budget 2010 sectoral impact

8/6/2019 Budget 2010 Sectoral Impact

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Budget 2010-11- Sectoral impact

India Infoline Research Team / 10:34, Mar 02, 2010

Check how the budget will impact various sectors of the economy - an analysis of key

announcements and their impact on stocksAutomobiles - Negative

Key announcements Impact

What came in?

Hike in excise duty by 2% Negative for all manufacturers

Increase in ad valorem duty on large

cars, MUVs and SUVs

Negative for M&M, Tata Motors

and luxury car manufacturers

Higher allocation to NREGS Positive for M&M, Hero Honda

and Maruti

Higher deduction on expenditure

incurred on in-house R&D from

150% to 200%

Positive for automobiles and auto

ancillary manufacturers

Hike in excise duty on petrol and

diesel

Negative for all manufacturers

What did not come?

Extension of accelerated

depreciation for CVs

Negative for Tata Motors and

Ashok Leyland

Banking - Positive


What came in?

New banking licenses for few private

sector players and NBFCs subject to

meeting RBIs eligibility criteria.

Positive for NBFCs such as

Reliance Capital, IFCI, M&M

Financial services.

Capital Infusion of Rs165bn for PSU

banks in FY11 thereby enabling

them maintain Tier I capital above

8% by March 31, 2011.

Positive for small PSU Banks -

Dena Bank, Syndicate Bank, UCO

Bank & United Bank of India.

Extension in repayment of the loan

under the Debt Waiver and Debt

Relief Scheme for farmers by six

months to June 30, 2010

Positive for PSU Banks.

IIFCL to refinance bank lending

towards infrastructure projects.

Positive for banks as it would

improve ALM and increase funding

to the sector

FY11 net market borrowings of

Government estimated at lower

Rs3.45tn; fiscal deficit for the yearpegged at 5.5% of GDP

Positive for the sector, with pick up

in credit demand clarity over the

borrowing programme will ensureadequate moves in interest rates,


2/8

and leaving negligible impact on

banks treasury book.

Extension of interest subvention

scheme to March 31, 2011 on

housing loans upto Rs1mn on

property value upto Rs2m.

Positive for Housing Finance

Companies and Banks with home

loan portfolio.

Interest subvention of 2% for

farmers who repay their short-term

crop loans on schedule.

Neutral as long as the interest part

waived is re-paid by the GoI to

banks.

Impetus towards Financial Inclusion Positive for the sector in general as

it aims at reaching unbanked areas

thereby increasing the penetration

levels of Insurance and other

financial products.

Cement - Neutral


What came in?

Increase in rural infrastructure

spending

Positive as this will lead to higher

consumption

Increase in IT slabs leading to surge

in disposable income

Beneficial as this will lead to higher

private housing demand resulting

into higher cement consumption

Upward revision in excise rate oncement and clinker Negative for the sector

Levy of Rs100/ton on coal mined in

India

Negative for the cement players as

this would increase the power cost

What did not come?

Re-imposition of custom duty on

imports

Negative for all cement

manufacturers

VAT on clinker and cement be

brought down to 4%

Negative for sector

Construction - Positive


What came in?

Rs1.7trn (46% of the total plan

allocation) towards infrastructure

development

Positive for all Infrastructure

development companies operating

under PPP model

Allocation for road transport

increased by 13% to Rs199bn

Positive for road development

companies like IRB, IVRCL, HCC

and J Kumar Projects

Increased allocation to railways to Positive for wagon manufacturers,


3/8

Rs167bn players laying transmission lines,

railway sliding manufacturers,

railway transformer manufacturers

and other infrastructure companies

Increased IIFCL disbursement

target to Rs200bn by March 2011,

take out financing scheme to

initially provide finance for

~Rs250bn over next three years

Positive for all infrastructure

companies

Allocated Rs480bn for rural

infrastructure programmes under

Bharat Nirman

Positive for T&D & transformer

manufactures like EMCO, Bharat

Bijlee, Crompton Greaves, Indo tech,

KEC international, Jyoti Structures

FMCG - PositiveKey announcements Impact

What came in?

Continued spending on rural and

social development

Positive for all FMCG companies

Roll-back in excise duty reduction

from 8% to 10%

Negative for FMCG companies

especially HUL as higher sales

from non-excise free units. Neutral

for Dabur

New excise slab of Rs669/100 sticks

introduced in filter cigarettes under

60mm. Excise on other filter cigarettes

raised by 9-18%, excise on non-filter

cigarettes (>60mm but


4/8

Current surcharge of 10% on domestic

companies reduced to 7.5%

Positive for Nestle,

GlaxoSmithKline Consumer

Healthcare

What did not come?

3 years accelerated depreciation of200% on R & D for new units in Food

Processing and Packaging

Negative for food processingcompanies

Hotels - Positive


What came in?

Commencement of operations for 2-

star, 3-star or 4-star

hotels/convention centre in NCRconstructed during 01/04/07 to

31/03/10 extended to 31/07/10 to be

eligible for 100% deduction of

profits for 5 years u/s 80 ID

Would give more time for hotels

slated to open in lieu of

Commonwealth Games in Oct 10 soas to remain eligible for 100%

deduction of profit for 5 years

Provide 100% deduction on capital

expenditure (other than on land,

goodwill and financial instrument)

u/s 35AD to 2-star or above category

of hotels irrespective of location;

currently specified categories of

hotels in NCR etc enjoy profit linked

deduction under Chapter VI-A of IT

Act

Beneficial to all players who

commenced new hotel operations

post April 1, 2009; Indian Hotels and

Hotel Leela key benefactors in our

coverage

Information Technology - Neutral


What came in?

MAT rate increased from 15% to

18%

Negative for all IT companies, more

so for medium and small sized

entities

Calculation of tax exemption for

SEZs under the revised formula has

been made effective FY07

Positive for large software

companies due to their material SEZ

presence

Levy of service tax on IT software

under all cases irrespective of the

end usage

Negative for all software services

companies

Pre-packaged IT software exempted

from service tax

Positive for product companies

Significant increase in planallocation for school education

Positive for education companiessuch as Educomp, Everonn, Aptech,


5/8

etc

Approval of three new projects under

National Skill Development

Corporation worth ~Rs450mn

Positive for education companies

having presence in vocational

segment such as Educomp, Everonn,

Aptech, etc

Process of refund of accumulated

credit for service tax made easy for

exporters of IT and BPO services

Positive for IT and BPO companies

having significant international

business

What did not come?

Extension of tax holiday for STP

units and EOUs

Negative for all IT companies, more

so for medium and small sized

entities

Metals and Mining - NeutralKey announcements Impact

What came in?

Increase in infrastructure spending Positive for the sector as this will

lead to higher domestic consumption

Increase in excise duty by 2% Companies will not be able to pass

on the complete rise in cost,

marginally negative for steel

manufacturing companies

Increase in MAT from 15% to 18% Will be negative for companies like

JSPL and Sterlite as tax rate for theirpower subsidiaries would increase

Levy of Rs100/ton as clean energy

cess on coal mined and imported into

India

Negative for the metals companies as

this would increase the cost of coal

consumed

Decrease in surcharge on domestic

companies from 10% to 7.5%

Positive for all the companies, will

lead to lower tax outgo

What did not come?

Removal of customs duty on steel

products

Positive for steel manufacturers, as

the difference in domestic andinternational prices will not reduce

Increase in export duty on iron ore Positive for Sesa Goa as exports

constitute 93% of total revenue,

Marginally negative for steel

manufacturers who dont have

captive mines

Oil and Gas - Negative


What came in?


6/8

Hike in customs duty on crude oil

from 0% to 5%

Positive for ONGC and Cairn

Hike in custom duties on petrol and

diesel from 2.5% to 7.5%. Hike in

excise duty by Re1 on petrol and

diesel.

Negative for ONGC & GAIL (upstream

companies bear losses on auto fuels).

However petrol and diesel prices have

been raised to offset the impact

What did not come?

De-regulation of petrol and diesel

pricing

Negative for OMCs as ambiguity continues

to stay on subsidy sharing pattern

Clarification on 80-IB benefit for gas

exploration

Negative for RIL and ONGC

Real Estate - Negative

Key announcements ImpactWhat came in?

Service tax levied on additional

services provided by a builder to

buyers for extra charge like

preferential location, internal and

external development of complexes

Negative for all

Renting of property, rent of vacant

land under agreement to undertake

construction of building or other

structures to be charged service tax

Negative for all

Increase in personal income tax slabs,

higher allocation under Indira A\was

Yojana and other rural

development/infrastructure schemes

Positive for all

Extension of interest subvention

scheme to March 31, 2011 on housing

loans upto Rs1mn on property value

upto Rs2m

Positive for companies focusing on

affordable housing

Pending housing projects to be

completed within a period of fiveyears instead of four years for

claiming a deduction of their profits

Positive for all

Telecom - Neutral


What came in?

Full exemption from basic customs

duty and CVD extended to parts for

manufacture of battery chargers andhands-free headphones; exemption

Would encourage manufacture of mobile

phones accessories


7/8

from 4% special additional customs

duty on parts used to make mobile

phones extended till 31/03/11

FY11 3G auction revenues budgeted

at Rs350bn, which is carried over

from the current fiscal as proposed

auctions would now be conducted in

April 2010

Telecom operators may not bid as

aggressively given the current state of

sector leading to shortfall in budgeted 3G

revenues.

Utilities - Positive


What came in?

Plan allocation for the sector

excluding RGGVY doubled to Rs51bn

Positive for power ancillary companies

like KEC International, Kalpataru Power,

Jyoti Structure, EMCO, Crompton

Greaves, Bharat Bijlee

Set up a Coal Regulatory Authority to

create a level playing field in the coal

sector

Positive for power generators as it will

accelerate coal mine allocation and

mining process

Plan layout for renewable energy

increased by 61% to Rs10bn

Positive for Suzlon, Websol Energy,

Moser Baer

Full exemption from excise duty on

additional specified raw material for

manufacturing of rotor blades for wind

operated electricity generators

Positive for Suzlon

Full exemption from central excise

duty to goods supplied to mega power

projects for which power supply has

been tied up through tariff based

competitive bidding

Positive for electrical equipment

manufacturers and players setting up

mega power projects as it will reduce

capex

Rs100/ton levied as clean energy cess

on coal and lignite produced and

imported into India

Negative for merchant power producers

like Tata Power, GVK, Lanco, Adani

Power, JSPL, Sterlite Energy and

Reliance Power. No impact on players

governed under regulatory tariffs as all

costs are pass through

Service tax on service provided by

electricity exchanges

Negative for Power Exchange of India

and Indian Energy Exchange, also

negative for power traders like PTC,

NTPC, Tata Power, Reliance

Infrastructure, JSW Power Trading,

Lanco, GMR as cost of trading will

increase

Transmission of electricity will now

be exempted from service tax

Positive for Power Grid, Reliance

Infrastructure, Tata Power, CESC

What did not come?


8/8

Impose import duty on power plant

equipments

Negative for domestic equipment

manufacturers like BHEL, L&T, Siemens

Positive for generating companies like

Reliance Power, Tata Power, CESC and

Sterlite Energy using imported

equipments

budget 2010 sectoral impact

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