTOR SUMMARY AUTOMOBILES AVIATION BANKING & NBFCS CAPITAL GOODS & ENGINEERING CEMENT CONSTRUCTION FMCG HOTELS INFORMATION TECHNOLOGY LOGISTICS MEDIA METALS & MINING OIL & GAS PHARMACEUTICALS POWER REAL ESTATE RETAIL SHIPPING TELECOM Pg No. 1 Pg No. 11 Pg No. 14 Pg No. 15 Pg No. 17 Pg No. 19 Pg No. 20 Pg No. 22 Pg No. 24 Pg No. 26 Pg No. 28 Pg No. 30 Pg No. 31 Pg No. 33 Pg No. 34 Pg No. 35 Pg No. 37 Pg No. 39 Pg No. 40 Pg No. 41 Pg No. 42 Pg No. 43 Pg No. 44
PRIVATE CLIENT RESEARCH
UNION BUDGET ANALYSIS
MARCH 16, 2011
UNION-BUDGET ANALYSIS
Research Team +91 22 6621 6301
UNION BUDGET ANALYSIS FY2012-13

Its time to walk the talk
q The FM has presented a more realistic budget, setting the fiscal deficit target of 5.1% v/s 5.9% in FY12. The net market borrowings are expected to be Rs.4.79trn v/s Rs.4.36trn in FY12RE. However, we believe that, this has to be followed-up by effective follow-up action on the proposals or else, it may impact growth. q We expect further action on reducing the subsidy burden, during FY13. This should likely result in moderation in interest rates, thereby helping growth, though over the medium term. More initiatives on various administrative and procedural reforms are also a pre-requisite to make the operating environment more conducive for the private sector to start investing. q The 22.1% increase in plan expenditure, in this first year of the 12th 5YP, will likely give a fill-up to the public sector investments. Significant sums have been allocated for investments in infrastructure areas like roads, power and agriculture, among others. Various sectors have been opened up for foreign funding (ECBs), with a view to provide the private sector, easy access to funds. q The increase in excise duty and service tax rates came in along expected lines. We had also expected a negative list on service tax. While this will result in higher inflation, the resultant moderation in markets borrowing should provide some cushion. Various supply side initiatives, especially in agriculture have also been proposed. q On reforms, a "Medium-term Expenditure Framework" statement will be introduced to set a 3-year rolling target for expenditure indicators and control the same. Other reforms including FDI (multi-brand retail, aviation, etc), land acquisition, mining, power, subsidy management, will have to wait for some more time, though. q On current account deficit (about 3.6% of GDP), the import duty increase on Gold should help it moderate a bit, while raising additional revenues for the Government. This may also ease the pressure on the rupee, which is a source of inflation. q On direct tax, the raising of the exemption limit and the threshold for higher rates will provide some benefit to the individual tax payer. Exempting Rs.10000 bank interest from tax will also put more money in the tax-payers' hands. Imposition of AMT on non-corporate, non-individual taxpayers will result in higher pay-outs for some of these entities, though exact implications need to be worked out. q For the stock markets, there is some benefit in terms of a partial reduction of STT on cash market transactions. We await more clarity on the deduction which has been made available to first-time individual investors in stock markets. q Overall, we see the budget trying to provide a thrust on growth through consumption-related initiatives and also through public sector investments (increase in plan expenditure). More private sector investments will be encouraged only by further reform initiatives. q While the market's concern on the fiscal deficit number has been addressed, it will likely await follow-up initiatives, we opine. We expect the markets to remain range-bound in the short-to-medium term and believe that, a bottoms-up approach will be the best approach over this time-frame.
GDP growth (%)

10 9 8 7 6
Source: CSO, * Stands for Advanced Estimate
Inflation (%)
16 12 8 4 0 -4
Source: Economic Survey 2010-11
Sectoral impact Budget Impact

Positive Neutral Negative
Sectors
Banking, NBFCs, Cement, Construction, Logistics, Pharmaceuticals, Power, Retail, Telecom Aviation, Capital Goods, Information Technology, Media, Real Estate, Automobile, FMCG, Hotels, Oil & Gas, Shipping
Source: Kotak Securities - Private Client Research
Registered Office: Kotak Securities Limited, Bakhtawar, 1st floor, 229 Nariman Point, Mumbai 400021 India.
March 16, 2012
Kotak Securities - Private Client Research
Fiscal prudence follow-up action needed

The FM has presented a budget based on realistic macroeconomic assumptions. The fiscal deficit is expected to be 5.9% of GDP in FY12 compared to earlier target of 4.6%. Budget is targeting a fiscal deficit of 5.1% and GDP growth of 7.6% (+/0.25%) in FY13; higher than the 6.9% GDP growth in current fiscal. We believe 7.6% is certainly more plausible than the 9% target assumed in last years budget. A pre-requisite for achieving this target will be that, the Government will have to take initiatives on various administrative and procedural reforms to make the operating environment more conducive for capital investment.
Trend in deficits
(%) Revenue Deficit Fiscal Deficit Primary Deficit RD as a % of FD 2004-05 2.4 3.9 0.0 62.3 2005-06 2.5 4.0 0.4 63.0 2006-07 1.9 3.3 -0.2 56.3 2007-08 1.1 2.5 -0.9 41.4 2008-09 4.5 6.0 2.6 75.2 2009-10 5.2 6.5 3.2 81.0 2010-11 3.3 4.9 1.8 67.5 2011-12* 4.4 5.9 2.8 75.7 2012-13** 3.4 5.1 1.9 68.2
Source: Economic Survey 2011-12; * stands for Provisional; ** stands for Budget Estimate
The bulk of the fiscal consolidation is expected to stream from higher revenue mobilization through taxes rather than lower expenditure. Expectedly so, central excise and services tax rates have been increased from 10% to 12%, partially rolling back some of the FY09 stimulus. We believe that, this is a dependable way of raising an additional 0.5% of GDP in revenue. The services tax net has also been widened with introduction of negative list with limited exemptions. Therefore, the targeted 19% nominal increase in revenue seems achievable. Total spending is expected to rise by 13.1%, moderate in our view given that inflation is expected to be about 67%. The FM endeavors to restrict Central subsidies under 2% of GDP in FY13 scaling further down to 1.75% in next 3 years. In our view, the biggest risk to fiscal deficit and growth targets remain in form of subsidies, crude oil prices and administrative policy. The subsidy provision towards fuel at Rs.435bn in FY13 as against Rs.685bn in FY12 assumes crude oil at $115 verses current prices of $125. If oil prices remain at current level then government will need to make some difficult decisions on hiking fuel prices of some products to meet deficit targets.
Trend in Subsidies
FY11 Food Total Fertiliser Subsidy Indigenous (urea) fertilisers Imported (urea) fertilisers Sale of decontrolled fertiliser with concession to farmers Petroleum Subsidy Interest subsidies Other Total Subsidies (Rs.bn)
Source: Annual Budget 2012-13
FY12BE 605.7 500.0 69.8 133.1 297.1 236.4 68.7 24.9 1435.7
FY12RE 728.2 672.0 138.8 191.1 342.1 684.8 57.9 20.0 2163.0
FY13BE 750.0 609.7 134.0 190.0 285.8 435.8 79.7 24.9 1900.2
638.4 623.0 64.5 150.8 407.7 383.7 46.8 42.2 1734.2
Union Budget 2012-13
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For Private Circulation
March 16, 2012
We also understand that, the private sector will be awaiting more reforms on the administrative front and also on the procedural front. These reforms will need to be re-initiated by the Government with a view to bring in more investment from the private sector. Borrowing requirement remains substantially higher at Rs.5.6trn in gross terms next fiscal too, compared to Rs5.1trn current fiscal. As a result the 10-year benchmark shot up by nearly 10bps and is expected to inch higher in next fiscal. Agriculture sector credit target is raised to Rs.5.75trn in FY13 and various sectors (power, airlines) have been opened up for foreign funding route (ECBs) for raising working capital loan and part financing rupee debt with a view to provide the private sector, easy access to funds. On external front, the estimate for current account deficit for FY12 is at 3.6% of GDP, likely to moderate only slightly in next fiscal. High current account deficit would pressurize the exchange rate and may become more volatile in near future.
Variance in Non-Plan expenditure (Rs. bn)
FY11 Interest Payments and Debt Servicing Defence Expenditure Subsidies Fertilizer Subsidy Food Subsidy Petroleum Subsidy Other Subsidies General Services Social Services Education Medical, Public health & Family welfare Economic services Agriculture & Allied Services Trasport Non-Plan Grants to States & UT Other Non-plan Expenditure Total (Non-Plan) Expenditure
Source: Annual Budget 2012-13
FY12BE 2679.9 1644.2 1435.7 500.0 605.7 236.4 93.6 1032.3 208.6 89.7 30.3 216.9 38.2 24.9 663.1 281.2 8161.8
FY12RE 2756.2 1709.4 2163.0 672.0 728.2 684.8 77.9 1088.0 197.1 94.6 32.2 202.9 36.1 26.2 553.2 251.4 8921.2
FY 13BE 3197.6 1934.1 1900.2 609.7 750.0 435.8 104.6 1200.9 207.8 103.1 33.1 204.8 35.6 35.0 642.1 411.6 9699.0
2340.2 1541.2 1734.2 623.0 638.4 383.7 89.0 1016.1 350.1 83.3 30.3 246.9 42.8 31.4 497.9 456.4 8183.0
In our view the capital markets expectation on fiscal prudence, realistic macroeconomic assumption is achieved in this budget. Overall, this budget does constitute a modest step towards putting India back on a path of fiscal consolidation. However, some factors such as shift from demand pull growth to supply push growth via higher investments is partially unfulfilled. Nevertheless, under current politico-economic situation, FM did deliver an acceptable and achievable budget. Which in our opinion, should enable RBI to view that, fiscal policy is not an obstacle to gradual policy easing, provided inflationary pressures ease and global commodities soften.
March 16, 2012
Sustained focus on growth

The Finance Minister has rightly focused on sustaining and improving the growth rates of the economy. The projected growth of around 7.6% for FY13. FY12 has seen growth decelerate sharply to around 7% (according to advance estimates of CSO) from about 8.4% achieved in FY11. In fact, 3QFY12 has seen growth go down to a low of 6.1%. The growth has been impacted by the relatively lower growth of 2.6% in the Industry segment.
Growth in Real GDP (%)
2004-05 Prices Agriculture & Allied activities Industry Mining & quarrying Manufacturing Electricity, gas & water supply Construction Services Trade, Hotels, Transport, Communication Finance, Real Estate, Other Businesses Community, Social & Personal Services Total 12.1 12.6 7.1 9.5 11.7 14.0 2.8 9.6 10.7 12.0 6.9 9.3 7.6 12.0 12.5 6.7 10.3 9.4 12.0 8.4 11.1 10.4 4.5 8.4 11.2 9.1 5.9 6.9 1.3 10.1 7.1 12.8 7.5 14.3 9.3 10.3 3.7 10.3 8.3 10.8 2.1 4.3 4.6 5.3 6.3 9.7 6.3 7.0 5.0 7.6 3.0 8.0 -2.2 3.9 8.3 4.8 2005-06 5.1 2006-07 4.2 2007-08 5.8 2008-09 0.1 2009-10* 1.0 2010-11** 7.0 2011-12*** 2.5
Source: CSO; * stands for Provisional Estimate; ** stands for Quick Estimate; *** stands for Advance Estimate
through investments
Towards this objective, the FM has allocated increased sums towards investments in agriculture as well as infrastructure. The plan expenditure has been increased by 22.1% as compared to the revised estimates for FY12. The central plan outlay for agriculture has been increased by about 19%. Within the infrastructure sector, central plan outlay for the energy segment has risen from Rs.1.47trn to Rs.1.55trn, whereas that for industry and minerals has gone up by about 41% to Rs.572bn.
Central Plan Outlay by Sectors
(Rs bn) Agriculture & Allied Activities Rural Development* Irrigation & Flood Control Energy Industry and Minerals Transport** Communications Science Tech & Environment General Economic Services Social Services*** General Services Grand Total FY11 157.16 420.60 4.76 1,109.77 359.51 942.05 103.36 119.21 136.81 1,276.33 13.60 4,643.16 % of Total 2.7 7.1 0.1 18.7 6.1 15.9 1.7 2.0 2.3 21.5 0.2 78.4 FY12BE 147.44 462.92 5.65 1,554.95 452.14 1,168.61 202.56 161.86 158.02 1,538.12 72.30 5,924.57 % of Total 2.5 7.8 0.1 26.2 7.6 19.7 3.4 2.7 2.7 26.0 1.2 100.0 FY12RE 148.55 391.32 4.89 1,471.90 405.81 1,092.05 119.94 127.13 194.20 1,570.56 55.36 5,581.72 % of Total 2.7 7.0 0.1 26.4 7.3 19.6 2.1 2.3 3.5 28.1 1.0 100.0 FY13BE 176.92 407.63 12.75 1,548.42 572.27 1,253.57 154.11 165.92 247.77 1,888.72 87.01 6,515.09 % of Total 2.7 6.3 0.2 23.8 8.8 19.2 2.4 2.5 3.8 29.0 1.3 100.0
Source: Annual Budget FY2012-13; * Includes provision for rural housing but excludes provision for rural roads; ** Includes provision for rural roads
March 16, 2012
The allocation under Rural Infrastructure Development Fund (RIDF) has been enhanced to Rs.200bn. Moreover, the FM has set a target of awarding highway projects covering a length of 8,800 kms under NHDP in FY13 as against 7300 kms in FY12. However, we believe that, the target for FY13 may prove ambitious. The target for FY12 itself is not expected to be met, we believe. The allocation of the Road Transport and Highways Ministry has been enhanced by 14% to Rs.254bn. Infrastructure allocation now forms around 45% of total central plan allocation (energy, transport and communication).
More funding avenues for the private sector; PPP also encouraged
While allocations have been increased, thrust is also on attracting more towards the private sector. To boost infrastructure development, tax free bonds of Rs.600bn are proposed to be issued by Government undertakings during 2012-13 as against Rs.300bn allowed in FY12. The first Infrastructure Debt Fund with an initial size of Rs.80bn has already been launched. IIFCL has also put in place a structure for credit enhancement and take-out finance for easing access of credit to infrastructure projects. The FM has also opened the ECB window for capital expenditure on the maintenance and operations of toll systems for roads and highways, part finance of rupee debt of existing power projects, working capital requirements of the airline industry for a period of one year, subject to a total ceiling of US Dollar 1 billion and low cost affordable housing projects The rate of withholding tax on interest payments on ECBs is proposed to be reduced from 20% to 5% for three years for power, airlines, roads and bridges, ports and shipyards, affordable housing, fertilizer and dams. To promote more investments, investment-linked deduction of capital expenditure incurred is proposed to be provided at the enhanced rate of 150%, as against the current rate of 100% for cold chain facility, warehouses for storage of food grains, hospitals, fertilisers and affordable housing. To enhance the flow of funds to the infrastructure sector, more sectors have been added as eligible sectors for Viability Gap Funding under the scheme Support to PPP in infrastructure. Some of the sectors are irrigation, capital investment in fertiliser sector, Oil and Gas / LNG storage facilities and oil and gas pipelines, fixed network for telecommunication and telecommunication towers. The Government has also approved guidelines for establishing joint venture companies by defense PSUs in PPP mode. The National Manufacturing Policy has already been announced with the objective of raising the share of manufacturing in GDP to 25% and creating of 100mn jobs within a decade. Coal India Limited has also been advised to sign fuel supply agreements with power plants, having long-term PPAs with DISCOMs and getting commissioned on or before March 31, 2015.
March 16, 2012
Plan expenditure
6000 4800 3600 2400 1200 0
Plan Expenditure (Rs bn - LHS) Growth (% - RHS)
40% 32% 24% 16% 8% 0%
Source: Economic Survey 2011-12, Budget FY2012-13
Non-plan expenditure
12000 9000 6000 3000 0 -3000
Non-Plan Exp (Rs bn - LHS) Growth (% - RHS)
24% 18% 12% 6% 0% -6%
Source: Economic Survey 2011-12, Budget FY2012-13
Inclusive growth remains a corner-stone

With a view to make the growth more sustainable, the Government has continued its focus on inclusive growth. The Government has announced various measures for the social sector and agriculture. We concur with the Governments assessment that, high growth in the economy can be sustained only if it is equitable and inclusive growth. Higher allocations have been made for farmers, poor, women, children, etc. Allocation for social sector has increased by 20% to Rs.189trn i.e. 29% of the total plan outlay. An amount of Rs.256bn has been provided for RTE-SSA, representing an increase of 21.7% over 2011-12. Allocation for NRHM is also proposed to be increased from Rs.181bn in 2011-12 to Rs.208bn in 2012-13. The FM has also announced the launch of National Urban Health Mission and has allocated Rs.10bn for National Skill Development Fund in 2012-13. With a view to improve the flow of institutional credit for skill development, a separate Credit Guarantee Fund is proposed to be set up.
March 16, 2012
Attacking supply side constraints in agriculture

With WPI inflation remaining at elevated levels, Mr. Mukherjee has tried to address some long pending structural issues in agriculture. These issues are expected to address the supply side constraints and ease inflation in the longer term. As per estimates, production of food grains in 2011-12 is estimated to be about 250.4mn tonnes, marginally higher than 244.8 mn tonnes achieved during previous year. The plan outlay for Department of Agriculture and Co-operation has been increased by 18%. The target for agricultural credit has also been raised by Rs.1trn to Rs.5.75trn. The Initiative of Bringing Green Revolution to Eastern India (BGREI) has started yielding results and allocation for the scheme has been increased to Rs.10bn from Rs.4bn in 2011-12. The interest subvention scheme for providing short term crop loans to farmers at 7% interest has been continued for 2012-13, with additional subvention of 3% for prompt paying farmers. We had expected higher focus on removing supply bottle-necks with a view to increase supplies. We opine that, in the backdrop of a challenging fiscal situation, effective implementation rather than high spends, will alleviate the supply side issues effectively. To promote more investments, investment-linked deduction of capital expenditure incurred is proposed to be provided at the enhanced rate of 150%, as against the current rate of 100% for cold chain facility and for warehouses for storage of food grains. The FM has announced a new centrally sponsored scheme titled National Mission on Food Processing, which will be started in 2012-13 in co-operation with State Governments. Moreover, steps have been taken to create additional food grain storage capacity in the country. In view of the warehousing shortage in the country, the FM has earmarked an amount of Rs.50bn exclusively for creating warehousing facilities under RIDF (Rural Infrastructure Development Fund).
Reforms still some time away

The budget has been largely silent on several reforms, which were expected to be addressed. Several of them are expected to be moved in the current session of the Parliament, though. With a view to bring in more visibility and stability to the total expenditure and hence, the fiscal deficit, the FM has proposed to bring in the concept of Medium Term Expenditure Framework as a feature of the amendment to the FRBM Act. We believe this reflects the Governments resolve to revert back on the fiscal consolidation path and that too, sustainably. The FM has spelt out a target of reducing the subsidy burden to 1.7% of GDP over the next three years, which restricting it to 2% of GDP in FY13. In case the Government de-regulates the fuel prices, especially diesel prices, we will view the same as a very important reform, which has been pending for several years. The FM has also announced that, the official amendment to The Pension Fund Regulatory and Development Authority Bill, 2011, The Banking Laws (Amendment) Bill, 2011 and The Insurance Law (Amendment) Bill, 2008 will be moved in the budget session. Also, various other bills are proposed to be moved in the Budget session of the Parliament.
March 16, 2012
On the two major reforms of DTC and GST, the FM has indicated his resolve to implement them at the earliest. For DTC, the FM has indicated expeditious examination of the report of the Parliamentary Standing Committee. On GST, we understand that, more work needs to be done with the states. The FM has proposed that, the GST Network will be set up as a National Information Utility and will become operational by August 2012. Thus, it is likely that, the GST may come into force from that date We had expected some initiatives on other issues like land acquisition, mining, etc. We believe that, we will have to await more action as far as these and other reforms are concerned.
TAX
PROPOSALS
Direct taxes
No changes in corporate tax rate; however Alternate minimum tax is levied on other form of business organizations There have been no changes in the corporate tax rate. But in order to moderate the outgo on profit linked deduction, alternate minimum tax has been levied on the other form of business organizations such as partnership firms, sole proprietorship, association of persons, etc. Partnership firms usually claim certain tax benefits that reduce their tax obligations substantially. Under AMT, they would be liable to pay tax at 18.5%.
Tax / GDP ratio
Indirect Tax 12 9 5.6 6 3 6.1 Direct Tax
5.6
4.8
3.8
4.5
4.5
4.5
5.0
5.1
5.9
5.7
5.7
5.7
5.9
5.6
0 2006-07 2007-08 2008-09 2009-10 2010-11 (BE) 2010-11 (P) 2011-12 (BE) 2012-13 (BE)
Source: Economic Survey 2011-12; Budget 2012-13
March 16, 2012
Benefits on personal income tax front

The budget has provided further benefits to individual tax payers by increasing the basic exemption limit from Rs.1.8 lakh per annum to Rs. 2 lakh per annum. Income between Rs 2 lakh to Rs 5 lakh per annum would attract tax at 10% tax while the upper limit of the 20% tax slab has been raised from Rs 8 lakh to Rs 10 lakh. This would result in an overall benefit of Rs 22,000 for a person having salary of Rs 10lakh per annum as compared to earlier structure.
Individual direct tax impact
New Slab (Rs) 0-2.0 lakh 2.0-5.0 lakh 5.0-10.0 Total Tax Payout Incremental tax saving Rs
Source: Budget documents
Old Slab (Rs) 0-1.8 lakh 1.8-5 lakh 5.0-8.0 8.0-10.0
Tax rate % 0 10% 20% 30%
Tax payable New Old 0 30000 100000 130000 22000 0 32000 60000 60000 152000
Deduction of upto Rs 10,000 for interest from savings bank accounts is also allowed for individual tax payers. This would help a large number of small taxpayers. Along with the existing limit for deduction allowed for health insurance, a deduction of upto Rs 5,000 for preventive health check-up has also now been allowed. Investment-linked incentives have been enhanced and deduction of capital expenditure incurred in the businesses like cold chain facility, hospitals, fertilizers, affordable housing, warehouses for storage of food grains is proposed to be provided at the enhanced rate of 150%, as against the previous rate of 100%. Along with this, to promote investment in research and development, weighted deduction of 200% for R&D expenditure in an in-house facility beyond March 31, 2012 has been extended for a further period of five years. Capital gains tax on sale of a residential property has been also exempted if the sale consideration is used for SME company for purchase of new plant and machinery. Weighted deduction at the rate of 150% of expenditure incurred on skill development in manufacturing sector and for agri-extension services is also proposed to be provided. A net revenue loss of Rs.45bn is estimated to be incurred as a result of the direct tax proposals.
Indirect Taxes
The need to continue the process of fiscal consolidation and for indirect tax revenue to contribute more has led to an increase in central excise and service tax to 12% from 10%. Indirect tax proposals in the budget are an attempt to increase revenue mobilization through widening the tax base and strengthening enforcement. Proposal to tax all services except those in the negative list or list of exemptions has been also introduced. The negative list shall comprise of the following services, namely: (a) (b) (c) (d) (e) (f) (g) services by Government or a local agencies services by the Reserve Bank of India; services by a foreign diplomatic mission located in India; services relating to agriculture trading of goods; any process amounting to manufacture or production of goods; selling of space or time slots for advertisements other than advertisements broadcast by radio or television;
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March 16, 2012
(h) (i) (j) (k) (l) (m) (n) (o) (p) (q)
service by way of access to a road or a bridge on payment of toll charges; betting, gambling or lottery; admission to entertainment events or access to amusement facilities; transmission or distribution of electricity by an electricity transmission or distribution utility; Educational services services by way of renting of residential dwelling for use as residence; financial services and foreign currency transportation service of passengers services for transportation of goods funeral, burial, crematorium or mortuary services including transportation of the deceased.
Increase in service tax is projected to yield moderately increased revenue of Rs.18bn, when share of services in GDP is 59%. While the standard rate of excise duty has been raised from 10% to 12%, the merit rate has been increased from 5% to 6%, and the lower merit rate from 1% to 2%, leaving aside lower merit rate for coal, fertilisers, phones and jewellery. Excise duty on large cars is up from 22% to 24%. In the case of cars that attract a mixed rate of duty of 22% + Rs 15000 per vehicle, the same has been converted into an ad valorem rate of 27%. Peak rate of customs duty at 10% on non-agricultural goods is retained while to check high import of gold, basic customs duty on standard gold bars/coins and platinum has been increased from 2% to 4% and on non-standard gold from 5% to 10%. Indirect taxes contribution is estimated to increase from 4.5% of GDP to 5% of GDP in FY13 reflecting a growth of 26.5% YoY. In the medium term outlook, indirect tax receipts as percentage of GDP is projected at 5% in FY14 and 5.2% in FY15.
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March 16, 2012
BUDGET HIGHLIGHTS FY2012-13

Customs duty
Pre-budget Auto Bicycles Parts of Bicycles Completely built units of large cars of value > Rs 20 lacs Agriculture and Fertiliser Sugar planter Coffee plantation machinery Coffee vending machines specified soluble fertilizers Liquid fertilizers Metals Chromium ore Coating material for making electrical steel Flat rolled products of non-alloy steel Precious metals Gold bars and Platinum bars Non standard Gold Capital Goods Capital Goods on Iron ore pelletisation plants Fertiliser projects boiler tubes and pipes Equipments for setting up solar thermal projects Railway safety and laying equipments Coal mining projects Fuel Basic customs duty Steam coal CVD on steam coal LNG for use in power generation Equipment for road construction from Metro Dvlp Authorities Equipment for tunnel boring machines Miscellaneous Iodine Shuttle-less looms titanium dioxide Aramid yarn for bullet proof helmets New and retreaded aircraft tyres
Post-budget
10% 10% 60%
30% 20% 75%
7.50% 7.5-10% 10% 7.50% 5%
2.50% 5% 5% 5% 2.50%
Rs 3000 per tonne 10% 5%
30% ad valorem 5% 7.50%
2% 5%
4% 10%
7.50% 10% 10% na 10.00% 7.50%
2.50% 0% till 31/3/2015 8% 0% 7.50% 0%
5% 5% 5% 7.50% 7.50%
0% 1% 0% 0% 0%
5% 5% 10% na 10%
2.50% 0% 7.50% 0.0% 0%
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March 16, 2012
Excise duty
Item Auto large cars (engine capacity < 1200 cc for petrol and < 1500 cc for diesel) large cars (engine capacity > 1200 cc for petrol and > 1500 cc for diesel) Battery packs sold to electric vehicles FMCG cigarettes > 65 mm cigarettes < 65 mm Hand-rolled bidis Machine-rolled bidis processed food products of soya Footwear above Rs 500 per paid Exemption limit on footwear Cement "Cement - now notfied under sec 4A, retail sale price (RSP) based assessment with an abatement of 30%from RSP." Cement manufactured and cleared in packaged form for mini plants selling price < 190 per bag selling price > 190 per bag From other than mini cement plants selling price <Rs 190 per bag selling price >Rs 190 per bag Cement cleared other than in packaged form Cement clinker Metals Excise duty on gold jewellery sold from EOU to domestic tariff area Excise duty on refined gold Excise duty on silver produced from copper smelting Miscellaneous LED lamps matches manufactured by semi-mechanized units
Source: Union Budget Document 2012-2013
Pre Budget
Post Budget
22%
24% 27% 6%
22% + 15000 per vehicle 10%
(depending on cigarattes length) na Rs 8 per thousand Rs 19 per thousand 10% 10% Rs 250 per paid
10% + pre-existing slab Rs 669 per thousand Rs 10 per thousand Rs 21 per thousand 6% 12% Rs 500 per pair
10% ad valorem 10% ad valorem + Rs 30/tonne
6% ad valorem + Rs 120 per tonne 6% ad valorem + Rs 120 per tonne
10% ad valorem + Rs80 per ton 10% ad valorem + Rs160 per ton 10% ad valorem 10% ad valorem
12% ad valorem + Rs 120 per tonne 12% ad valorem + Rs 120 per tonne 12% ad valorem 12% ad valorem
5% 1.50% 6%
10% 3% 4%
16% 10%
6% 6%
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March 16, 2012
Capital markets marginal benefit

The budget has provided some benefits to the capital markets, which will have a marginal effect on the same. However, through these measures, the FM has indicated his sensitivity to the markets. The FM has proposed to introduce the Rajiv Gandhi Equity Savings Scheme to allow for income tax deduction of 50% to new retail investors, who invest upto Rs.50,000 directly in equities and whose annual income is below Rs.1mn. The investment should have a lock-in period of 3 years. It means that, one can invest Rs. 50,000 out of his income and will get a deduction on that, provided that he locks it for three years. The amount which you have invested, will be allowed as a tax deduction from the income of the year. This is with a view to bring in new investors. Finer details on the same are awaited. The FM has also reduced STT on delivery transactions from 0.125% to 0.10%. While it is a small benefit, it signals the FMs intention to promote long-term equity investing in the market. Budget is largely in line with our expectations as far as larger issues of growth, inflation and fiscal discipline are concerned. While the markets concern on excise duty rise was addressed (no increase) the concern on fiscal deficit will likely be resolved during the year, we opine. Thus, we do not expect any major impact on the markets in the near term. Over the medium term, we believe that, strict implementations of proposals, implementation of reforms and positive action on subsidy (important from fiscal deficit perspective) would be the likely positive triggers for the market. However, unfavourable developments on the global economic front or a sharp rise in commodity prices may have a negative impact on markets. While the markets concern the fiscal deficit number was addressed, it will likely await follow-up initiatives, we opine. We expect the markets to remain rangebound in the short-to-medium term and believe that, a bottoms-up approach will be the best approach over this time-frame.
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March 16, 2012
BUDGET
(Rs bn) RECEIPTS
AT A GLANCE
Central Government Finances

FY2011 7,885 7,931 4,460 2,987 1,466 7 3,471 1,358 1,383 710 20 2,193 5,699 2,186 4,089 124 228 3,736 11,973 FY2012 BE 7,899 9,324 5,327 3,600 1,720 6 3,998 1,517 1,641 820 20 2,635 6,645 1,254 4,678 150 400 4,128 12,577 FY2012 RE 7,670 9,017 5,007 3,277 1,719 11 4,010 1,530 1,507 950 23 2,554 6,423 1,247 5,517 143 155 5,220 13,187 FY2013 BE 9,357 10,776 5,703 3,732 1,958 12 5,074 1,867 1,944 1,240 23 3,019 7,711 1,646 5,552 117 300 5,136 14,909
1. Revenue receipts (2d + 3) 2. Gross tax revenue (2a + 2b ) 2a. Direct taxes 2a1. Corporation tax 2a2. Income tax 2a3. Other taxes 2b. Indirect taxes 2b1. Customs duty 2b2. Excise duty 2b3. Service tax 2b4.Taxes on UTs (2c) Transfers to States and UTs 2d Net tax revenue 3. Non-tax revenue 4. Capital receipts (4a + 4b + 4c) 4a. Recovery of loans 4b. Other receipts (Disinvestments) 4c. Borrowings and other liabilities 5. Total receipts (1 + 4) EXPENDITURES 11. Non-plan expenditure (12 + 13) 12. Non-plan revenue expenditure 12a. Interest payments 12b. Subsidies 12b1. Food 12b2. Fertilizer 12b3. Others 12c. Grants to States and UTs 12d. Others 13. Non-plan capital exp. 14. Plan expenditure (15 + 16) 15. Plan revenue expenditure 16. Plan capital expenditure 17. Total expenditure (11 + 14) 18. Revenue expenditure (12+15) 19. Capital expenditure (13+16) MEMO ITEMS 20. Revenue Deficit (18-1) 21. Fiscal Deficit (17-{1+4a+4b}) 22. Primary Deficit (21-12a) 23. Gross domestic product (GDP) PD/GDP (%) RD/GDP (%) FD/GDP (%)
Source: Annual Budget FY2012-13
8,183 7,265 2,340 1,734 638 623 473 498 2,693 918 3,790 3,142 648 11,973 10,407 1,566
8,162 7,336 2,680 1,436 606 500 330 663 2,557 826 4,415 3,636 779 12,577 10,972 1,606
8,921 8,157 2,756 2,163 728 672 763 553 2,685 764 4,266 3,462 804 13,187 11,619 1,568
9,699 8,656 3,198 1,900 750 610 540 642 2,916 1,043 5,210 4,205 1,005 14,909 12,861 2,048
2,523 3,736 1,396 76,741 1.8 3.3 4.9
3,073 4,128 1,448 89,744 1.6 3.4 4.6
3,950 5,220 2,464 89,122 2.8 4.4 5.9
3,504 5,136 1,938 101,599 1.9 3.4 5.1
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March 16, 2012
SECTOR SUMMARY
Sector Summary
Sector Automobiles Aviation Banking & NBFC Capital Goods and Engg. Cement Construction FMCG Hotels Information Technology Logistics Media Metals and Mining Oil & Gas Pharmaceuticals Power Real Estate Retail Shipping Telecom Budget Impact Positive Neutral Positive Neutral Positive Positive Negative Negative Neutral Positive Neutral Neutral Negative Positive Positive Neutral Positive Negative Positive Preferred Picks Bajaj Auto, TVS Motors NA HDFC Bank, ICICI Bank, BoB, IDFC L&T, Bharat Electronics, Engineers India, Cummins India Grasim, UltraTech Cement IRB Infra, Unity Infra, Pratibha Industries, NA NA Infosys, TCS, KPIT, NIIT Technologies Gateway Distriparks, Allcargo, Arshiya International HT Media NA Petronet LNG, GSPL NA NTPC Phoenix Mills Ltd NA Mercator NA
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March 16, 2012
SECTOR IMPACT ANALYSIS
16
March 16, 2012
BUDGET IMPACT: NEGATIVE
AUTOMOBILES
BUDGET
HIGHLIGHTS
& IMPACT
2 wheeler - Sales volume 15 12 9 6 3 -
n Increase in general excise duty Impact - Finance Minister in his budget speech announced increase in excise duty from 10% to 12% that was in line with our expectations. In our view, this will be negative for the auto sector as the OEM's are expected to pass on the hike onto the customers. Most of the OEM's have already announced price hikes. Volumes in the auto sector have slowed down over the past one year, and the increase in price will put additional strain to the volume growth rate in the near to medium term. We see this to be negative for the entire sector. n Large cars excise duty hiked Impact - In the budget, excise duty on large cars were hiked from 22% to 24% in line with the 2% hike affected in the general excise duty. Further, large cars that attracted excise duty of 22% + Rs15,000 will now be charged at an ad valorem rate of 27%. We believe this to be negative for car demand, primarily the petrol cars where the demand is already weak.
Excise duty structure for passenger cars
Fuel type Petrol Diesel Petrol Diesel Petrol Diesel Length upto 4M upto 4M above 4M above 4M above 4M above 4M Engine size NA NA upto 1200cc upto 1500cc above 1200cc above 1500cc Pre-Budget 10% 10% 22% 22% 22% + Rs15,000 22% + Rs15,000 Post-Budget 12% 12% 24% 24% 27% 27%
Source: SIAM
Passenger vehicles - Sales volume 3.0 2.5 2.0 1.5 1.0 0.5 -
Source: Budget documents
Source: SIAM
CVs - Sales volume 800 600 400 200 -
n Increase in custom duty on CBU Impact - Basic custom duty on Completely Built Units (CBU) of large cars/MUV/ SUV permitted for import without type approval (value exceeding USD 40,000 and engine capacity exceeding 3000cc for petrol and 2500cc for diesel) has been increased from 60% to 75%. We expect the local manufacturers of high end cars/SUV stand to gain from this move. However, given small market size for this segment in India, we see very minimal impact for the auto industry as a whole. n Agriculture continues to receive emphasis Impact - Like previous budget, the government continued to lay stress on the development of the agriculture sector. Plan outlay for the sector was increased by 18% in the budget to Rs202bn. Further the target for agriculture credit was raised from Rs4,750bn in FY12 to Rs5,750bn in FY13. Interest subvention scheme for short term loans at 7% is been continued into FY13. Also, additional subvention of 3% will be provided for prompt paying farmers. We believe that the above mentioned steps will be positive for the tractor industry including Escorts. Further, 2W sector could also gain because of relatively high penetration in the rural areas.
Source: SIAM
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March 16, 2012
Impact on EPS (Rs)

Company Pre-Budget EPS FY12E FY13E Post-Budget EPS FY12E FY13E Current Target Price Price
Preferred picks Bajaj Auto TVS Motors Others Hero MotoCorp Maruti Suzuki Ashok Leyland Escorts* 120.7 49.6 1.8 13.2 135.7 81.6 2.7 8.2 120.7 49.6 1.8 13.2 135.7 81.6 2.7 8.2 1,957 1,374 28 73 1,900 1,142 27 89 107.4 5.2 117.0 5.6 107.4 5.2 117.0 5.6 1,722 44 1,632 63
Source: Kotak Securites - Private Client Research; * Escorts is a September year ending company, EPS estimates are for FY11 and FY12
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March 16, 2012
BUDGET IMPACT: NEUTRAL
AVIATION
BUDGET
HIGHLIGHTS
& IMPACT
Domestic passenger traffic (in mn) 65 55 45 35 25 15
n ECB for working capital requirement Impact - Finance Minister allowed the civil aviation sector to borrow working capital requirements through the ECB route for a period of one year and subject to a total ceiling of USD 1bn. While this proposal is positive for cash strapped airlines like Kingfisher and Jet Airways; however given weak current financial strength, we believe the companies will be able to take limited advantage of the same. On a positive note, with foreign currency revenues from global operations, the currency risk will be mitigated to a certain extent in case the airline companies avail these loans. n Reduction on withholding tax Impact - Withholding tax on interest payments on ECB is proposed to be reduced from 20% to 5% for three years for few stressed infrastructure sector including the airline sector. Based on our observation on the earlier point, we expect this step to be marginally positive for the sector. n Focus towards making India a third party MRO hub Impact: In order to make India a third party Maintenance, Repair and Overhaul (MRO) hub, the finance minister proposed some action on this front. Full basic custom duty exemption has been provided on parts of aircraft and testing equipment required for MRO purpose. Further to support the airline industry, both new and retreaded aircraft tyres has been exempted from basic custom duty/excise duty. We believe the above mentioned step to be marginally positive for the air carriers.
Source - Civil Aviation Ministry
ATF Prices (Rs/KL) 70000 64000 58000 52000 46000 40000
Source - IOC
n Change in service tax structure Impact: Service tax structure on domestic and international journeys has been changed from a maximum of Rs150 (domestic journey) and Rs750 (international journey) to an ad valorem rate of 12% with abatement of 60%, subject to the condition that no credit on inputs and capital goods is taken. We believe the above mentioned step will increase service tax charge leading to increased airfare for the passenger and the same can have a negative impact on passenger traffic. While the finance minister announced a slew of positive measures for the sector, we believe the same will have minimal positive impact on the fortunes of the sector. Key issues like FDI and reduction of sales tax on ATF remains undecided making this budget neutral for the sector. We do not have active coverage on this sector
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March 16, 2012
BUDGET IMPACT: P OSITIVE
BANKING & NBFCS

BUDGET
HIGHLIGHTS
& IMPACT
Deposit and credit growth (%) 35% 29% 23% 17% 11% 5%
Credit Deposit
n The budget has provided Rs.146 bn for recapitalization of state-run banks. Impact: Rs.146 bn has been earmarked for recapitalization of PSU banks to enable them to augment their tier-I capital and in turn also help them in funding balance sheet growth. Another Rs.13 bn is being provided to recapitalize NABARD, RRBs, and EXIM Bank etc. Indian banks which are scheduled to migrate to BASEL III norms in phases are likely to require more than Rs.1.0 tn of capital in the future. To meet such gigantic capital requirement, government is planning to float a holding company for PSU banks to meet their capital requirements. n Two-way fungibility allowed for Indian Depository Receipts. Impact: It would be positive for Standard Chartered IDR which is still quoting at ~30% discount to its listed price at other exchanges. This could attract many more international companies to get its shares listed at Indian bourses as that could lead to seamless movement of capital between their home country and India. n Net market borrowing is estimated at Rs.4.79 tn during FY13 (BE) as against Rs.4.36 tn during FY12 (RE). Impact: Government's net borrowing program for FY13 is slightly higher which is likely to increase the concern of crowding out effect on private investment. This is likely to put pressure on the government bond yields and hence negative for banks as they have to provide MTM provisions on their Investment book. However, RBI has exhibited its capability several times earlier, when it successfully managed additional borrowing program in the non-disruptive manner. We expect RBI to continue with OMO (Open Market Operations) to ensure there is no disruption due to government borrowing. n The target of credit flow to the farmers has been hiked from Rs.4.75 tn in FY12 to 5.75 tn in FY13 (BE). Impact: It implies PSU banks are likely to be forced to lend more to PSL segment than the overall system growth. Hence, it is slightly negative for state owned banks which are witnessing higher asset quality deterioration on back of moral hazard issues. However, additional interest subvention of 3% to prompt paying farmers on post-harvest loans up to six months against negotiable warehouse receipt is likely to encourage the farmers to keep their produce in warehouses along with improving the loan repayment culture in the agri segments. n Reduction in the Securities Transaction Tax (STT) from existing 0.125% to 0.1% on cash delivery transactions. Impact: It is likely to provide some thrust to cash delivery volume and hence positive for the broking companies. This is also likely to provide a fillip to the struggling mutual fund industry. Another scheme called Rajiv Gandhi Equity Savings Scheme which will allow 50% income tax deduction to new retail investors with annual income of below Rs.1.0 mn and putting in up to Rs.50K directly in equities with a lock-in period of 3 years. Further details are awaited.
Source: RBI
Inflation (%) 16 12 8 4 0 -4
Source: Bloomberg
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March 16, 2012
Impact on EPS (Rs)

Preferred picks HDFC Bank ICICI Bank BoB J&K Bank IDFC M&M Finance 123.4 500.7 577.7 822.6 84.2 275.5 145.0 549.4 700.4 964.1 94.0 326.6 123.4 500.7 577.7 822.6 84.2 275.5 145.0 549.4 700.4 964.1 94.0 326.6 507.7 917.7 809.0 857.0 144.6 706.4 575 1,103 1,050 1,060 165 810
Others Andhra Bank Allahabad Bank Axis Bank HDFC Ltd Indian Bank Indian Overseas Bank LIC Hsg Finance PNB SBI STFC Union Bank 107.6 186.1 522.2 121.7 209.0 109.9 98.8 661.0 819.8 249.6 169.1 123.2 214.5 613.5 138.6 222.4 120.3 117.4 842.6 922.5 284.8 190.9 107.6 186.1 522.2 121.7 209.0 109.9 98.8 661.0 819.8 249.6 169.1 123.2 214.5 613.5 138.6 222.4 120.3 117.4 842.6 922.5 284.8 190.9 126.4 189.7 1,214.4 665.2 235.1 97.2 248.3 968.1 2,228.0 583.5 229.9 148 214 1,230 720 270 96 260 1,050 2,381 580 240
Source: Kotak Securites - Private Client Research
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March 16, 2012
BUDGET IMPACT: N EUTRAL
CAPITAL GOODS & ENGINEERING

BUDGET
HIGHLIGHTS
& IMPACT
n Excise rate increased to 12% from 10% Impact: Neutral. The Finance Minister has increased Excise duty by 2%.This was an expected move and we expect the increase in duty to be passed on to consumers. n No imposition of import duty on power equipment Impact: Neutral: The power generation equipment industry had been expecting an increase in customs duty on power generation equipments. However, the FM has maintained the status quo thus retaining zero import duty on mega power projects. This is likely to be neutral for L&T, BGR, BHEL and Thermax as status quo prevails. n Defense capex raised by 14.8% Impact: Positive. Capital expenditure on defense for 2013-13 has been raised by 14.8% to Rs.795 bn. The increase in planned capex on defense is positive for Bharat Electronics Ltd (BEL) as higher allocation should translate into increase in order book. The government has also approved guidelines for establishing joint venture companies by defense PSUs in PPP mode. This is likely to benefit the sector in the long run. n Target of building 8800 kms of road under NHDP Impact: Positive. Government has proposed to set a target of building 8800 kms (vis-a-vis7300 kms in 2011-12) under NHDP in 2012-13. The overall allocation has been proposed to increase by 14% YoY to Rs 253 bn in 201213. This is likely to be positive for road construction Equipment manufacturers like Gujarat Apollo, Greaves Cotton and Cummins India etc.
L&Ts order booking (Rs bn) 350 300 250 200 150 100 50 0
Revenue visibility months 37 36 35 34 33 32
Capital goods index (%)

45.0% 30.0% 15.0% 0.0% -15.0% -30.0%
Source: Company
Source: Company
Source: MOSPI
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March 16, 2012
Impact on EPS (Rs)

Preferred picks L&T Bharat Electronics Engineers India Ltd Cummins India 78.9 115.2 17.5 21.2 85.8 139.7 19.9 26.8 78.9 115.2 17.5 21.2 85.8 139.7 19.9 26.8 1320 1591 274 473 1469 1905 320 520
Others ABB * AIA Engineering Alstom T&D * Bajaj Electricals Blue Star Crompton Greaves Diamond Power Infrastructure Everest Kanto Cylinder Greaves Cotton Gujarat Apollo Industries Havells India Ltd Hindustan Dorr-Oliver Kalpataru Power Transmission Siemens India Suzlon Energy Thermax Time Technoplast Ltd Tractors India Ltd Voltamp Ltd Voltas Ltd 9.9 17.6 4.2 11.1 7.5 30.4 5.1 6 9.3 28.5 2.9 10.3 25.1 32.9 4.9 1.6 33 7.3 26.1 19 7.3 15.5 12.5 11.1 31.8 3.3 7 14.3 32.9 3.4 12.3 27.9 2.6 30.5 5.8 33 47 9.2 9.9 17.6 4.2 11.1 7.5 30.4 5.1 6 9.3 28.5 2.9 10.3 25.1 32.9 4.9 1.6 33 7.3 26.1 19 7.3 15.5 12.5 11.1 31.8 3.3 7 14.3 32.9 3.4 12.3 27.9 2.6 30.5 5.8 33 47 9.2 853 346 195 181 191 139 115 35 81 135 580 35 111 774 28 496 57 266 513 129 670 340 158 190 188 125 195 42 97 170 480 35 130 469 21 505 58 310 519 122
Source: Kotak Securites - Private Client Research; * December ending; ** September ending
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March 16, 2012
BUDGET IMPACT: POSITIVE
CEMENT
BUDGET
HIGHLIGHTS
& IMPACT
n Continued focus on infrastructure creation Impact: Positive. Cement demand is expected gain momentum, after witnessing subdued demand in FY11 and FY12, with continuous thrust of government on infrastructure creation. The co-relation between cement demand and GDP growth, which had faltered in past two years, is likely to resume post revival in order inflows in the infrastructure sector. This would be positive for the cement players. n Reduction in customs duty on coal Impact: Positive. Customs duty on imported coal has been reduced to nil now and CVD has also been reduced to 1% from 5% earlier. This would be positive for cement companies since companies are dependent on imported coal for their captive power plants. n Change in Excise duty structure Impact: Neutral. Prior to Union Budget 2012-13, cement sector had a composite rate structure having an ad valorum of 10% and specific component of Rs 80 per tonne for cement selling below Rs 190 per bag and Rs 160 per tonne for cement selling above Rs 190 per bag. Now, finance minister has removed the graded slab structure and excise duty of 12% would be charged on retail sale price after an abatement of 30% with additional component of Rs 120 per tonne. This is likely to result in an impact of Rs 1 per bag of cement. Companies are likely to pass on the hikes to end users.
Capacity utilization
Operative capacity (MT - LHS) Production (MT - LHS) 350 280 210 140 70 0 2007 2008 2009 2010 2011 2012E 2013E
Source: Kotak Securities - Private Client Research, CMA Source: Kotak Securities - Private Client Research, Cris Infac
Trend in GDP and cement growth

12.0% 120% 110% 100% 90% 2.0% 80% 70% 0.0% 10.0% 8.0% 6.0% 4.0% Demand - Growth GDP - Growth
Capacity utilization (% - RHS)
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March 16, 2012
Analysis pre and post budget

Rs Cement prices(per bag) Pre budget Cement price/tonne Dealer margin VAT Excise + specific comp CVD on excise Ex factory price Total Excise pre budget Post budget Cement price/tonne Abatement @ 30% Price less abatement Excise duty including 3% CVD Additional duty of Rs 160/tonne+3% CVD Total excise post budget 6000 1800 4200 519 124 643 5600 1680 3920 485 124 608 5500 1650 3850 476 124 599 6000 160 15% 10%+160 3% 4529 631 5600 160 15% 10%+160 3% 4210 598 5500 160 15% 10%+160 3% 4130 590 300 Rs 280 Rs 275
Change in excise duty per bag

0.6
0.5
0.5
Impact on EPS (Rs)

Preferred picks Grasim Others ACC Ultratech Cements India Cements Shree Cements 70.6 68.3 8.5 48.4 71.7 80.2 9.0 73.1 70.6 68.3 8.5 48.4 71.7 80.2 9.0 73.1 1,340 1,485 103 2,890 1,246 1,241 82 2,038 261.5 275.9 261.5 275.9 2,769 2,867
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March 16, 2012
CONSTRUCTION
BUDGET
HIGHLIGHTS
& IMPACT
n Higher allocations for NHDP Impact: Positive. Allocation of nearly Rs 253.6 bn has been made towards NHDP which is 14% higher than FY11. Target for road project award has also been enhanced by 21% to 8800 km for FY13 as compared to target of 7300 km for FY12. We believe this would translate into higher order inflows for companies present in road segment such as IRB Infra, IVRCL, NCC, MPL. n Sectors included for Viability Gap funding Impact: Positive. More sectors have been included in the list of sectors eligible for Viability Gap Funding. These sectors include irrigation also which will cover projects related to dams, channels, embankments. We expect this to be positive for companies focused on irrigation projects such as IVRCL, NCC, Pratibha Industries and Unity Infra n Full exemption from import duty on equipment for road construction extended to projects awarded from Metropolitan Development Authorities Impact: Positive. Earlier full exemption from import duty on equipment for road construction was available for projects awarded by Ministry of Road Transport and Highways, NHAI and State Governments. Now it has been extended to contracts awarded by Metropolitan Development Authorities. This would also cover equipment like Tunnel boring machine and parts of its assembly. This would be positive for players carrying out projects by Metropolitan Development Authorities such as Unity Infra, Pratibha Industries, IVRCL. n ECB for operation and maintenance of toll projects Impact: Positive. External commercial borrowings have now been allowed for capital expenditure on the maintenance and operations of toll systems for roads and highways so long as they are a part of the original project. This would enhance public private partnership in road construction projects and would be positive for players focused on road BOT projects such as IRB Infrastructure.
Trend in oder inflow (Rs mn)

60 50 Q4FY11 40 Q2FY12 30 20 10 0 Punj Lloyd IVRCL NCC Simplex Infra Unity Infra Pratibha Industries Q3FY12 Q1FY12
Order book to FY13E sales (x)

OB (Rs bn - LHS) Sales FY13E (Rs bn - LHS) OB/Sales (x - RHS)
315
6.0 4.5 3.0
210
105
1.5 0.0
Source: Companies
Source: Companies
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March 16, 2012
n Tax free bonds Impact: Positive. Last year government had allowed tax free bonds Rs 300 bn to give boost to infrastructure development through NHAI, Indian Railway Finance Corporation, HUDCO and ports. This amount has now been enhanced to Rs 600 bn for financing infrastructure projects. This amount would be spread across Rs 100 bn each for NHAI, IRFC, IIFCL and power sector and Rs 50 bn each for HUDCO, National Housing Bank, SIDBI, and ports. n Reduction in rate of withholding tax from 20% to 5% Impact: In order to provide low cost funds to some stressed but important infrastructure sectors, the rate of withholding tax on interest payments on external commercial borrowings is proposed to be reduced from 20 per cent to 5 per cent for three years. This will reduce the cost of borrowing for companies. n Service tax enhanced from 10% to 12% Impact: Negative. Increase in service tax from 10% to 12% would be negative for the sector but construction services relating to specified infrastructure, canals, irrigation works are exempted from service tax.
Impact on EPS (Rs)
Preferred picks IRB Infra Pratibha Industries Unity Infraprojects Others BGR energy systems JP Associates Punj Lloyd NCC IVRCL Infra Simplex Infra Madhucon Projects J Kumar Infra 30.9 3.3 4.8 2.6 1.8 18.6 5.3 26.7 30.3 3.2 7 3.5 3.8 28.8 5.8 32.4 30.9 3.3 4.8 2.6 1.8 18.6 5.3 26.7 30.3 3.2 7 3.5 3.8 28.8 5.8 32.4 329 79 53 54 53 221 58 173 394 89 60 60 61 230 105 194 14.7 8.7 12.5 14.8 9.3 14 14.7 8.7 12.5 14.8 9.3 14 198 44 49 218 62 70
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March 16, 2012
FMCG
BUDGET
HIGHLIGHTS
& IMPACT
n Changes in Excise rates for Cigarettes Impact: The budget has made two important changes: 1/ the change of the lowest slab of cigarettes to "less than 65mm" from "less than 60mm" earlier, and 2/ introduction of an ad-valorem tax on cigarettes (in addition to specific duties), amounting to 10% and subjected on 50% of the MRP of the cigarettes. The same is a significant change, and implies a hike in the entire product portfolio of ITC to an extent of 14%-20%. While the rise in taxes shall be a negative for ITC, the budget shall allow ITC to participate in the new category created by the Union Budget (due to the large difference between the excise duties chargeable on 65-70mm, and the <65mm bracket). We believe our EPS estimates are conservative enough (~3% below consensus) to incorporate the said hikes, provided that ITC can participate meaningfully in the new bracket.
Excise Duty Aplpicable(Rs/ '000 cigarettes)
FY12 Filter: >85mm 75mm-85mm 70mm-75mm <70mm <60mm <65mm Non Filter: 60mm-70mm <60mm <65mm
Source; Budget document
FY13
2363 1959 1473 969 669 NA 1,473 669 NA
2363 + 10% ad-valorem tax on 50% of MRP 1959+10% ad valorem tax on 50% of MRP 1473+ 10% ad valorem tax on 50% of MRP 969+10% ad-valorem tax on 50% of MRP 669 1473+10% ad-valorem tax on 50% of MRP 669
n Change in Excise Duties for Non-Cigarette Tobacco Products Impact: The budget has also raised the taxes on non-cigarette tobacco products, including bidis. We believe the magnitude of the same continues to be small (Rs 21/ '000 machine made bidis), and is unlikely to have a positive impact on cigarette companies.
Size of the FMCG ind (Rs bn)

1425 1188 993 864 711 468 494 504 542 585
Retail Sales Growth - Urban Versus Rural

25% 20% 15% 10% 5% 0% -5% -10% CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10 Rural Urban
CY01
CY03
CY05
CY07
CY09
Source: Dabur India Presentation
Source: CII Report
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March 16, 2012
n Changes in Standard Excise Duties/ Service Tax Impact: Changes in standard excise duties from 10% to 12% shall have minor impact on the sector, as the larger part of the FMCG universe enjoys benefits of being in excise duty free zones. We believe that a 0.5%-1% price hike shall be sufficient to offset the impact of the rise in excise duties as well as service tax (on transportation of goods). Higher service tax shall impact service operations of companies like Marico (Kaya). n Changes in personal income tax slabs Impact: shall impact urban consumption positively. As expected, the budget has provided higher exemption limits on personal income tax. The same shall be a positive for consumption demand. Companies with higher exposure to urban consumption shall have greater benefits. We believe the budget is largely a neutral event for FMCG stocks, and a negative one for tobacco stocks.
Impact on EPS (Rs)
Preferred picks None Others HUL Godrej Consumer ITC Ltd 12.3 16.9 7.7 14.6 21 9 12.3 16.9 7.7 14.6 21 9 390 447 218 381 446 220
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March 16, 2012
BUDGET IMPACT: N EGATIVE
HOTELS
BUDGET
HIGHLIGHTS
& IMPACT
n Increase in service tax rate from 10 to 12% Impact: Negative. The reinstatement of service tax to 12 percent from the earlier rate of 10 per cent will adversely affect hotel players. The abatement provided for hotel accommodation has been reduced from 50 percent to 40 per cent. As a result, the effective service tax for hotel accommodation will increase to 7.2 per cent from 5 per cent. However, the increase in service tax will be mildly offset by the tax credits allowed on the input services received by hotels. Given the intense competition in the industry, the players will have limited ability to pass on the increase in service tax through higher room rates. We do not have active coverage on this sector
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March 16, 2012
INFORMATION TECHNOLOGY
BUDGET
HIGHLIGHTS
& IMPACT
Indian IT Services-BPO Industry; exports & domestic

Exports ($ bn - LHS) Domestic (Rs bn - RHS)
n MAT for SEZ developers and units operating in SEZs maintained Impact : MAT on companies operating in SEZs was levied WEF FY12. The industry has asked for removal of the same. However, that has not happened. Thus, the tax rates for companies will be maintained. We do not expect any impact on our projections. Advance Pricing Agreement introduced n Impact : The sector has been plagued by several issues on transfer pricing litigation and lack of clarity on the same. The budget has announced introduction of Advance Pricing Agreement (APA) from 2012. However, APA is a long drawn out process and it is not clear how the current issues will be resolved. More clarity on the same will settle many legal issues for the sector, though. Increase in Service tax and Excise duty n Impact : These will increase the cost of doing business in India. However, we believe this will impact a very small part of the revenues of the listed companies. Most of the companies have a very small part of revenues coming from domestic business. Even in those cases, we expect the burden to be passed on to customers. The provisions of the Union Budget have been largely neutral for the sector, in our opinion. MAT on SEZ units has not been removed and will result in status quo for companies. The focus on opening up avenues for IT companies in government projects, promoting higher technical education, so as to meet potential demand for employees from this sector, are positive over the longer term. We remain optimistic on the longer term prospects of the industry. The Global Delivery Model has gained significant acceptance among existing and potential clients. We believe that, the outsourcing and off-shoring story will gather further steam in the future and this will see an increased flow of longer term and larger contracts to Indian vendors. Also, focused smaller companies with expertise on select verticals will be able to move up the value chain and attract larger clients, thereby, improving their longer term prospects. Stock prices of most IT companies have performed well over the past two quarters, in line with the perceived improvement in the global economic scenario. We expect the sentiment towards the sector to remain positive and the sector to provide decent returns over the medium term, subject to near term volatility. At current levels, we prefer larger names like Infosys and TCS; we also retain our positive bias for select mid-caps like KPIT Cummins and NIIT Technologies.
75 60 45 30 15 0 FY09 FY10 FY11E FY12E

Source : Nasscom
1000 900 800 700 600 500
Growth in number of employees 3,000 2,500 2,000 1,500 1,000 500 -
Source : Nasscom
Rupee / US$ 56.0 53.0 50.0 47.0 44.0 41.0
Source : Bloomberg
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March 16, 2012
Impact on EPS (Rs)

Preferred picks Infosys TCS KPIT Cummins NIIT Technologies Others Wipro Mahindra Satyam HCL Tech Mphasis * Infotech NIIT Limited Oracle Geometric Zensar R Systems ** 22.9 8.7 22.9 39.1 13.4 34.6 125.0 11.0 38.3 13.5 27.0 8.8 32.3 35.4 17.6 39.1 135.0 13.2 40.7 18.6 22.9 8.7 22.9 39.1 13.4 34.6 125.0 11.0 38.3 13.5 27.0 8.8 32.3 35.4 17.6 39.1 135.0 13.2 40.7 18.6 427 71 496 417 150 48 2,509 70 190 146 438 84 499 379 163 56 2,196 80 220 140 147.4 55.8 15.2 34.6 168.6 65.4 8.6 39.1 147.4 55.8 15.2 34.6 168.6 65.4 8.6 39.1 2,882 1,164 82 247 3,034 1,241 101 300
Source: Kotak Securites - Private Client Research; Data for FY11 and FY12 (October end); ** - Numbers are for CY11 and CY12
32
March 16, 2012
LOGISTICS
BUDGET
HIGHLIGHTS
& IMPACT
Port volumes at 12 major ports (mn tonnes)

600 450 300 150 0
n Deduction in respect of capital expenditure on specified business Impact: Positive. Investment-linked tax incentive under section 35AD of the Income-tax Act has been extended to setting up and operating an inland container depot (ICD) or a container freight station (CFS) notified or approved under the customs. Any ICD and CFS set up and commencing operations on or after the 1st of April, 2012 would be allowed a deduction of 150% of the capital expenditure. This is a positive development for Logistics companies like Allcargo and Gateway Distriparks which are involved in ICD/CFS business for making future capital investments and improve profitability. n Fast progress on the Delhi Mumbai Industrial Corridor (DMIC) Impact: Positive. The Delhi Mumbai Industrial Corridor (DMIC) is being put on fast track. It is being developed on either side along the alignment of the Western Dedicated Rail Freight Corridor. The project has made significant progress. The Indian government has provided assistance of Rs 185 bn which would be spread over a period of 5 years. Japanese financial assistance of US$ 4.5 billion is also expected for the project. The project is expected to be completed in the next 5 years and would significantly benefit companies like Arshiya, Gateway and Concor with faster speed of rakes, lower turnaround time and reduced operating cost. n Progress on GST implementation Impact: Positive. While no timeline has provided for shifting to GST, the FM observed that decisions on the GST have to be taken in concert with the States with whom the central government's discussions have made considerable progress in the last one year. Areas of divergence have been narrowed. Work is also underway on drafting of the model legislation for the Central and State GST. Among the other steps that are being taken for the introduction of GST is the establishment of a strong IT infrastructure. Introduction of GST will lead to rationalization and simplification of the tax structure at both the centre and state levels and there would be continuous tax credit; right from the producer to the final consumer level. This is overall positive for the logistics industry as it would facilitate easier interstate movement of goods and shift of business from the unorganized to the organized sector, thereby providing additional logistics opportunities.
Impact on EPS (Rs)
Source: Kotak Securities - Private Client Research, CMA
Volumes for Adani port and SEZ (ADSEZ) - (mn tonnes)

60 50 40 30 20 10 0
Source: Kotak Securities - Private Client Research, Cris Infac
Preferred picks Allcargo Global Arshiya International Gateway Distriparks Others Adani Port Concor 5.4 66.4 7.7 71.1 5.4 66.4 7.7 71.1 134 875 166 900 16.8 18.8 11.8 18.8 24.9 14.2 16.8 18.8 11.8 18.8 24.9 14.2 138 142 153 190 185 155
33
March 16, 2012
MEDIA
BUDGET
HIGHLIGHTS
& IMPACT
Growth in Number of Digital Subscribers

120 90 60 30 0 Analog Digital
n Service Tax Hike Impact: The rise in standard rate of service tax is likely to impact DTH players, who would likely pass on the increased taxes to the consumers. Among listed companies, Dish TV would be exposed negatively to the development. The development has been highly expected. A higher tax rate would also modestly impact broadcasters. n Exclusions from Service Tax Impact: Entertainment Services have been included in the negative list, which would imply that cinema would not be subjected to further burden of taxation. The same is positive for demand of cinema in general and shall be beneficial to exhibitors as well as producers. The budget has also provided exemption for copyrights relating to copying of cinematographic prints. These developments are positive for film producers and exhibitors. n No incentives for digitization We had expected the government to include incentives for digitization of the broadcasting industry, which kicks off in June, 2012. The omission of any incentive on this count is a negative development for media companies, especially MSOs and broadcasters, which were expected to gain in the budget. Overall, the budget is a non-event for the media sector. Considering expectations, we believe the same is a negative for media stocks in the immediate term.
Impact on EPS (Rs)
Growth, advertising expenditures

300 240 180 120 60 0
Preferred picks DB Corp HT Media Jagran Prakashan TV 18 Broadcast 11.5 7.9 6.6 -0.1 13.7 11.1 8.1 0.6 11.5 7.9 6.6 -0.1 13.7 11.1 8.1 0.6 210 134 100 26 288 200 136 32
Others ENIL Sun TV Network Zee Entertainment 9.5 18.5 6 11.7 21.7 6.1 9.5 18.5 6 11.7 21.7 6.1 208 315 126 233 329 97
34
March 16, 2012
BUDGET IMPACT: NEUTRAL
METALS & MINING

BUDGET
HIGHLIGHTS
& IMPACT
Steel Sector (Positive) n Import duty on flat steel products has been increased from 5% to 7.5%. Impact - Positive. This was a long pending demand of the steel industry which is struggling from increased industry supply and flattering demand. This would help improve operating margins of most of the large steel companies. n Custom duty reduced from 7.5% to 2.5% for the capital goods/ equipments required for setting up or substantial expansion of iron ore pellet plants & iron ore beneficiation plants. Impact - Positive. This is good incentive for sponge iron and steel companies to set up pellets and beneficiation plants and is a welcome step is right direction. n (a) Sustained infrastructure thrust to stimulate steel demand. (b) Tax free bonds of Rs.600bn have been allowed for financing infrastructure projects in FY12-13. (c) Various proposals to address the shortage of housing for low income groups in major cities and towns including allowing ECB for low cost housing projects and setting up of a credit guarantee trust fund etc. Impact - Positive for steel companies as higher outlay for road, railways, power, urban and rural infrastructure development to lead to higher steel consumption. Low cost housing push up is also positive for steel. n Excise duty on steel products increased by 2% to 12% Impact - Negative for steel companies as this would hit their operating margins as total cost push is unlikely. The move was widely anticipated. n Excise duty on automobiles and consumer durables increased by 2% Impact - Negative for steel companies as there might be some slowdown in demand for fast growing end products based on price elasticity. But again was widely expected.
China iron ore import price (CIF $/t)

190 62%Fe 175 58% Fe 160 145 130
China Steel Export Prices (USD)

775 725 675 625 China HRC Export Price China Rebar Export Price
115 100 575
Source: Bloomberg
Source: Bloomberg
35
March 16, 2012
Mining (Neutral/Negative) n No change in iron ore export duty Impact - Export duty on iron ore has remained unchanged at 30%. Though this is neutral for the iron ore exporters but given at 30% rate introduced 2.5 months back is extremely high, so no reduction in export duty is actually negative for iron ore exporters like Sesa Goa. n Import duty on thermal coal cut to NIL from 5%; CVD reduced from 5% to 1% Impact - Negative for commercial coal producers as realizations under e-auction route would fall. Base Metals (Positive) n Import duty on thermal coal has been reduced from 5% to NIL and CVD has been reduced to concessional 1% for next two years. This is positive for base metal producers like Hind Zinc, Hindalco and Sterlite who might have to increasingly depend on imported thermal coal going forward as domestic supply from Coal India is diverted to commercial power players. n Excise duty is being increased on serially numbered gold bars, other than tola bars and gold coin of purity not below 99.5% manufactured during the process of copper smelting from "2%" to "3%". Though it is marginally negative for copper smelters Hindalco and Sterlite but impact would be negated as import duty on gold is hiked by 2% to 4%. Ferro Alloys/Stainless Steel (Positive) n Export duty on chromium ore has been enhanced from Rs3000/t to 30% ad valorem. This would discourage exports of chrome ore and help reduce its price for the domestic ferro chrome producers who do not own captive chrome ore mines. n To reduce basic customs duty on nickel ore and concentrate and nickel oxide/ hydroxide from 2.5% or 7.5% to Nil. Both the measures would reduce CoP for stainless steel companies would help improve their operating margins.
36
March 16, 2012
BUDGET IMPACT: N EGATIVE
OIL & GAS

BUDGET
HIGHLIGHTS
& IMPACT
Crude Oil ($/bbl) 140 130 120 110 100
n Cess on Domestic Crude Oil Raised by 80% to Rs. 4,500/ton from Rs. 2,500/ton under the Oil Industries Development Act Impact: Negative. Higher cess on crude oil will negatively impact the earnings of all oil exploration companies such as RIL, Cairn India, OIL India, ONGC, etc. In simple terms, the net realizations will reduce by $5.5/bbls (assuming Rs. 50/ $). n Lower provisioning for Subsidy Impact: Negative. GOI will try and bring down subsidies to 1.7% of GDP in the next three-years. For FY12, GOI has made a provision of Rs.650 Bn and Rs.400 bn for FY13E as a subsidy allocation for fuel oil. Lack of clarity on sharing of subsidy burden is negative for the sector. We believe the allocation made for FY 13 is very low considering the current crude oil price levels. We believe this is not positive for OMCs unless crude price corrects substantially or diesel price is de-regulated. n Direct Cash Subsidy Impact: Positive. Last year, GOI has guided to launch direct transfer of cash subsidy to people living below the poverty line in a phased manner. In this regard, Oil Marketing Companies (OMCs) have launched LPG transparency portals to improve customer service and reduce leakage. A pilot project for selling LPG at market price and reimbursement of subsidy directly into the beneficiary's bank account is being conducted in Mysore. A similar pilot project on direct transfer of subsidy for kerosene into the bank accounts of beneficiaries has been initiated in Alwar district of Rajasthan. The Aadhaar platform has also been successfully used to validate PDS ration cards in Jharkhand. These pilot projects show that substantial economies in subsidy outgo can be achieved by the use of Aadhaar platform. Hence, in FY 2012-13 GOI's endeavor is to scale up and roll out these Aadhaar enabled payments for various government schemes in at least 50 selected districts within the next six months. This is a positive development. n Zero Custom Duty on LNG Impact: Positive. Custom duty on imported LNG and Natural gas (imported for generation of electrical energy by a generating company) has been reduced to 0% from 5%. This would benefit gas consumers like PLNG, IGL, GAIL and GSPL. This exemption shall not be available if such LNG and NG, is used for generation of electrical energy by captive generating plant. PLNG passes customs duty to consumers and would only benefit indirectly (lower cost resulting into higher demand). n Disinvestment Targets Impact: Negative. In 2011-12, as against a target of Rs. 400 Bn, GOI will raise ~Rs. 140 Bn from disinvestment. For 2012-13, GOI is planning to raise Rs. 300 Bn through disinvestment. Along with others, GOI is planning to sell stake in OIL India Ltd, Negative for Oil India.
Source: Bloomberg
Naphtha ($/bbls) 130 120 110 100 90
Source: Bloomberg
Japan's Import Price LNG ($/mmbtu)* 15 14 13 12 11 10 9
Source: Bloomberg * From USA to Japan
37
March 16, 2012
n Viability Gap Funding (VGF) - Oil and Gas/LNG storage facilities and oil and gas pipelines Impact: Positive. Viability Gap Funding (VGF) under the Scheme for support to PPP in infrastructure is an important instrument in attracting private investment into the sector. This year it has been decided that oil and gas/LNG storage facilities and oil and gas pipelines also be made eligible sectors for VGF. This is really positive for the sector.
Impact on EPS (Rs)
Preferred picks GSPL PLNG Others IGL Cairn Castrol 21.3 49.7 19.9 26.1 53.2 23.0 21.3 47.5 19.9 26.1 49.6 23.0 362 345 509 380 361 430 9.0 14.2 10.1 15.4 9.0 14.2 10.1 15.4 77 162 92 175
38
March 16, 2012
PHARMACEUTICALS
BUDGET
HIGHLIGHTS
& IMPACT
n In-house R&D weighted tax deduction of 2005 to be extended by another 5 years Impact: Positive. Budget proposes to extend the weighted deduction of 200% for R&D expenditure in an in-house facility beyond 31 March'12 for a further period of five years. This will incentivize investment in R&D and encourage new drug development. This we estimate to be positive for companies like Biocon, Sun, DRL, Cipla, Glenmark and Piramal Life Sciences. n Manufacturing entities set up in the form of partnership firms would come under the MAT jurisdiction. Impact: Negative. The budget has extended the levy of Alternate Minimum Tax (AMT) on all persons other than companies, claiming profit linked deductions. This includes partnerships firms, sole proprietorships and similar engagements. This would impact pharma companies like Sun Pharma and Cadila Healthcare which follow this kind of organizational structure. n Proposed to extend concessional basic customs duty of 5% with full exemption from excise duty/ CVD to six specified life-saving drugs/ vaccines Impact: Positive. Budget proposed CVD/excise duty exemption on certain specified lifesaving drugs such as HIV AIDS, renal cancer etc. This we believe would improve the competitiveness of domestic pharma companies and benefit the entire sector and consumers as well. n Tax deduction of Rs 5000 being allowed for preventive health check up Impact: Positive. Within the existing limit for deduction allowed for health insurance, the budget has allowed a deduction of upto Rs 5,000 for preventive health check-up. This will encourage people to undertake health checkup giving a boost to the health care industry. The budget has also exempted the health care services from the ambit of service tax. We do not have active coverage on the sector.
39
March 16, 2012
POWER
BUDGET
HIGHLIGHTS
& IMPACT
Avg merchant tariff in bilateral trades Rs/unit

$5.0
$4.5
$4.0
n Coal India advised to expedite coal supply Impact: In power generation, fuel supply constraints are affecting production prospects. To address this concern, Coal India Limited (CIL) has been advised to sign fuel supply agreements, with power plants that have entered into longterm Power Purchase Agreements with DISCOMs and would get commissioned on or before March 31, 2015. An inter-ministerial group is being constituted to undertake periodic review of the allocated coal mines and make recommendations on de-allocations, if so required. This move is basically a reiteration of the recommendation made by the committee formed by the PM to look into power sector issues. n Reduction in rate of withholding tax from 20% to 5% Impact: In order to provide low cost funds to some stressed but important infrastructure sectors, the rate of withholding tax on interest payments on external commercial borrowings is proposed to be reduced from 20 per cent to 5 per cent for three years. This will reduce the cost of borrowing for companies. n Doubling of borrowing limit on tax-free bonds from Rs.300 bn to Rs.600 bn Impact: Out of the total limit, the power sector can raise upto Rs 100 bn through tax-free bonds. Positive in our view. n Extension of sunset clause on 80IA benefit Impact: The Finance Minister has proposed an extension of the sunset date by one year for power sector undertakings so that they can be set up on or before March 31, 2013 for claiming 100 per cent deduction of profits for 10 years. This move is a positive move but was largely expected. n Exemption of import duty on coal Impact: Domestic producers of thermal power have been under stress because of high prices of coal. The Finance Minister has proposed to ease the situation by providing full exemption from basic customs duty and a concessional CVD of 1 per cent to Steam coal for a period of two years till March 31, 2014. Duty exemption was strongly demanded by the industry and should provide relief to power producers dependent on imported coal. Positive for JSW Energy (not under active coverage). The move would be largely neutral for NTPC as coal cost is pass-through. n Exemption of import duty on coal mining equipment Impact: The Finance Minister has proposed full exemption from basic customs duty for coal mining projects. Several power utilities have undertaken coal mining or are expected to take up captive mining as and when coal blocks are auctioned. The duty exemption should be positive for Reliance Power (Sasan and Tilaiya mines) and NTPC (the company has been allotted six coal blocks).
Impact on EPS (Rs)
$3.5
Source: Company
Coal price (Indonesia) USD/ton

140 125 110 95 80
Source: Company
Preferred picks Nil Others NTPC 11.5 12.7 11.5 12.7 172 180
40
March 16, 2012
REAL ESTATE
BUDGET
HIGHLIGHTS
& IMPACT
n ECB for affordable housing Impact: Positive. The Finance minister has proposed allowing External Commercial Borrowings (ECB) for low cost affordable housing projects and proposed settingup of a Credit Guarantee Trust Fund to ensure improved flow of institutional credit for housing loans. This would benefit players focusing on low cost affordable housing projects. n Extension of interest subvention Impact: Positive. Interest subvention of one per cent has been extended by one year on housing loan upto Rs 1.5 mn where cost of house does not exceed Rs 2.5 mn. This move would boost the demand for low cost housing and would be positive for players focused on low cost housing. n Higher allocations for rural housing fund Impact: Positive. Provisions for rural housing fund have been enhanced by Rs 10 bn from Rs 30 bn earlier to Rs 40 bn. This would again be positive for players focused on low cost housing. n Increase in service tax from 10% to 12% Impact: Negative. Increase in service tax would result in increasing the unit cost for the buyers. With abatement of 75% on the cost of flat, buyers were required to pay a service tax of 2.575%. Now it would get enhanced to 3.09%. This may impact the demand slightly since developers would pass on the increased impact of service tax.
Impact on EPS (Rs)
Preferred picks Phoenix mills 7.1 9.0 7.1 9.0 213 236
Urban housing shortage (mn units)

25 20 15 10 5 0 2001
Source: Industry
Rural housing shortage (mn units)

75 60 45 30 15 0 Immediate shortage Total shortage
Immediate shortage Total shortage
2005
2008
2010
2014
2001
Source: Industry
2005
2008
2010
2014
41
March 16, 2012
RETAIL
BUDGET
HIGHLIGHTS
& IMPACT
n Boost in GDP growth to spur consumption Impact: Positive. Continued measures of government to boost GDP growth are expected to drive Indian consumerism. This is likely to be positive for the retail sector. n Higher disposable income due to higher tax exemption to spur growth Impact: Positive. Due to increase in the exemption limits on personal income tax for individuals, disposable income is expected to increase. This is expected to result in higher spending power as well as consumption, thereby benefiting retail sector. n Efforts are on to allow FDI in multi-brand retail Impact: Neutral. The decision to allow FDI in multi brand retail has been delayed but Finance Minister has specified that efforts are currently on to arrive at a consensus to allow 51% FDI in multi-brand retail. We do not have active coverage on the sector.
Retail Penetration (%)
100% 75% 50% 25% 0% Thailand Indonesia Malaysia Taiwan China India US Traditional retail Organised retail
100 75 50 25 0 1990
Source: Industry
Age wise classification of population - working age grp (15-60yrs)

<15 yrs 15-60yrs >60yrs
1995
2000
2005
2010
2015
Source: Industry
42
March 16, 2012
SHIPPING
BUDGET
HIGHLIGHTS
& IMPACT
Singapore bunker ($/barrel)

800 700 600 500 400
n Change in Tonnage Tax scheme Impact: Negative. The government had introduced Tonnage Tax Scheme for shipping companies in 2005 in which the operating profit of a shipping company is determined on the basis of tonnage capacity of its ships. The tax was calculated based on certain rates on daily tonnage income which had remained unchanged for the last five years. The budget has now amended section 115VG to revise the rate of daily tonnage income under this scheme. The revised rates is estimated to increase the effective tax rate of shipping companies on shipping income from current 5% to ~7%. This burden of increased taxes is a negative for shipping companies who are already going through a bad phase. n Tax incentive for funding of certain Infrastructure Sectors Impact: Positive. The budget proposes to amend Section 115A of the Income Tax Act which reduce the withholding tax from current 20% to 5%. It states that certain industries including shipbuilding industry would have to deduct tax at source at the rate of 5% from earlier 20%. This would help the shipbuilding companies to have access to foreign currency loans at low rates. n No mention of new shipbuilding subsidy policy in the budget Impact: Neutral. The budget was silent on the impending new shipbuilding subsidy policy. The old subsidy policy was introduced for a five-year period which ended August 2007. This new policy would have helped the domestic shipbuilding companies improve their cashflow and also made them more competitive. n Dredgers and Vessels are being fully exempted from Special additional customs duty Impact: Positive. The budget has exempted Indian companies from paying Special additional custom duty (SACD) on imported ships and dredgers. Most of the Indian companies including Shipping Corporation, GE Shipping, Dredging Corporation of India and Mercator Limited purchase ships/dredgers from foreign shipyards and exemption of SACD on their imports are expected to bring down the cost of purchase for future capex.
Impact on EPS (Rs)
Source: Bloomberg
Baltic Dry Index (points)

2200 1800 1400 1000 600
Source: Bloomberg
Preferred picks
Baltic dirty tanker index (points)

1100 1000 900 800 700 600
Mercator Ltd Others SCI GE Shipping
2.7
3.2
2.6
3.1
27
40
1.8 22.3
1.2 28.3
1.7 21.0
1.1 27.0
64 241
60 270
Source: Bloomberg
43
March 16, 2012
TELECOM
BUDGET
HIGHLIGHTS
& IMPACT
n Viability Gap Funding (VGF) - Telecommunication Towers Impact: Viability Gap Funding (VGF) under the Scheme for Support to PPP in infrastructure is an important instrument in attracting private investment into the sector. VGF scheme has been extended to telecommunication towers and will help in attracting higher private investment into the sector. We do not have active coverage on the sector.
44
March 16, 2012
Fundamental Research Team

Dipen Shah IT, Media dipen.shah@kotak.com +91 22 6621 6301 Sanjeev Zarbade Capital Goods, Engineering sanjeev.zarbade@kotak.com +91 22 6621 6305 Teena Virmani Construction, Cement, Mid Cap teena.virmani@kotak.com +91 22 6621 6302 Saurabh Agrawal Metals, Mining agrawal.saurabh@kotak.com +91 22 6621 6309 Saday Sinha Banking, NBFC, Economy saday.sinha@kotak.com +91 22 6621 6312 Arun Agarwal Automobiles arun.agarwal@kotak.com +91 22 6621 6143 Ruchir Khare Capital Goods, Engineering ruchir.khare@kotak.com +91 22 6621 6448 Ritwik Rai FMCG, Media ritwik.rai@kotak.com +91 22 6621 6310 Sumit Pokharna Oil and Gas sumit.pokharna@kotak.com +91 22 6621 6313 Amit Agarwal Logistics, Transportation agarwal.amit@kotak.com +91 22 6621 6222 Jayesh Kumar Economy kumar.jayesh@kotak.com +91 22 6652 9172 K. Kathirvelu Production k.kathirvelu@kotak.com +91 22 6621 6311
Technical Research Team

Shrikant Chouhan shrikant.chouhan@kotak.com +91 22 6621 6360 Amol Athawale amol.athawale@kotak.com +91 20 6620 3350 Premshankar Ladha premshankar.ladha@kotak.com +91 22 6621 6261
Derivatives Research Team

Sahaj Agrawal sahaj.agrawal@kotak.com +91 22 6621 6343 Rahul Sharma sharma.rahul@kotak.com +91 22 6621 6198 Malay Gandhi malay.gandhi@kotak.com +91 22 6621 6350 Prashanth Lalu prashanth.lalu@kotak.com +91 22 6621 6110
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Budget 2012

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UNION BUDGET

POST BUDGET ANALYSIS REPORT 2012-13

PRIVATE CLIENT RESEARCH

UNION BUDGET ANALYSIS

MARCH 16, 2011

UNION BUDGET ANALYSIS FY2012-13

GDP growth (%)

Source: CSO, * Stands for Advanced Estimate

Source: Economic Survey 2010-11

Sectoral impact Budget Impact

Source: Kotak Securities - Private Client Research

March 16, 2012

Kotak Securities - Private Client Research

Fiscal prudence follow-up action needed

638.4 623.0 64.5 150.8 407.7 383.7 46.8 42.2 1734.2

Union Budget 2012-13

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Kotak Securities - Private Client Research

Union Budget 2012-13

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Kotak Securities - Private Client Research

Sustained focus on growth

Union Budget 2012-13

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Kotak Securities - Private Client Research

Union Budget 2012-13

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Kotak Securities - Private Client Research

40% 32% 24% 16% 8% 0%

Source: Economic Survey 2011-12, Budget FY2012-13

24% 18% 12% 6% 0% -6%

Source: Economic Survey 2011-12, Budget FY2012-13

Inclusive growth remains a corner-stone

Union Budget 2012-13

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Kotak Securities - Private Client Research

Attacking supply side constraints in agriculture

Reforms still some time away

Union Budget 2012-13

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Kotak Securities - Private Client Research

Source: Economic Survey 2011-12; Budget 2012-13

Union Budget 2012-13

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Kotak Securities - Private Client Research

Benefits on personal income tax front

Old Slab (Rs) 0-1.8 lakh 1.8-5 lakh 5.0-8.0 8.0-10.0

Tax rate % 0 10% 20% 30%

Union Budget 2012-13