Union Budget 2013-2014_28 Feb'13

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Union Budget 2013-2014

Institutional Research TeamEmail: [email protected]

Tel: +91 22 6745 9157

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Table of Content

Economy impact

Key takeaways 3

Summary of Budget 5

Summary of Receipts 6

Sector impact

Automobiles 9 Banking & Financial Services 10

Capital goods 11 Cement 12 FMCG/ Media 13 Infrastructure 14

IT Services 15 Oil & Gas 16 Pharmaceuticals 17 Power 18

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Economy - Key takeaways

A missed opportunity overall; market is disappointed with the lack of imaginative measures.

Fiscal deficit target set at 4.8% (down from 5.2%) of GDP for FY14, as per expectations, is likely to be missed ina pre-election year we expect actual deficit to be ~5.2%.

Gross borrowing at Rs6.29trn includes Rs950bn (FY14) and Rs500bn (part FY15) refinancing requirement formaturing securities continued pressure on liquidity.

There is little relief for individual tax payers no changes in slabs, no increase in exemption limits Negativefor discretionary consumption.

New inflation-indexed securities to be introduced to help divert household savings away from gold.

Amnesty scheme for errant service tax payers (on lines of the highly successful voluntary disclosure income

scheme)

success highly uncertain, service tax collection estimates may disappoint greatly. Disinvestment tar et set at an ambitious Rs558bn u from Rs240bn mo -u in FY13 sell-offs in SUUTI

holdings, HZL and Balco are likely to form bulk of the amount.

Proceeds from telecom auctions, excess spectrum charges are kept at a reasonable Rs250bn.

Slippages are likely in subsidy allocation Allocation under food likely to be the chief stress area.

Plan expenditure targeted to grow @29.4% to Rs5.5trn.

Infrastructure remains a focal point IIFCL-ADB to provide credit enhancement, tax-free bonds issuance ofRs500bn on need-basis, independent authority to govern road sector.

GST, DTC roadmaps continue to be vague.

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Tax

Direct Tax

There are no changes in overall slab structure. There is a tax credit of Rs2,000 for individuals earning less thanRs0.5mn p.a. Negative for discretionary consumption in a high inflation, low growth environment.

. . .

Threshold for RGESS scheme raised to Rs1.2mn Low traction expected.

Super-rich tax 10% surcharge on income above Rs10mn, aimed to part offset aforementioned tax credit.

Hike in surcharge on corporation tax domestic companies earning above Rs100mn profit to pay 10% (from 5%),

foreign companies to pay 5% (from 2% prior).

Surcharge on dividend distribution tax increased to 10% (from 5%).

All additional surcharges are applicable for only FY14.-

to investment demand.

STT reduced, CTT introduced for non-agricultural commodities.

Modified GAAR to come into force from April 1, 2016.

Indirect Taxes

There are no major changes in excise/custom/service tax structure overall.

Amnesty scheme for errant service tax payers (on lines of the highly successful voluntary disclosure incomescheme) success highly uncertain.

Higher custom duties on imported vehicles, yachts.428-Feb-13

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Summary of Budget

(Rs bn) FY12 FY13BE FY13RE FY14BE Growth (%)

1 Revenue Receipts 7,514 9,357 8,718 10,563 21.2

2 Tax Revenue (net to Centre) 6,298 7,711 7,421 8,841 19.1

3 Non-tax Revenue 1,217 1,646 1,297 1,723 32.8

4 Capital Receipts 5,529 5,552 5,590 6,090 8.9

5 Recovery of Loans 189 117 141 107 -24.3

6 PSU disinvestment 181 300 240 558 132.67 Borrowings and other Liabilities 5,160 5,136 5,209 5,425 4.1

8 of which: Cash drawdown (160) - (52) - -

9 Total Receipts 13,044 14,909 14,308 16,653 16.4

10 Non-plan Expenditure 8,920 9,699 10,016 11,100 10.8

11 On Revenue Account 8,120 8,656 9,197 9,929 8.0

12 of which: Interest Payments 2,732 3,198 3,167 3,707 17.113 On Capital Account 799 1,043 819 1,171 42.9

14 Plan Expenditure 4,124 5,210 4,292 5,553 29.4

15 On Revenue Account 3,337 4,205 3,434 4,433 29.1

16 On Capital Account 786 1,005 858 1,121 30.6

17 Total Expenditure 13,044 14,909 14,308 16,653 16.4

18 Revenue Expenditure 11,458 12,861 12,631 14,362 13.719 Capital Expenditure 1,586 2,048 1,678 2,291 36.6

20 Revenue Deficit 3,943 3,504 3,912 3,798 -2.9

as percentage of GDP (4.4) (3.4) (3.9) (3.3) -

21 Fiscal Deficit 5,160 5,136 5,209 5,425 4.1

as percentage of GDP (5.7) (5.1) (5.2) (4.8) -

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Summary of Receipts

(Rs bn) FY12 FY13BE FY13RE FY14BE Growth (%)1 Net Tax Revenue 6,298 7,711 7,421 8,841 19.1

Gross Tax Revenue 8,892 10,776 10,380 12,359 19.1

Corporation Tax 3,228 3,732 3,589 4,195 16.9

Income Tax 1,703 1,958 2,061 2,476 20.2Other taxes and duties 8 12 9 10 9.7

Customs 1,493 1,867 1,649 1,873 13.6Union Excise duties 1,456 1,944 1,720 1,976 14.9

Service Tax 975 1,240 1,327 1,801 35.8Taxes of Union territories 28 23 27 28 3.8Less - National Calamity Contingency Fund/National DisasterResponse Fund 40 46 44 48 9.7

- ' , , , , .2 Non-tax Revenue 1,217 1,646 1,297 1,723 32.8

Interest Receipts 203 192 166 178 7.0Dividends and Profits 506 502 554 739 33.2External Grants 30 29 28 15 (47.3)

Other non-tax revenue 468 912 538 780 45.0Receipts of Union Territories 10 11 11 12 3.8

, , , , .

A Non-debt Receipts

Recoveries of Loans 189 117 141 107 (24.3)

Misc Capital Receipts 181 300 240 558 132.6B Debt Receipts

Market Loans 4,362 4,790 4,674 4,840 3.6

Short term borrowing 1,269 90 457 198 (56.6)xterna ss stance net .

Securities issued against Small Savings (103) 12 86 58 (32.8)State Provident Funds 108 120 100 100 0.0

Other Receipts (440) 22 (79) 123 (255.8)Total Capital Receipts 5,689 5,552 5,641 6,090 7.9

4 Drawdown of cash balance (160) - (52) - -

Total Receipts 13,044 14,909 14,308 16,653 16.4

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Financing of Fiscal Deficit 5,160 5,136 5,209 5,425 4.1

Receipts under MSS (Net) 200 200

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Summary of expenditure(Rs bn) FY12 FY13BE FY13RE FY14BE Growth (%)

Total Non- Plan Expenditure 8,920 9,699 10,016 11,100 10.8

Revenue Expenditure 8,120 8,656 9,197 9,929 8.0

ap ta xpen ture , , .

Total Plan Expenditure 4,124 5,210 4,292 5,553 29.4

Revenue Expenditure 3,337 4,205 3,434 4,433 29.1Capital Expenditure 786 1,005 858 1,121 30.6

Budgetary Support for Central Plan 3,084 3,910 3,172 4,191 32.1

Plan outlay by broad heads Subsidies

, , , , .

(Rs bn) FY12 FY13BE FY13RE FY14BE

Growth

(%)Agriculture and Allied

162 177 160 188 17.6

(Rs bn) FY12 FY13BE FY13RE FY14BE

Growth

(%)

Food 728 750 850 900 5.9

Rural Development 376 408 356 428 20.2

Irrigation and FloodControl

5 13 4 12 180.5

Energy 1,219 1,548 1,482 1,583 6.8

Industry and Minerals 362 572 392 480 22.4

Fertliser 700 610 660 660 0.0

Interest 50 80 74 81 8.7

Oil 685 436 969 650 (32.9)

Others 16 25 24 21 (14.0), , , , .

Communications 66 154 83 124 49.9

Science Technology &Environment

117 166 121 176 45.1

General EconomicServices

197 248 210 316 50.4

Total 2,113 1,796 2,479 2,210 (10.8)

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, , , , .

General Services 53 87 59 93 58.8Grand Total 5,086 6,515 5,562 6,801 22.3

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ec or mpac

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Automobiles

Speed-breakers ahead

The Budget 2013-14 has not brought any good news for the auto sector per se. Although the standard rate ofexcise duty has not been increased, excise duty on SUVs has been hiked from 27% to 30%. However, there is no

, .

Increase in rural spending will give a boost to disposable income in rural regions. It is marginally positive fortwo-wheeler and tractor sales.

Basic customs duty on motorcycles of capacity of >800cc has been increased from 60% to 75%.Impact on each Company

Co. Announcements Comments Overall impact

M&M Excise duty on SUVs increased from27% to 30%. However, SUV registered Negative Increase in excise dutyon SUV. Marginallynegative

additional excise hike.

diesel cars, higher allocation todefense.

Ashok Leyland,

Tata Motors

Excise duty on truck chassis reduced

by 1% to 13%. Significant increase in

Both the announcements are

positive.

Positive

spen ng o s n,majority of which will be used forprocurement of buses in hilly regions.

Tata Motors Customs duty on cars with CIF > $40kand/or >3000c for petrol and >2500cc

Price will increase for JLR carsimported into India.

Marginallynegative

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for diesel increased from 75% to 100%.

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Banking & Financial Services

No big-bank measures

Recapitalisation of PSU banks by Rs140bn. Changes to Section 36 (i) (vii) of Income Tax Act on bad debts write-off and rural advances. All PSU bank branches need to have an ATM.

All towns with >10,000 population to have a LIC office and an office of a general insurance company. Banks are permitted to act as insurance brokers. . . .

Impact on each Company

Co. Announcements Comments Overall Impact

PSU banks Section 36(i) (vii) of ITact.

Existing differential tax treatmentbetween rural and urban advances

Negative for banks who have higherbad debts in rural areas.

henceforth this differential will notbe available.

PSU banks All branches to haveATMs.

There will be an increase inoperating expenses of PSU banks.

Negative as costs increase.

a change in the investments cycle.Hence, slippages in asset qualitycould continue for some more time.Negative for the banks.

Housin finance Additional Rs0.1mn No ma or im act. Neutral for housin finance

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companies interest deduction. companies.

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Capital Goods

Promoting investment in sector

The capital goods sector has been witnessing a fragile growth for a long time now. The Budget 2013-14 plans toboost investment in the sector. There will be an investment allowance of 15% to companies on investments ofmore than Rs1bn. This is over and above rovisions of accelerated de reciation of 20% in the first ear. Thecompanies will be able to claim allowance in the year in which amount exceeds Rs1bn. Hence, apart fromincentivising companies to spend on plant and machinery, it also provides for preponement of the spending (to

the extent possible).

There is an increase in allocation for capital expenditure in defence services to Rs867bn from Rs795bn.


All capital Investment allowance of 15% to It would incentivise the capex Marginally


companies than Rs1bn during April 2013 to March2015.

increasing order inflows in mediumterm.

L&T, Bharat Increase in capital expenditure for Increased order flows from the MarginallyElectronics defence services. defence sector. positive

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Cement

Gets the cold shoulder

The current slowdown is taking its toll on the cement sector as well. However, no big-bang announcementshave been made for the sector in the Budget 2013-14.

a us quo s ma n a ne on exc se u y s ruc ure. The custom duty on imported thermal coal has been increased from nil to 2% plus a CVD of 2%.

There is an investment allowance of 15% for investment in Plant & Machinery over Rs1bn to encourage capex .


India Cement,

Custom duty on thermal coal Companies with higher share of Negative - India


tratec anothers

ncrease rom n to p usof 2%.

mporte coa to e marg na yimpacted.

ement wou see adecline of 2.5-3% ofPBT.

Shree Cement,

Ultratech and

Capex of more than Rs1bn in Plant

& Machinery to entitle for a 15%

Companies undergoing capex

cycle to benefit from the 15%

Positive for Shree

Cement andothers investment allowance. investment allowance for plantscommissioned during FY14-15.

Ultratech.

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FMCG/ Media

A mixed bag

There is an increase in specific excise duties on cigarettes by 18%. However, it excludes cigarettes of lengthbelow 65mm.

Excise duty on branded readymade apparel has been restored to nil from 3.5% (12% less 70% abatement)earlier.

Basic customs duty on set-top box has been increased from 5% to 10%.


ITC Excise duty increased by 18%,except on cigarettes of length Overall, the hike was slightly ahead ofestimates. However, the key positive is that Marginallynegative.

cigarettes with length

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Infrastructure

Placing the building block of a better tomorrow

A regulatory authority for the road sector will be constituted.

Road ro ects totalin 3 000kms shall be awarded durin 1HFY14 in Gu arat MP Maharashtra Ra asthan & UP.

Various measures have been taken to promote long term low-cost investment in infrastructure space:

To encourage Infrastructure Debt Funds (IDF). This would promote investments through take out financingand credit enhancement schemes.

IIFCL to provide credit enhancement to infrastructure companies.

Select institutions can raise a max. of Rs500bn as tax-free infrastructure bonds.

Work on DMIC projects will start during FY14 with work on one city each in Gujarat and Maharashtra.



IRB Infra, ITNL, Constitution of road regulator. It would enable quick resolution of Marginallya av, ,

etcspu es an expe e roa

construction process.pos ve

All companies Various measures to promote longterm low-cost investment.

This would reduce interest costpressure.

Positive

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IT Services

Increase in tax burden-That is IT

The Budget 2013-14 was a non-event for the IT sector; no major announcements were made.

There is an increase in tax surchar e from 5% to 10%.

Rs5bn have been allocated to Indian Post IT project in FY14.


.

All companies Increase in tax surcharge. The tax rate is likely toincrease for all IT companies.

Negative - EPS ofcompanies under coveragelikely to decline 1-2%.

Post. project in FY13..

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Oil and gas

Fueling uncertainty

The oil and gas sector continues to suffer from lack of clarity on natural gas pricing policy.

Althou h shale as ex loration will be encoura ed there is no further clarit on the same.

Bids for oil and gas blocks will be based on revenue sharing rather than production sharing.

There will be provision of Rs650bn for oil subsidies in FY14. This is inclusive of subsidy overflow of FY13.Revised estimate for FY13 stands at Rs969bn against initial estimate of Rs437bn.

There will be an investment allowance of 15% on capex in Plant & Machinery above Rs1bn during FY14-15.



E&P companies Revenue sharing instead ofproduction sharing in bids forO&G blocks.

It would be applicable only for newbiddings, and will prevent gold platingof cost.

Positive

OMCs, ONGC, OilIndia, GAIL

Provision of Rs650bn of subsidiesfor FY14.

Includes carryover of undisbursedamount of FY13.

Neutral

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Pharmaceuticals

No medicinal value

Investment Allowance: The budget proposal to re-introduce investment allowance at 15% for expenditure onPlant and Machinery exceeding Rs1bn during FY14-15 is a positive; all pharma companies under coverage are

.

Surcharge: The tax credit accruing from the investment allowance may be offset (partly, or in some instanceswholly) in FY14 by the increase in surcharge on income tax from 5% to 10%. Companies, which have a largeplanned capex (in comparison to their PBT for the year), will benefit more.


Co. Announcement Comments Overall Impact

Cipla, GSK Cipla has recently commissioned Negative impact of-

Net impact of rebate on

investment allowance and

has only ~Rs1.25bn of capexplanned for CY13. They may notbe able to offset higher tax ratewith the rebate.

higher surcharge.Dr. Reddys, Biocon There is significant capexrelative to estimated PBT inFY14.

Positive impact of1-2% on FY14 earnings.

Cadila, Divis, Glenmark,Lu in Ranbax Sun

Marginal net impact of proposalsis ex ected.

Neutral

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Power

A no-show

As expected, tax holidays under section 80-IA have been extended by a year to March 31, 2014 for claiming10-year tax holidays for power projects.

Basic customs duty on steam coal is being increased from nil to 2% and CVD from 1% to 2%



All utilities Extension of benefit under80-IA b a ear.

Plants getting commissionedbefore Mar 31 14 can claim

Marginally positive

10-year tax holidays. However, ourestimates and valuations alreadyfactor the same.

Adani Power, Basic customs duty on steam No impact for offtake under Negative for JSW

Energy nil to 2% and CVD from 1% to2%.

adjusted for change in law..

negative for AdaniPower.

NTPC Surcharge on corporate taxincreased from 5% to 10%

RoE to be grossed up by 33.99%instead of 32.45%.

Marginally positive asNTPC enjoys tax

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Telecom

A low tone Budget

Regulatory uncertainty has been weighing on the telecom sector in India. Revenue growth is also expected tomoderate. Despite that, there were no major announcements for the telecom sector in Budget 2013-14.

There is an increase in tax surcharge from 5% to 10%.

There has been a hike in duties on mobile phones priced greater than Rs2,000 from 1% to 6%. Provision of Rs408.5bn from communication services.


Co. Announcements Comments Overall impact

-.increase for all telecomcompanies.

companies under coveragelikely to decline 0.5-2%.

All mobile Increase in duties on mobile The higher duties will lead to Mildly negative as thecompan es anoperators

p ones. an ncrease n mar p oneprices. Higher Smartphoneprices is one of the reasons forlower 3G penetration

expans on oservices will be somewhatimpacted.

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Disclaimer

Tata Securities LimitedOne Forbes, Dr V.B. Gandhi Marg, Fort, Mumbai 400 001

Tel: 91 22 6745 9000 Fax: 91 22 6610 6722Web: www.tatasecurities.com

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Compliance Officer: Mr. Umesh Maskeri : 022 - 61827805 email:[email protected]

DISCLAIMER

Disclosure of Interest Statement in Union Budget 2013-14 as on February 28, 2013

1. Name o t e ana ysts: V ar Purus ot aman

2. Qualifications of the analysts: MBA

3. Analysts ownership of any stock including the long &

short position related to the information contained: NO

4. Ownership of any stock held by the dependent family members

of the analyst including the long & short position: NIL5. TSL ownership of any stock related to the information contained

6. Broking relationship with company covered: NO

7. Investment Banking relationship with company covered: NO

This information is subject to change without any prior notice. TSL reserves at its absolute discretion the right to make or refrain from making modifications andalterations to this statement from time to time. Nevertheless, TSL is committed to providing independent and transparent recommendations to its clients, and would behappy to provide information in response to specific client queries.

Before making an investment decision on the basis of this research, the reader needs to consider, with or without the assistance of an adviser, whether the advice is, . .

and does fluctuate, and an individual security may even become valueless. International investors are reminded of the additional risks inherent in internationalinvestments, such as currency fluctuations and international stock market or economic conditions, which may adversely affect the value of the investment. Opinionsexpressed are subject to change without any notice. Neither the company nor the director or the employee of TSL accepts any liability whatsoever for any direct,indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research..

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Union Budget 2013-2014_28 Feb'13

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