crisil budget analysis 2013-14.pdf
Post on 13-Apr-2015
63 Views
Preview:
DESCRIPTION
TRANSCRIPT
CRISIL BudgetAnalysis
About CRISIL Limited
About CRISIL Research
CRISIL Privacy
Disclaimer
CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading
ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations.
CRISIL Research is India's largest independent and integrated research house. We provide insights, opinions, and analysis on the
Indian economy, industries, capital markets and companies. We are India's most credible provider of economy and industry
research. Our industry research covers 70 sectors and is known for its rich insights and perspectives. Our analysis is supported by
inputs from our network of more than 4,500 primary sources, including industry experts, industry associations, and trade channels.
We play a key role in India's fixed income markets. We are India's largest provider of valuations of fixed income securities, serving the
mutual fund, insurance, and banking industries. We are the sole provider of debt and hybrid indices to India's mutual fund and life
insurance industries. We pioneered independent equity research in India, and are today India's largest independent equity research
house. Our defining trait is the ability to convert information and data into expert judgements and forecasts with complete objectivity.
We leverage our deep understanding of the macroeconomy and our extensive sector coverage to provide unique insights on micro-
macro and cross-sectoral linkages. We deliver our research through an innovative web-based research platform. Our talent pool
comprises economists, sector experts, company analysts, and information management specialists.
CRISIL respects your privacy. We use your contact information, such as your name, address, and email id, to fulfill your request and service your
account and to provide you with additional information from CRISIL and other parts of The McGraw-Hill Companies, Inc. you may find of interest.
For further information, or to let us know your preferences with respect to receiving marketing materials, please visit www.crisil.com/privacy. You can
view McGraw-Hill's Customer Privacy Policy at http://www.mcgrawhill.com/site/tools/privacy/privacy_english.
Last updated: April 30, 2012
CRISIL Research, a division of CRISIL Limited (CRISIL), has taken due care and caution in preparing this Report based on the information obtained
by CRISIL from sources which it considers reliable (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data
/ Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. This Report is not a
recommendation to invest / disinvest in any company covered in the Report. CRISIL especially states that it has no financial liability whatsoever to the
subscribers / users / transmitters / distributors of this Report. CRISIL Research operates independently of, and does not have access to information
obtained by CRISIL’s Ratings Division / CRISIL Risk and Infrastructure Solutions Limited (CRIS), which may, in their regular operations, obtain
information of a confidential nature. The views expressed in this Report are that of CRISIL Research and not of CRISIL’s Ratings Division / CRIS. No
part of this Report may be published / reproduced in any form without CRISIL’s prior written approval.
I
Contents
Foreword 1
Economy
Highlights 4
Detailed economic analysis 5
Industry
Overall sectoral impact 14
Overall company impact 21
Airports Infrastructure 25
Auto components & Tyres 27
Automobiles 30
Banking and Finance 33
Cement 36
Construction 38
Fertilisers 40
Hotels 43
Household appliances 45
Housing 48
Information technology 50
Media and Entertainment 53
Non-ferrous metals 55
Oil and Gas 58
Paper 61
Petrochemicals 63
Pharmaceuticals 66
Ports 68
Power 70
Roads 72
Steel 74
Sugar 77
Telecom 80
Textile 82
Continued…
1
ForewordResponsible, for now
Budget 2013-14 has taken forward the fiscal consolidation programme which began in the current fiscal year. It targets
fiscal deficit at 4.8 per cent of GDP in 2013-14 as against the revised estimate of 5.2 per cent for this year. While fiscal
consolidation can hurt growth in the short run, it does create an environment in which the Reserve Bank of India (RBI)
can cut interest rates and provide some support to growth. These steps will also encourage domestic savings, boost the
confidence and expectations of domestic and foreign investors. As budgetary proposals are broadly in line with our
expectations, we retain our pre-budget forecast of 6.4 per cent GDP for 2013-14, which is the midpoint of the GDP
growth range (6.1 to 6.7 per cent) that the budget has assumed.
In the budget, the finance minister has broad-based the thrust areas of infrastructure beyond ports and roads; he has
focused on coal, industrial corridors, national waterways, and rural road construction (PMGSY-II). In addition, urban
infrastructure will receive a boost through the allocation of Rs 14,873 crore for the JNNURM scheme. Other positive
measures for infrastructure include the constitution of a regulatory authority for the road sector and the promise to award
3,000 km of road projects in five states in the first six months of 2013-14. Housing and textiles stand to benefit from
concessions and continuation of the Technology Upgradation Funds Scheme respectively.
The revival of private investment is a key to raise India’s GDP growth, which is estimated to have reached a decadal low
of 5.0 per cent in 2012-13. In order to improve the investment climate, the government has announced an investment
allowance of upto 15.0 per cent of the total investments over Rs 100 crore in plant and machinery during the two years
ending March 2015. But a substantial and sustainable boost to investment sentiment will come only when issues such as
mining rights, land acquisition, environmental clearances are satisfactorily resolved. For sustenance of revenue growth
and ensuring feasibility of medium-term fiscal targets, a sustained lift in GDP growth will be needed as some of the
revenue gains through hike in surcharges will not last beyond 2013-14.
How credible is the fiscal arithmetic and medium-term consolidation programme?
We expect fiscal deficit to settle at 5.0 per cent of GDP against the budget target of 4.8 per cent. We believe the
government is likely to miss the revenue growth target of 23.4 per cent in 2013-14 as disinvestment and spectrum sale
targets are too ambitious.
In the recent past, while both expenditure overshooting and revenue underperformance have been responsible for
higher-than-budgeted fiscal deficits, the latter has contributed more to the fiscal slippage. This year too, the budget is
likely to miss the revenue growth target due to a possible slippage on the disinvestment and spectrum auction targets.
Shocks from unanticipated changes in growth can throw the budgeted revenue estimates out of gear. However, in the
past few years, irrespective of whether growth was higher or lower than expected, the government has consistently
missed the tax revenue targets. This shows poor revenue marksmanship. Some overshooting on the expenditure front
too is likely, particularly on food subsidies if the Food Security Bill is implemented during 2013-14.
2
CRISILBudgetAnalysis
Foreword
The medium-term target of trimming the fiscal deficit to 3 per cent of GDP by 2016-17 relies on healthy growth and a
reduction in the subsidy bill by at least 1 percentage point of GDP. The subsidy roadmap outlined in the budget aims to
cut subsidies to 1.6 per cent of GDP by 2015-16 from 2.6 per cent in 2012-13.
As raising agricultural productivity will take time and concerted effort, the hike in food subsidy may result in upward
pressure on food inflation in the near term. Food inflation was already high at 11.9 per cent in January 2013. It has
averaged 9.3 per cent in the past seven years as compared to 4.3 per cent in the preceding decade. Sadly, despite
certain sporadic efforts, agriculture has not received the attention it deserves in previous budgets and this budget is no
exception.
Overall, while the budget has taken a step towards fiscal discipline as well as announced steps to promote corporate
investment and infrastructure, lasting fiscal discipline will depend on the ability to raise the projected revenue and to stick
to the budgeted expenditure - an arduous task when growth is weak and elections are near.
Dharmakirti Joshi
Chief Economist, CRISIL
4
CRISILBudgetAnalysis
Highlights� Fiscal deficit for 2012-13 pegged at 5.2 per cent of GDP and estimated at 4.8 per cent for 2013-14.
� Revenue deficit for the current year at 3.9 per cent and for 2013-14 at 3.3 per cent.
� Fiscal deficit to be brought down to 3 per cent, revenue deficit to 1.5 per cent and effective revenue deficit to zero
per cent by 2016-17.
� Plan expenditure in 2013-14 will be 29.4 per cent more than the Revised Estimate of 2012-13.
Infrastructure
� To mobilise funds for investment in infrastructure, the following measures will be taken:
o Encourage Infrastructure Debt Fund (IDF)
o Allow some institutions to raise tax-free bonds up to 50,000 crore (100 per cent more than the current year)
o India Infrastructure Finance Corporation (IIFC), in partnership with ADB, to help infrastructure companies to
access the bond market to tap long-term funds
� States which have completed Pradhan Mantri Gramin Sadak Yojana will be eligible for PMGSY-II, others will
continue with PMGSY-I.
� Rs 14,873 crore allocated to Jawaharlal Nehru Urban Renewal Mission (JNNURM) in budget estimate 2013-14 as
against revised estimate of Rs 7,383 crore.
� Constitute a regulatory authority for the roads sector.
Investment
� 15 per cent investment deduction allowance apart from depreciation for companies investing Rs 100 crore or more
in plant and machinery in April1, 2013 to March 31, 2015.
Savings
� To incentivise greater savings, Rajiv Gandhi Equity Savings Scheme to be liberalised.
� Proposal to launch inflation indexed bonds or inflation indexed national security certificates to protect savings from
inflation.
Financial Sector
� Rs 14,000 crore will be provided to public sector banks for capital infusion in 2013-14.
� Foreign institutional investors will be allowed to participate in exchange-traded currency derivatives.
� FIIs, will be permitted to use their investments in corporate bonds and government securities as collateral to meet
their margin requirements.
Tax proposals
� Slabs and rate for personal income tax unchanged.
� Tax credit of Rs 2,000 to every person with total income up to Rs 5 lakh.
� 10 per cent surcharge on persons (other than complanies) with taxable income exceeding Rs 1 crore.
� Increase in surcharge from 5 to 10 per cent on domestic companies whose taxable income exceeds Rs 10 crores.
� Duty-free limit on gold raised to Rs 50,000 in case of males and Rs 100,000 in case of females.
� Specific excise duty on cigarettes and SUVs increased.
� Proposal for service tax on all air conditioned restaurants.
Subsidies
� Rs 10,000 crore of additional allocation to the Food Security Bill.
� Petroleum subsidies, at Rs 65000 crore, have been adequately provisioned for.
5
Economy analysis
Key messages
� CRISIL Research estimates fiscal deficit at 5 per cent of GDP in 2013-14 as against the budget estimate of 4.8 per
cent. We expect a revenue shortfall since the government’s disinvestment and spectrum auction targets are
ambitious given the past experience.
� To revive infrastructure investments, the budget announced an investment allowance of 15.0 per cent on plant and
machinery and setting up of two new industrial corridors, among other measures. However, fast-tracking procedural
approvals and removing administrative hurdles hold the key.
� The budget relies on one- time increase in tax revenue via surcharges to finance higher expenditure. Since these
one-off gains might not continue beyond 2013-14, the medium term fiscal consolidation looks difficult unless growth
picks up sharply.
Budget – Realistic on growth
Figure 1: Real GDP growth
9.6
9.3
6.7
8.6
9.3
6.2
5.0
6.4
FY 07
FY 08
FY 09
FY 10
FY 11
FY 12
FY13AE
FY14Fy-o-y%
AE: Advance estimate, F: CRISIL Forecast
Source: Central Statistical Organisation (CSO), CRISIL
Research
� CRISIL Research retains its pre-budget outlook
for India’s GDP at 6.4 per cent in 2013-14. Our
forecast is broadly in line with the budget’s growth
estimate (6.1 – 6.7 per cent).
� Drivers of growth as per the budget 2013-14 are
similar to that assumed by us: (i) normal
monsoons, (ii) continued efforts to maintain fiscal
discipline, (iii) removal of bottlenecks in the
mining sector and (iv) recovery in exports. While
the budget has announced steps to raise
corporate and infrastructure investment, speedy
implementation of these policies will be critical to
improve the growth outlook.
Services 7.7% F
Industry 5.1% F
Agriculture 3.5% F
6
CRISILBudgetAnalysis
Economy analysis
Figure 2: Extra budgetary measures needed to turn
around private sector investment
17.3
11.312.1
13.4
10.6
FY08 FY09 FY10 FY11RE FY12RE
% of GDP
RE: Revised estimate
Source:CSO, CRISIL Research
� The budget seeks to promote private corporate
investment by (i) speeding up project clearance
through the Cabinet Committee on Investment, (ii)
development of new industrial cities and corridors
and (iii) the provision for deduction of investment
allowance.
� Private corporate sector investment has fallen
from a high of 17.3 per cent of GDP in 2007-08 to
10.6 per cent during 2011-12. Policy
announcements in the budget will have to be
complemented with the removal of procedural and
administrative hurdles to boost private
investment.
Figure 3: Boost to infrastructure investment
18.7
39.1
-10.3
7.6 8.98.5
27.5 29.6
19.9 21.7
Ministry of Power
Ministry of Shipping
Ministry of Road transport and highways
Ministry of Urban
development
Railways
y-o-y% FY 13 (RE over actual) FY 14 (BE over RE)
Note:Based on Central Plan Outlay
Source:Budget documents, CRISIL Research
� The budget announced some measures to revive
investment in infrastructure such as raising the
limit for issuance of tax-free infrastructure bonds
up to Rs.50,000 crore and encouraging
infrastructure debt funds.
� The government proposes to award 3000 km of
roads during the first six months of 2013-14.
States which have successfully completed
PMGSY-I will now be eligible for PMGSY-II.
Setting up of a regulator for the road sector is
expected to expedite the projects.
� Allowing additional deduction of Rs 1 lakh on
interest on housing loan of Rs 25 lakh is expected
to spur affordable housing demand in the
economy.
7
Economy analysis
Inflation expected at 6.5 per cent
Figure 4: WPI Inflation (average)
6.5
0.0
2.0
4.0
6.0
8.0
10.0
12.0
FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY13F FY14F
y-o-y %
F: CRISIL Forecasts
Source: Office of Economic Advisor, CRISIL Research
� In line with the budget, CRISIL Research expects
inflation to decline during 2013-14. We expect
WPI inflation to average 6.5 per cent during
2013-14 due to (i) lower international crude
prices, (ii) strengthening of the rupee against the
dollar and (iii) lower core inflation. However,
upside risks to inflation could stem from the Food
Security Bill if implemented.
� The budget proposes to conatin food inflation
through investments in agricultural supply chain
and research and development. The budget
allocated Rs. 27049 crore to the Ministry of
Agriculture, an increase of 22 per cent over the
previous year.
Marginal slippage on the fiscal front
Figure 5: Missing the deficit target
2.6
6.06.4
5.15.8
5.2 5.0 F
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 RE FY14 BE
% of GDP Budgeted Fiscal Deficit Actual Fiscal Deficit
RE: Revised Estimate, BE: Budget Estimate,
F: CRISIL Forecasts
Source: Budget Documents, CRISIL Research
� We believe that the fiscal deficit would slip to 5.0
per cent of GDP as against 4.8 per cent forecast
in the budget. This will be largely due to revenue
shortfall since we believe that the budget’s target
of a 23.4 per cent revenue growth is difficut to
achieve.
� Given the government’s poor track record of
meeting disinvestment and non-tax revenue
targets, the budget estimates for 2013-14 appear
ambitious.
8
CRISILBudgetAnalysis
Economy analysis
Mild downside to bond yields
Figure 6: Interest Rates (March-end)
7.7-7.8
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 F Mar-14 F
10-year G-Sec yield Repo rate%
F: CRISIL Forecasts
Source: RBI, CRISIL Research
� The budget estimates net market borrowings to
be Rs. 4,84,000 crore in 2013-14, up from Rs
4,67,000 crore during 2012-13, which will create
an upside pressure on 10-year G-sec yields.
However, we expect a lowering of the repo rate
by 50-75 bps during the rest of 2013-14, due to
lower inflation. This will lower the floor for the G-
sec rate and soften yields to around 7.7-7.8 per
cent by March-end 2014.
� Lower yields will help reduce lending rates and
thereby increase credit growth to around 17.0 per
cent during 2013-14.
Policy measures to strengthen foreign inflows
Figure 7: Exchange Rate (March-end)
51.0
45.144.7
51.2
53.0
51-52
44.0
46.0
48.0
50.0
52.0
54.0
FY09 FY10 FY11 FY12 FY13 F FY14 F
INR/USD
F: CRISIL Forecasts
Source: RBI, CRISIL Research
� Given India’s high current account deficit, the
outlook for the rupee will depend on robust
capital inflows in 2013-14. Clarity over
implementation of GAAR provisions,
government’s commitment to maintain fiscal
discipline and improved policy communication
should boost investor confidence and attract
foreign investments.
� Allowing FIIs to use their investments in
corporate and government bonds as collateral to
meet their margin requirements will help in
bringing foreign inflows into the economy.
� With the capital inflows providing sufficient cover
to the current account deficit (estimated at 3.5 per
cent of GDP in 2013-14), we expect the rupee to
settle around 51-52 by March-end 2014.
9
Economy analysis
Table 1: Outlook 2013-14 (y-o-y, % growth) 2012-13 F 2013-14 F
GDP (factor cost) 1.8* 3.5
Agriculture 3.1* 5.1
Industry 6.6* 7.7
Services 5.0* 6.4
Other macroeconomic variables
WPI inflation (average) 7.4 6.5
Interest rate (10-year G-sec March-end) 8.0 7.7-7.8
Exchange rate (Rs-$ March end) 53 51-52
Fiscal deficit (% of GDP) 5.2** 5.0
Note: * CSO Advance Estimates, ** Revised Estimate, F- CRISIL forecast
Source: CSO, CRISIL Research
Fiscal Arithmetic?
Figure 8: Share of revenue and expenditure in GDP
6.0
9.0
12.0
15.0
18.0
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2011
-12
2012
-13
RE
2013
-14
BE
Expenditure Revenue%
Note: RE: Revised Estimate, BE: Budget Estimate
Source: Budget Documents, CRISIL Research
� Revenue shortfall will push the fiscal deficit to 5.0
per cent of GDP. In recent years, most of the
fiscal slippage has been more an effect of
revenue shrinking - with actual revenues lower
than budgeted in the past four out of five years
(Table 2). Irrespective of the phase of growth, tax
revenues, which form around 80 per cent of total
revenues, have underperformed.
� Some of the revenue gains through hike in
surcharges will not last beyond 2013-14. Thus
achieving the medium term fiscal targets looks
difficult.
10
CRISILBudgetAnalysis
Economy analysis
Table 2 Origins of fiscal slippage % of GDP FY 09 FY 10 FY 11 FY 12 FY 13 RE
1. Budgeted Fiscal Deficit 2.5 6.8 5.5 4.6 5.1
2. Effect of revenue shrinking (a+b+c+d) 1.9 1.2 -0.1 0.6 0.6
a) Tax revenue 1.6 1.0 0.4 0.4 0.3
b) Non tax revenue 0.1 0.6 -0.7 0.0 0.3
c) Disinvestment 0.1 -0.4 0.3 0.3 0.1
d) Other non debt receipts 0.0 0.0 -0.1 -0.1 0.0
3. Effect of expenditure overshooting (i+ii) 1.6 -1.5 -0.6 0.5 -0.5
4. Actual Fiscal Deficit (1+2+3) 6.0 6.5 4.8 5.7 5.2
RE: Revised Estimates
Source: Budget documents, CRISIL Research
Revenues: High targets, low achievement
Table 3 : Growth in revenue (y-o-y %) 2009-10 2010-11 2011-12 A 2012-13 RE 2013-14 BE
Direct tax 15.0 19.2 12.7 14.6 18.1
Indirect tax -10.0 38.1 11.5 19.5 20.2Non-tax revenue
19.9 88.0 -44.3 6.6 32.8
Total Receipts * (net of borrow ings)
10.8 35.9 -4.3 15.4 23.4
Note: Total receipts excluding borrow ings and other liabilities
RE: Revised Estimates, BE: Budget Estimates
Source: Budget documents, CRISIL Research
� In 2013-14, we expect revenue growth to be
lower (Table 3) due to lower proceeds from
disinvestment and spectrum sale.
Figure 9: Disinvestments consistenly fall short of targets
0.0
1.0
2.0
3.0
4.0
5.0
6.0
FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 RE
FY 14 BE
BE Actual% of total revenue
Note: RE – Revised Estimate, BE- Budget Estimate
Source: Budget documents, CRISIL Research
� With its inability to raise tax revenue (Table 2),
the government has been increasing its
dependence on sources other than tax revenue,
such as disinvestment.
� This year’s disinvestment target of Rs 400 billion
seems difficult to achieve since revival in growth
is not expected to be as much and likely to hurt
investor sentiments. In order to achieve the
target, the government might need to start the
process of disinvesting early in the fiscal.
11
Economy analysis Subsidies adequately budgeted
Table 4: Growth in expenditure (y-o-y %) 2009-10 2010-11 2011-12 A 2012-13 RE 2013-14 BE
Revenue Expenditure
14.9 14.1 10.1 10.2 13.7
Capital Expenditure
25.0 39.0 1.3 5.8 36.6
Plan Expenditure
10.2 24.9 8.8 4.1 29.4
Non-Plan Expenditure
18.5 13.5 9.0 12.3 10.8
Total Expenditure
15.9 16.9 8.9 9.7 16.4
RE: Revised Estimates, BE: Budget Estimates
Source: Budget documents, CRISIL Research
� CRISIL Research expects government
expenditure to grow at around 16.4 per cent in
2013-14, in line with budgetary estimates. Unlike
previous years, petroleum subsidies have been
adequately budgeted for. The budget also
accounts for petroleum under-recoveries carried
forward to 2013-14 from the previous year.
� However, an unforeseen increase in global
crude oil prices or a discontinuation of phased
deregulation in diesel prices during 2013-14
could raise petroleum subsidies above budgeted
levels. The additional allocation of Rs 10,000
crore for food subsidies under the budget may
not be sufficient if there is an all-India
implementation of the Food Security Bill in
2013-14.
Switching expenditures from revenue to capital account
Figure 10: Ratio of capital to revenue expenditures
0.11
0.13
0.20
0.16
0.00
0.05
0.10
0.15
0.20
0.25
2004-05 to 2007-
08
2008-09 2009-10 2010-11 2011-12 2012-13 RE
2013-14 BE
Actual Cap Exp/ Rev Exp Budgeted Cap Exp/Rev Exp
Note: A - Actuals, RE – Revised Estimate, BE- Budget
Estimate
F – CRISIL Forecast
Source: CSO, Budget Documents, CRISIL Research
� The quality of government expenditure as
measured by the ratio of capital to revenue
expenditure has suffered in the recent years, and
is still well below the pre-crisis levels. During
2012-13, while revenue expenditure was almost
at budgeted levels, the government reduced
capital expenditure by 18 per cent from its
budgeted levels in order to contain the rising
fiscal deficit.
� The budget corrects for this partially by raising
growth in capital expenditures to 36.6 per cent
from only 5.8 per cent in 2012-13. However, it is
critical that the government does not slash capital
expenditure during the year if revenues fall short
of budgeted levels.
� The government has increased allocation
towards health and family welfare, higher
education and school education & literacy in
2013-14 budget. A continuation of such
investments is necessary for sustainable growth.
�
14
CRISIL BudgetAnalysis
Overall sectoral impact In the sector level analysis we have not incorporated proposals that are not sector specific such as increase in surcharge on corporate tax, proposals on dividend distribution tax and investment allowance.
Industry Effect
Airport infrastructure Neutral
Budget 2013-14 offers further concessions to Indian aircraft maintenance providers
The Indian aircraft manufacture, repair and overhaul (MRO) industry is in its nascency. The domestic MRO service
providers usually have a revenue sharing arrangement with airport developers. In order to give a fillip to the industry, a
full exemption from customs duty and countervailing duty for aircraft spares, tyres and testing equipment was proposed
for Indian MRO service providers in the last budget. In Union Budget 2013-14, further concessions for aircraft
maintenance facilities have been proposed. The move is expected to help Indian MROs to become viable and also aid
carriers to reduce aircraft maintenance costs.
Auto components & tyres Neutral
No impact on auto components and tyres
With no change in basic customs duty & excise duty, we do not expect any significant impact on the auto components
and tyres industries. Doubling of SIDBI’s re-financing capabilities will benefit a large number of Tier II and III vendors.
Duty concessions on parts of electric & hybrid vehicles have been extended but its impact will be insignficant, given the
low population of these vehicles in India. Royalty payments to foreign companies will now be taxed at a higher rate, but
will be subject to direct tax avoidance treaties that are already in place. The overall impact of these measures will be ltd.
Automobiles Neutral
Marginally negative for utility vehicles; neutral for other segments
With excise duty being hiked to 30 per cent from 27 per cent, demand for non-taxi sports utility vehicles with engine
capacity above 1500 cc (and more than 4,000 mm long; ground clearance of over 170 mm), will be marginally impacted.
Demand for luxury cars (priced over $40,000 and/or engine capacity exceeding 3000 cc for petrol cars and 2500 cc for
diesel cars) will be hit, with basic customs duty being hiked to 100 per cent from 75 per cent. An increase in basic custom
duty to 75 per cent from 60 per cent will impact sales of motorcycles with engine capacity of 800 cc or more. However,
these high-end vehicles constitute a miniscule portion of the overall sales for the industry. The purchase of 10,000 buses
under the JNNURM and a reduction in excise duty on truck chassis to 13 per cent will benefit commercial vehicle sales.
Banking Positive
Recapitalisation of PSBs and boost to housing finance
The Union Budget proposes to provide Rs 140 billion as capital support to all public sector banks (PSBs) in 2013-14. The
government also stated its intent to help PSBs comply with Basel III regulations.For 2013-14, banks have been directed
to lend Rs 7,000 billion to the agri sector – an increase of 21.7 per cent over the target for 2012-13. Farmers who avail of
farm loans from PSBs and repay in a timely manner get loans at subsidised rates. They will now be able to access this
credit facility from private banks as well. We believe this move will help private banks increase lending to this segment.
The clear focus on giving a boost to the housing market is also positive for financiers. An additional tax deduction of Rs
100,000 on interest paid towards home loans up to Rs 25 lakh availed in 2013-14 for first home buyers (over and above
the existing Rs 1,50,000 deduction) has been introduced for 2013-14, to give a boost to the affordable housing segment.
This additional deduction can be claimed over a period of 2 years. In addition, an amount of Rs 20 billion has been
allocated towards a proposed Urban Housing Fund to be set up by the NHB.
Continued…
…continued
Industry
Cement
Hike in freight costs to offset the ben
The Union Budget 2013-14 has propose
to prop up cement demand. However,
companies, due to the proposed hike i
component linked revision of freight rate
Construction
Measures to boost investments in roa
Issue of tax-free bonds raised by gover
14 up to a total limit of Rs 500 billion. T
ports and power.
In the roads sector, the budget propose
help in reducing delays and fast-trackin
Yojana (PMGSY) II has been announced
Allocation towards the JNNURM progra
2013-14 over the previous year. This w
addition, allocation to the Ministry of D
driving investment, particularly in water s
Fertilisers
Fertiliser subsidy for 2013-14 to rema
In 2013-14, the government’s fertiliser s
the demand for complex fertilisers is
fertilisers is likely to be reduced, as int
indigenous urea for 2013-14 implies th
Further, unavailability of incremental do
feedstock to import gas at relatively high
Overall sec
efits arising from the boost to housing and infrastr
ed many schemes to boost infrastructure and housing s
, this upside is likely to be offset by the increase i
n railway freight. The Railway Budget 2013-14 has p
es.
ads, urban infrastructure
rnment agencies for infrastructure sectors has once ag
This will provide additional funds to various infrastruct
es to set up an independent regulatory authority. In th
g the implementation of road projects. Further, the Pr
d, which could boost investments in rural roads.
mme (Jawahar Lal Nehru National Urban Renewal Mis
will boost spending on ongoing and upcoming urban
Drinking Water and Sanitation has been increased b
supply and sanitation.
ain unchanged y-o-y
subsidy is expected to stay constant at last year’s level
likely to improve. This is because nutrient-based s
ternational prices soften. The increase in budgeted s
hat the government is not expected to hike retail ur
omestic natural gas will force plants converting from
her spot prices.
15
ctoral impact
Effect
Neutral
ructure
segments. This is expected
n freight costs for cement
proposed a fuel adjustment
Positive
gain been allowed in 2013-
ture sectors such as roads,
he medium term, this could
radhan Mantri Gram Sadak
ssion) has been doubled in
n infrastructure projects. In
by 17 per cent in 2013-14,
Neutral
l of Rs 659 billion, although
ubsidy (NBS) on complex
subsidy of Rs 10 billion on
ea prices during the year.
m high-cost naphtha/fuel oil
continued…
�
16
CRISIL BudgetAnalysis
Overall sectoral impact …continued
Industry Effect
Hotels Neutral
Neutral impact on hotel industry
Impact of the Budget on the premium segment hotel industry is neutral. As of July 2012, only air-conditioned restaurants
that served liquor were levied a service tax at 12.36 per cent, with an abatement of 60 per cent (net service tax of 4.95
per cent). In the Union Budget of 2013-14, it has been proposed to include all air-conditioned restaurants, including those
which do not serve liquor, under the service tax net. This proposal is not expected to impact demand as the service tax
will be passed on to consumers.
Household appliances Neutral
No impact on household appliances industry
The Budget had no specific proposal pertaining to the household appliances industry. A tax credit of Rs 2,000 for a
person with income upto Rs 5 lakh per annum, introduced in the Union Budget 2013-14, will result in higher disposable
income in the hands of people in the lowest tax bracket. But, this is unlikely to translate into any meaningful impact on
the industry.
Housing Positive
Measures to tackle housing shortage
First-time home buyers taking a loan of up to Rs 25 lakh in 2013-14 can avail of an additional interest deduction of Rs 1
lakh in the first year, over and above the existing Rs 1.5 lakh benefit. This is likely to boost new home sales.
Allocation towards Rural Housing Fund has been increased by 50 per cent to Rs 6,000 crore for 2013-14. A Rs 2,000-
crore Urban Housing Fund by the National Housing Bank is also being proposed. These steps will boost fund availability
and address the overall housing shortage.
However, service tax abatement for premium apartments (with a carpet area of 2,000 sq ft or above and/or valued at Rs
1 crore or more) has been reduced to 70 per cent from 75 per cent. While this would result in an increase of 0.6 per cent
in the effective service tax rate, the impact on demand is expected to be negligible.
Information technology Neutral
No significant impact on the IT sector
The Budget does not have any specific proposals for the IT sector. Focus on education and skill development is a
structurally long-term positive for the sector. The increase in surcharge from 5 per cent to 10 per cent for companies with
taxable income higher than Rs 100 million will increase the effective MAT levied to 21 per cent, from the current 20 per
cent. The additional surcharge will be applicable only for the financial year 2013-14.
continued…
…continued
Industry
Media & entertainment
Budget to not impact sector significa
The Budget impact on the media & en
boxes (STBs) to 10 per cent from 5 per
multi-system operators in the short term
on to subscribers. At a sector level, this
its intent to auction 839 FM stations in
than 0.1 million with private FM radio se
Non-ferrous metals
Negligible impact
The 10 per cent export duty levied on
negligible as India exports less than 5
production) were exported.
Excise duty of 4 per cent has been levie
duty levied on silver obtained from cop
accounts for a mere 5-10 per cent of
expected to be negligible.
Oil and gas
Change in exploration policy to be ma
The proposed change in the exploratio
contracts is marginally positive for ups
ascertaining of costs related to explora
authority. This policy will be applicable
the long term. Furthermore, clearances
declared a review of the current natural
exploration investments. Additionally, a
improve domestic natural gas production
Paper
Increase in education spending to he
The government has proposed a 19 p
demand for Creamwove paper, which is
stationery. Creamwove paper accounts
Overall sec
ntly
ntertainment sector would be neutral. The increase i
cent would increase subscriber acquisition costs of dir
m, as most STBs are still imported and the entire cost in
s is not expected to have a significant impact. Meanwh
294 more cities in 2013-14, thereby covering all cities
rvices.
bauxite will help improve its domestic availability. H
5 per cent of its production. In 2011, 0.4 mn tonnes
ed on silver obtained from smelting zinc or lead, to bri
pper ores and concentrates. As the sale of by-produ
a zinc manufacturer’s revenues, the impact of the
arginally positive
n policy to revenue sharing from profit sharing for ex
stream companies, as this is expected to remove an
ation and development, and will avoid delays in app
for the blocks that will be awarded henceforth, and th
s will be provided to awarded but stalled NELP blo
gas pricing policy, which is positive for the sector, as
shale gas policy is expected to be announced in 201
n only over the long term.
lp sustain demand for Writing & Printing paper
per cent increase in spending on education in 2013
s primarily used in the manufacture of textbooks, note
for 17 per cent of paper and paperboard demand.
17
ctoral impact
Effect
Neutral
n customs duty on set-top
rect-to-home operators and
ncrease may not be passed
hile, the government stated
s with a population of more
Neutral
owever, the impact will be
s of bauxite (2 per cent of
ing the rate on par with the
cts such as silver typically
increase in excise duty is
Positive
xploration and development
ny ambiguity related to the
provals from the regulatory
he benefits will accrue over
cks. The government also
it is expected to incentivise
13-14. However, this would
Neutral
-14. This will help sustain
ebooks and other education
continued…
�
18
CRISIL BudgetAnalysis
Overall sectoral impact …continued
Industry Effect
Petrochemicals Neutral
No impact on the industry
The overall impact on the domestic petrochemicals industry is neutral as no major changes have been announced and
excise duty and customs duties remain unchanged. Companies that have expansion plans or invest above Rs 1 billion
over the next two financial years may benefit from the introduction of 15 per cent investment allowance for plant and
machinery.
Pharmaceuticals Neutral
No dosage prescribed
The overall impact on the Indian pharmaceuticals industry is neutral with no changes announced in the excise or
customs duties on formulations or bulk drugs.
Ports Neutral
Announcement of new ports in a period of overcapacity
The proposal to develop a new major port each in Sagar, West Bengal, and in Andhra Pradesh will add 100 million
tonnes of capacity. Further, a new outer harbour in the V.O. Chidambaranar port in Tamil Nadu through PPP will add
another 42 million tonnes of capacity. Both these measures will lead to an increase in port capacities in a phased manner
over a period of 5-6 years. There are limited benefits for private players as traffic at ports continue to register moderate
growth and overall capacity utilisation rates are expected to decline. Allocation of funds in the form of tax-free
infrastructure bonds and low-cost infrastructure debt funds is expected to marginally benefit the sector by facilitating
availability of funds for port projects.
Power Positive
Sunset clause extension and incentives for renewable energy to benefit power sector
Extension of the sunset clause by one year, to avail the 10-year tax holiday, would benefit 18-20 GW of capacities
expected to be commissioned in 2013-14. Funding availability for the sector will improve with issuance of tax-free bonds
of Rs 500 billion and credit enhancement through IIFCL. Additionally, the proposal to adopt a PPP framework for coal
production will improve domestic coal supply in the long term.
Customs duty on imported coal, which was previously exempt, has been increased to 2 per cent, while CVD has been
increased by 1 per cent. Further, as per the Railway Budget 2013-14, freight rates have been hiked by 5.8 per cent.
Consequently, generation costs would increase by 2-3 paise per unit for domestic coal-based power projects. However,
for imported coal-based power projects, generation costs are expected to increase by 5-6 paise per unit.
Investments in wind energy, which nearly halved in 2012-13 due to withdrawal of benefits, are expected to increase
significantly due to reinstatement of generation-based incentive (GBI), with an outlay of Rs 8 billion. Further, capacity
additions in solar power are expected to increase, with interest subvention for a period of five years by IREDA, through
the National Clean Energy Fund.
continued…
…continued
Industry
Roads & highways
Budget addresses funding concerns
The government has allowed the issue
total limit of Rs 50,000 crore. This is e
(NHAI) for executing national highway p
Another positive for the roads sector is
this could help in reducing delays and fa
After the substantial completion of the
introduced, which will provide a boost
contractors.
Steel
Neutral impact for the steel industry
There are no major announcements fo
proposed schemes providing a boost to
steel in the long run.
Sugar
No impact on industry
There is no impact of the Budget on the
Overall sec
and delays
e of tax-free bonds to fund infrastructure sectors once
expected to provide additional funds to the National H
rojects. We believe that it will allow NHAI to award con
the proposal to set up an independent regulatory auth
astracking the implementation of road projects.
e Pradhan Mantri Gram Sadak Yojana (PMGSY), th
t to rural road development. This is expected to be
or the steel industry. Hence, the overall impact on
o the infrastructure and housing segments are likely to
domestic sugar industry.
19
ctoral impact
Effect
Positive
e again in 2013-14 up to a
Highways Authority of India
ntracts on EPC basis.
hority. In the medium term,
he PMGSY – II has been
enefit the small local road
Neutral
the sector is neutral. The
o give a fillip to demand for
Neutral
continued…
�
20
CRISIL BudgetAnalysis
Overall sectoral impact …continued
Industry Effect
Telecom Neutral
Neutral impact on the sector
The Budget would have a neutral impact on the telecom sector. The excise duty on mobile phones, with retail price
greater than Rs 2,000, has been hiked to 6 per cent, from 1 per cent. This will not significantly impact domestic
manufacturers since most of their phones sold are basic feature phones priced below this level. A large proportion of
high-end smartphones are imported.
Textiles Positive
TUFS extension, removal of excise duty on readymade garments beneficial
The Budget is positive for the sector as the Technology Upgradation Fund Scheme (TUFS) has been extended and the
excise duty on readymade garments has been abolished. TUFS, which is essential to attract investments into the sector,
has been extended for the 12th Five-Year Plan, with an investment target of Rs 1,510 billion as compared to Rs 1,506
billion under the 11th Five-Year Plan. For 2013-14, budgetary allocation under the TUFS has been increased to Rs 24
billion from Rs 22 billion in 2012-13. Additionally, the excise duty of 3.6 per cent (12 per cent of 30 per cent of the
maximum retail price) on readymade garments, which was mandatory last year, has been removed. Garment
manufacturers are expected to see an improvement in margins despite partially passing on the benefit to end-users.
Company
ACC Ltd.
Adani Power Ltd.
Aditya Birla Nuvo Ltd.
Alok Industries Ltd.
Ambuja Cements Ltd.
Amtek Auto Ltd.
Andhra Pradesh Paper Mills Ltd
Arvind Mills Ltd.
Ashok Leyland Ltd.
Bajaj Auto Ltd.
Bajaj Hindustan Ltd.
Balaji Telefilms Ltd .
Ballarpur Industries Ltd.
Balrampur Chini Mills Ltd.
Bannari Amman Sugars Ltd.
Bharat Forge Ltd.
Bharti Airtel Ltd.
Bhushan Steel Ltd.
Bosch Ltd.
Cairn India Ltd.
Chambal Fertilisers & Chemicals Ltd.
Chemplast Sanmar Ltd.
Cipla Ltd.
Coromandel Fertilisers Ltd.
Dish TV India Ltd.
DLF Ltd.
Dr Reddy's Laboratories Ltd.
EID Parry Ltd.
EIH Ltd.
Entertainment Network India Ltd.
Essar Steel Ltd .
Exide Industries Ltd.
Finolex Industries Ltd.
Firstsource Solutions Ltd.
Overall com
Impact Industry
�� Cement
�� Power
�� Textiles
�� Textiles
�� Cement
�� Auto Components & Tyres
�� Paper
�� Textiles
�� Automobiles
�� Automobiles
�� Sugar
�� Media & Entertainment
�� Paper
�� Sugar
�� Sugar
�� Auto Components & Tyres
�� Telecom
�� Steel
�� Auto Components & Tyres
�� Oil & Gas
�� Fertiliser
�� Petrochemicals
�� Pharmaceuticals
�� Fertiliser
�� Media & Entertainment
�� Housing
�� Pharmaceuticals
�� Sugar
�� Hotels
�� Media & Entertainment
�� Steel
�� Auto Components & Tyres
�� Petrochemicals
�� Information technology
Continued…
21
pany impact
�
22
CRISIL BudgetAnalysis
Overall company impact …continued
Company Impact Industry
Gammon India Ltd. �� Roads/Construction
Glenmark Pharmaceuticals Ltd. �� Pharmaceuticals
GMR Infrastructure Ltd. �� Airports
Gokaldas Exports Ltd. �� Textiles
Grasim Industries Ltd. �� Textiles
Gujarat Pipavav Ltd. �� Ports
Gujarat State Fertilisers Company Ltd. �� Fertiliser
GVK Power and Infrastructure Ltd. �� Airports
Hathway Cable & Datacom Ltd. �� Media & Entertainment
HCL Technologies Ltd. �� Information technology
HDFC Bank Ltd. �� Banking
Housing Development and Infrastructure Ltd. �� Housing
Hero Motocorp Ltd. �� Automobiles
Hindalco Industries Ltd. �� Non-Ferrous Metals
Hindustan Construction Co Ltd. �� Roads/Construction
Hindustan Copper Ltd. �� Non-Ferrous Metals
Hindustan Organic Chemicals Ltd. �� Commodity Chemicals
Hindustan Zinc Ltd. �� Non-Ferrous Metals
Hotel Leelaventure Ltd. �� Hotels
HT Media Ltd. �� Media & Entertainment
ICICI Bank Ltd. �� Banking
Idea Cellular Ltd. �� Telecom
IG Petrochemicals Ltd. �� Commodity Chemicals
India Cements Ltd. �� Cement
Indian Hotels Company Ltd. �� Hotels
Indo Rama Synthetics (India) Ltd. �� Textiles
Infosys Ltd. �� Information technology
IRB Infrastructure Developers Ltd. �� Roads/Construction
IL&FS Transportation Networks (India) Ltd �� Roads/Construction
IVRCL Infrastructures & Projects Ltd. �� Roads/Construction
JBF Industries Ltd. �� Textiles
JK Paper Ltd. �� Paper
JSW Energy Ltd. �� Power
JSW Steel Ltd. �� Steel
Larsen & Toubro Ltd. �� Roads/Construction
Mahindra & Mahindra Ltd. �� Automobiles
continued…
…continued
Company
Maruti Suzuki Ltd.
MIRC Electronics Ltd.
Mahanagar Telephone Nigam Ltd.
Mundra Airport and SEZ Ltd.
Nagarjuna International Ltd.
National Aluminium Company Ltd.
National Fertilisers Ltd.
National Thermal Power Corporation Ltd.
Oil and Natural Gas Corporation Ltd.
Oil India Ltd.
Orient Green Power Ltd.
Oriental Hotels Ltd.
Parsvnath Developers Ltd.
Phillips Carbon Black Ltd.
Punjab National Bank Ltd.
PVR Ltd.
Ranbaxy Laboratories Ltd.
Rashtriya Chemicals and Fertilisers Ltd.
Raymond Ltd.
Reliance Communications Ltd.
Reliance Industries Ltd.
Reliance Power Ltd.
Seshasayee Paper and Boards Ltd.
Shree Cement Ltd.
Shree Renuka Sugars Ltd.
Sobha Developers Ltd.
Sona Koyo Steering Systems Ltd.
State Bank of India Ltd.
Steel Authority of India Ltd
Sterlite Industries (India) Ltd
Sun Pharmaceutical Industries Ltd
Sun TV Ltd
Sundaram Fasteners Ltd.
Overall com
Impact Industry
�� Automobiles
�� Household appliances
�� Telecom
�� Ports
�� Fertiliser
�� Non-Ferrous Metals
�� Fertiliser
�� Power
�� Oil & Gas
�� Oil & Gas
�� Power
�� Hotels
�� Housing
�� Commodity Chemicals
�� Banking
�� Media & Entertainment
�� Pharmaceuticals
�� Fertiliser
�� Textiles
�� Telecom
�� Oil & Gas
�� Power
�� Paper
�� Cement
�� Sugar
�� Housing
�� Auto Components & Tyres
�� Banking
�� Steel
�� Non-Ferrous Metals
�� Pharmaceuticals
�� Media & Entertainment
�� Auto Components & Tyres
continued…
23
pany impact
�
24
CRISIL BudgetAnalysis
Overall company impact …continued
Company Impact Industry
Supreme Petrochem Ltd. �� Petrochemicals
Suzlon Energy Ltd. �� Power
Taj GVK Hotels & Resorts Ltd. �� Hotels
Tamil Nadu Newsprint and Papers Ltd. �� Paper
Tamil Nadu Petroproducts Ltd. �� Commodity Chemicals
Tata Communications Ltd. �� Telecom
Tata Motors Ltd. �� Automobiles
Tata Power Company Ltd. �� Power
Tata Steel Ltd. �� Steel
Tata Consultancy Services Ltd. �� Information technology
Thirumalai Chemicals Ltd. �� Commodity Chemicals
UltraTech Cement Ltd. �� Cement
Unitech Ltd. �� Housing
Vardhaman Textiles Ltd. �� Textiles
Videocon Industries Ltd. �� Household appliances
Welspun India Ltd. �� Textiles
Whirlpool of India Ltd. �� Household appliances
Wipro Ltd. �� Information technology
Zee Entertainment Enterprises Ltd. �� Media & Entertainment
Zuari Industries Ltd. �� Fertiliser
25
Airport Infrastructure Indian airports: Negative passenger and freight traffic growth
� India`s domestic air passenger traffic is estimated to have declined by about 6 per cent y-o-y during April-November
2012. This is in sharp contrast to the almost double-digit growth recorded in domestic traffic since the advent of low
cost carriers five years ago. Kingfisher Airlines’ exit due to financial turmoil and subsequent consolidation in the
industry has led to lower competiton and a steep increase in ticket prices in 2012-13. Higher ticket prices in turn
impacted demand growth, aggravated by the slowdown in the economy. We expect domestic passenger traffic to
grow at a muted 3-5 per cent y-o-y in 2013-14.
� India's international passenger traffic however, grew by a mere 2.8 per cent y-o-y during April-November 2012 as
Indian carriers are still in a position to add capacities unlike international carriers who have more or less exhausted
seat quotas available to them under bilateral treaties. We expect international passenger traffic in India to grow at a
muted 3-4 per cent y-o-y in 2013-14.
� Due to the slowdown in the global and domestic economies, domestic and international freight traffic fell by 4.7 per
cent and 1.6 per cent y-o-y, respectively during April-November 2012. Freight traffic is expected to grow marginally
during 2013-14.
� In 2012-13, CRISIL Research estimates investments of Rs 50-60 billion to flow into the sector, majority of which
would be accounted for by the completion of the Mumbai and Bengaluru international airports. CRISIL Research
expects investments of Rs 290-310 billion to materialise between 2012-13 and 2016-17.
� The Airports Economic Regulatory Authority recently mitigated the uncertainty on regulatory issues, approving
methodology for determining aeronautical tariffs and its measure of allowing a significant hike in the aeronautical
tariff charged by DIAL and MIAL. With these, the financials of these airports are expected to improve.
26
CRISIL BudgetAnalysis
Airport Infrastructure Aircraft maintenance to get concessions
Company Impact Impact factors
GMR Infrastructure Ltd �� A
GVK Infrastructure Ltd �� A
Note:
1) GMR Infrastructure Ltd’s subsidiary companies, Delhi International Airport Ltd (DIAL) and
GMR Hyderabad International Airport Limited (GHIAL), operate airports in Delhi and
Hyderabad, respectively. Revenues from the airports business contributed
52 per cent of its consolidated income in 2011-12.
2) GVK Power and Infrastructure Ltd has its subsidiary companies,
Mumbai International Airport Ltd (MIAL) and Bengaluru International Airport
Ltd (BIAL), operating in Mumbai and Bengaluru, respectively.
Revenues from the airport business contributed 86 per cent of its
consolidated income in 2011-12.
3) The above impact applies to the airports business of these two companies.
Source: CRISIL Research Impact factors
A. The Indian aircraft manufacture, repair and overhaul (MRO) industry is at a nascent stage. More than 90 per cent of
the estimated $700 million that Indian carriers annually spend on MRO is spent outside the country (South East
Asia, Middle East or Europe). Therefore, in order to give a fillip to the industry, in the last budget, a full exemption
from customs duty and countervailing duty for aircraft spares, tyres and testing equipment was proposed for the
Indian MRO service providers. In the Union Budget 2013-14, further concessions for aircraft maintenance facilities
have been proposed. They are:
� At present, basic customs duty exemption is available to parts and testing equipments for maintenance, repair
and overhaul of aircrafts. This exemption is now being further extended to include more parts.
� Time period for consumption/installation of parts and testing equipments imported for MRO of aircrafts by units
engaged in such activities is being extended from 3 months to 1 year.
� The move is expected to help carriers reduce aircraft maintenance costs and help MRO units in India (GMR
Infrastructure Ltd, which runs a facility in Hyderabad, and Air India Ltd, which has such units in Mumbai and
Delhi) become viable.
27
Auto components & tyres Auto components: Modest recovery in growth; margin pressure to abate in 2013-14
� Auto component production is estimated to grow by 5-7 per cent y-o-y in 2012-13 vis-à-vis a 14 per cent growth in
2011-12 due to slowing vehicle production growth across segments, particularly medium and heavy commercial
vehicles (30 per cent of overall demand), and slower exports.
� In 2013-14, auto component production is expected to improve in line with OEM prospects, particularly within the CV
segment. OEM demand is expected to grow by 9-11 per cent during the year. Growth in replacement production will
remain stable at 6-8 per cent. Growth in exports would remain capped at 7-9 per cent owing to uncertainties over EU
destination markets (30-35 per cent of exports) even as prospects for the US market (20-25 per cent of exports)
seem healthy.
� While basic raw material costs (accounting for 60-65 per cent of total raw material cost) have remained flat y-o-y
during April-December 2012, lower utilisation levels and higher conversion costs of labour and power have kept
operating margins under pressure. Operating margins are estimated to fall by 120-170 bps y-o-y to 12.3-12.8 per
cent for 2012-13. While input prices are expected to remain flat in 2013-14 along with an improvement in utilisation
levels, margin improvement is likely to be constrained at under 50 bps given the continued weak pricing environment
during the first half of 2013-14.
� Industry RoCE is estimated to decline by 400-500 bps in 2012-13 owing to pressure on operating margins. RoCE is
expected to remain at current levels of 13-14 per cent in 2013-14, even as margins improve slightly with
commissioning of incremental capacities. Tyres: Operating margins to remain flat in 2013-14
� The tyre industry’s revenues are estimated to grow by 9-11 per cent y-o-y in 2012-13, led by an increase in tyre
prices during 2011-12. Domestic demand is expected to grow by 0-3 per cent due to lower freight availability and
tepid growth in vehicle sales. In 2013-14, we forecast revenues to grow by 6-8 per cent in line with a growth in sales.
� Operating margins are estimated to improve by 200 bps in 2012-13 due to easing input cost and growth in
realisations. Margins are likely to stay flat in 2013-14, as input prices continue to remain stable.
� Prices of natural rubber (35-40 per cent of the raw material cost) are projected to decline by 12-15 per cent in 2012-
13 after growing by 80 per cent between 2009-10 and 2011-12. We expect natural rubber prices to remain flat or
decline marginally in 2013-14.
� In 2012-13, industry RoCE is estimated to improve by 300-400 bps, led by improvement in profitability and lower
capital investments. In 2013-14, we expect RoCE to improve marginally due to lower capital investments.
28
CRISIL BudgetAnalysis
Auto components & tyres Auto parts: Tariffs (per cent) Customs Excise
2012-13 2013-14 2012-13 2013-14
Engine and engine parts 7.7 7.7 12.4 12.4
Drive transmission, steering, suspension, braking
parts,silencer, exhaust pipes and radiators
10.3 10.3 12.4 12.4
Electrical parts1 7.7 7.7 12.4 12.4
Raw materials for auto components 7.7 7.7 12.4 12.4 1 Customs duty for air conditioner machine parts is at 10.3%
Notes
1) Raw materials for auto components include galvanised plate (GP)/galvanised coil (GC) steel, hot rolled (HR)
steel, aluminium, copper and lead.
2) Duty-free imports from Thailand are allowed for engine parts, helical springs, ball bearings, lighting
equipment and gear boxes under the Free Trade Agreement.
Source: CRISIL Research Tyres: Tariffs, prices and landed costs Tariffs (per cent) Prices (Feb 2013) Landed costs (Rs/tonne)
Customs Excise Domestic International Pre- Post-
2012-13 2013-14 2012-13 2013-14 (Rs/tonne) ($/tonne) budget budget
New tyres 10.3 10.3 10.3 10.3 - - - -
Used/retreaded tyres
Truck and bus 10.3 10.3 10.3 10.3 - - - -
Car cross ply/
Radials
10.3 10.3 10.3 10.3 - - - -
Raw materials for tyres
Natural rubber 20.0 20.0 (Note 1) (Note 1) 156,974 3,246 223,760 223,760
SBR (1502) 10.3 10.3 10.3 10.3 n.a. 2,300 136,363 136,363
PBR (1220) 10.3 10.3 10.3 10.3 155,000 2,550 153,732 153,732
NTC fabric 10.3 10.3 10.3 10.3 n.a. n.a. n.a. n.a.
Carbon black
(N330)
5.2 5.2 10.3 10.3 n.a. n.a. n.a. n.a.
NTC: Nylon tyre cord; PBR: Polybutadiene rubber; SBR: Styrene butadiene rubber
n.a.: Not available
Notes
1) For natural rubber, there is a cess of Rs 2 per kg in lieu of excise duty with effect from September 1, 2011.
2) Customs duty on natural rubber will be charged at 20% or Rs 20 per kg, whichever is lower, from April 2011.
3) China and South Korea enjoy a preferential customs duty of 8.6% on tyres under the Asia-Pacific
Trade Agreement.
4) New tyres include the following categories: Truck and bus, light truck, car (cross ply and radial), tractor front,
tractor rear, tractor trailor, moped, scooter and motorcycle.
5) An additional countervailing duty of 4% is levied on raw materials except for NTCF
6) Prices and landed cost are average rates for February 2013.
Source: CRISIL Research
29
Auto components & tyres Budget 2013 to have neutral impact on auto component and tyre manufacturers Auto components: Company impact Company Impact Impact factors
Bharat Forge Ltd �� -
Bosch Ltd �� A
Amtek Auto Ltd �� -
Sona Koyo Steering Systems Ltd �� A
Sundaram Fasteners Ltd �� -
Exide Industries Ltd �� A
Source: CRISIL Research Impact factors
A. Tax on royalty payments to foreign companies has been increased. But this is unlikely to have a significant impact
as Indian auto component and tyre manufacturers generally pay under 2 per cent royalty to companies based in
countries with favourable treatment under Double Tax Avoidance Agreements.
B. SIDBI’s re-financing capabilities have been doubled to Rs 100 billion per annum. This will help SMEs which make up
the majority of auto component manufacturers.
30
CRISIL BudgetAnalysis
Automobiles Demand growth to recover, margins to be improve slightly in 2013-14
� Lower freight availability and a rise in fuel cost impacted transporters’ profitability in 2012-13. We therefore expect
MHCV truck sales to decline by about 25 per cent in 2012-13. LCV sales growth is also likely to be limited to 15-17
per cent (over a 30 per cent growth in 2011-12), as private consumption growth slows the most in a decade. Overall,
we expect CV sales to marginally decline in 2012-13.
� Slower growth in incomes, fuel price hikes and high interest rates continued to impact car sales in 2012-13. We
therefore expect growth in car sales to remain flat during the year despite a tepid growth of 2 per cent recorded in
2011-12. However, utility vehicle (UV) sales are likely to continue growing by 38-40 per cent, led by new model
launches and increased preference for diesel vehicles. Overall, passenger vehicle sales are estimated to grow by 8-
10 per cent in 2012-13.
� Growth in two-wheeler sales is expected to moderate to 3-5 per cent in 2012-13, following two years of healthy
growth. Slower growth in farm incomes and higher fuel prices have impacted motorcycle sales during the fiscal.
However, scooter sales are estimated to grow by 15-17 per cent, aided by new model launches and expansion of
capacity by leading manufacturers which addressed pent up demand.
� In 2013-14, with GDP growth expected to be higher, concerns over income growth are also likely to ease. Moreover,
an expected decline of 8-10 per cent in in petrol prices will drive a recovery in small car sales, which in turn will aid a
9-11 per cent growth in passenger vehicle sales. Higher rural incomes owing to normal monsoons will also drive up
two-wheeler sales by 9-11 per cent. However, MHCV sales growth is expected to lag GDP growth and remain weak
at 5-7 per cent (despite a low base), until transporters’ utilisation levels improve. LCV sales will however continue to
grow by 14-16 per cent.
� Operating margins of automobile manufacturers are estimated to decline sharply in 2012-13 due to lower capacity
utilisation and firm input cost. However, in 2013-14, margins are likely to slightly improve as prices of raw materials
like steel decline and sales volumes recover.
31
Automobiles Automobiles: Tariffs
(per cent) Customs Excise
2012-13 2013-14 2012-13 2013-14
New cars1
-Completely knocked down units (CKD)# 10.3 10.3 - -
-Semi-knocked down units (SKD) 61.8 61.8 - -
-Completely built units (CBU) 61.8 61.8^^ - -
-Specified small cars2 - - 12.4 12.4
-Other than specified small cars3 - - 24.7* 24.7*
Utility vehicles 61.8 61.8 24.7 24.7**
Two-wheelers^ 61.8 61.8 12.4 12.4
Trucks (LCVs and MHCVs) 10.3 10.3 12.4@ 12.4@
Buses (LCVs and MHCVs) 10.3 10.3 12.4@ 12.4@
Tractors 10.3 10.3 - -
Steel items 7.7 7.7 12.4 12.4
Pig iron 5.2 5.2 12.4 12.4
Engine and engine parts
- Four-wheelers 7.7 7.7 12.4 12.4
- Two-wheelers 7.7 7.7 12.4 12.4
Drive transmission, steering, suspension, braking
parts,silencer, exhaust pipes and radiators
- Four-wheelers 10.3 10.3 12.4 12.4
- Two-wheelers 10.3 10.3 12.4 12.4
Electrical parts4 7.7 7.7 12.4 12.4
LCV: Light commercial vehicles; MHCV: Medium and heavy commercial vehicles 1 All Hybrid cars and cars based on fuel cell or Hydrogen cell technologies enjoy
concessional excise duty of 4 per cent 2 Specified small cars include cars with length not exceeding 4,000 mm and engine
capacity not exceeding 1,200 cc for petrol cars and 1,500 cc for diesel cars. 3 Others will include cars with length exceeding 4,000 mm and
engine capacity not exceeding 1,200 cc for petrol cars and 1,500 cc for diesel cars. 4 Customs duty for air conditioner machine parts is at 10.3 per cent
@Tax of 13.4 per cent or 25.8 per cent is applicable on transactions where only commercial vehicles
chassis is sold
* Additional duty of 3 per cent will be charged on cars and utility vehicles exceeding
length of 4000 mm and which are of 1500 cc and above
**Duty for utility vehicles with engine capacity exceeding 1500 cc length exceeding 4000 mm and
having ground clearance of 170 mm is 30.9 per cent
# CKD for vehicles with pre assembled engine and transmission parts is 30 per cent
^Customs duty on motorcycles with engine capacity of 800 cc or more
has been increased from 61.8 per cent to 77.3 per cent
^^Customs duty on CBUs priced (CIF) over $40,000, with engine capacity exceeding
3000cc for petrol-run vehicles, 2500 cc for diesel-run vehicles, is 103 per cent
Source: CRISIL Research
32
CRISIL BudgetAnalysis
Automobiles Budget marginally negative for utility vehicles; neutral for other segments
Company Impact Impact factors
Maruti Suzuki Ltd �� -
Tata Motors Ltd �� A, B, C, D
Ashok Leyland Ltd �� B,D
Bajaj Auto Ltd �� E
Hero Motocorp Ltd �� E
Mahindra & Mahindra Ltd �� B, E
Note: Company list is classified as per sector classification
Source: CRISIL Research Impact factors
A. Demand for high-end imported luxury cars (with CIF value exceeding $40,000 and an engine capacity of over 3000
cc for petrol-run vehicles and 2500 cc for diesel-run vehicles) will be impacted as the basic customs duty has been
raised to 100 per cent from 75 per cent. Similarly, sales of motorcycles (with an engine capacity of 800 cc or more)
will be impacted by an increase in the basic customs duty to 75 per cent from 60 per cent. However, these high-end
vehicles constitute a miniscule portion of the industry’s overall sales.
B. The excise duty on cars, two-wheelers and commercial vehicles remains unchanged at 12 per cent. Demand for
non-taxi sports utility vehicles (defined as a motor vehicle of length exceeding 4,000 mm and having a ground
clearance of 170 mm and above) with an engine capacity above 1500 cc, will be marginally affected by the increase
in excise duty to 30 per cent from 27 per cent. Sales of such vehicles, which account for 10-12 per cent of total
domestic passenger vehicle sales, grew by about 16 per cent during April 2012 to January 2013. A reduction in
excise duty on truck chassis to 13 per cent from 15 per cent will marginally benefit commercial vehicle sales.
C. Surcharge of 10 per cent on annual incomes exceeding Rs 1 crore could marginally impact demand for luxury
vehicles. Currently, these vehicles account for less than 3-4 per cent of industry sales.
D. An increase in allocation under JNNURM will aid purchase of 10,000 buses and will benefit bus manufacturers.
E. Extension of interest rate subvention to farmers, focus on rural development schemes like the Mahatma Gandhi
National Rural Employment Gurantee Act (MGNREGA), Pradhan Mantri Gram Sadak Yojana (PMGSY) and Indira
Awaas Yojana (IAY), coupled with a 22 per cent increase in agri-credit allocation to Rs 7,000 billion is expected to
have a marginally positive impact on sales of tractors and two-wheelers.
33
Banking Banking sector to witness marginal improvement in credit offtake in 2013-14
� Sluggish growth in the economy, shelving of capital expenditure plans by companies, and risk aversion by banks led
to the overall deceleration in credit growth in 2012-13. Aggregate bank credit had grown by 16.4 per cent y-o-y as on
February 08, 2013, compared with 17.1 per cent as on March 23, 2012.
� With GDP growth forecast to increase to 6.4 per cent from an estimated 5.0 per cent in 2012-13 and softening
interest rates, we expect 2013-14 to be marginally better for the banking industry as compared to 2012-13.
Aggregate bank credit is expected to grow by 17-18 per cent y-o-y, driven by improvement in agriculture growth,
consumption-led recovery in the economy and pre-election welfare spending by the government.
� Deposits grew at a tepid pace of 13.3 per cent y-o-y as of February 08, 2013, owing to contraction of demand
deposits as well as slower growth of savings bank deposits. •In 2013-14 as well, mobilising deposits will remain a
challenge for banks. While inflation is expected to moderate, term deposit rates are also likely to decline with the
reduction in policy rates. We expect bank deposits to grow by 14-15 per cent y-o-y in 2013-14.
� Net interest margins will come under pressure in 2012-13 and are expected to decline by 10-15 bps due to
competitive pressure on yields and high cost of deposits.
� Aggregate GNPAs of all public sector banks (PSBs) rose to 3.9 per cent as of December 2012 from 3.0 per cent as
of December 2011. During the same period, private banks’ GNPA improved by ~18 bps to 1.9 per cent. CRISIL
Research estimates the banking sector’s GNPA will remain between 3.4-3.6 per cent by March 2014. GNPA is likely
to peak in the first half of 2013-14 and ease off thereafter as corporate cashflows start to improve owing to demand
growth and moderating commodity prices. The rise in GNPAs will also be restricted by the improvement in loan
recovery ratio, sale of assets to asset reconstruction companies and debt restructuring to be undertaken by banks.
34
CRISIL BudgetAnalysis
Banking Recapitalisation of PSBs and boost to housing finance
Company Impact Impact factors
State Bank of India Ltd �� A, B, C, D, E
Punjab National Bank Ltd �� A, B, C, D, E
ICICI Bank Ltd �� B, C, D, E
HDFC Bank Ltd �� B, C, D, E
Source: CRISIL Research Impact factors
A. Capital support to PSBs
� The Budget proposed to provide Rs 140 billion as capital support to all PSBs in 2013-14. The government also
intends to help PSBs comply with Basel III regulations. Capital support will be critical for PSBs to continue to
pursue growth opportunities.
B. Home loans
� The clear focus on giving a boost to the housing market is also positive for financiers. An additional tax
deduction of Rs 100,000 on interest paid towards home loans upto Rs 25 lakh availed in 2013-14 by first-time
home buyers (over and above the existing Rs 150,000 deduction) has been introduced to give a boost to the
affordable housing segment. This additional deduction can be claimed over a period of 2 years.
� In addition, an amount of Rs 20 billion has been allocated towards a proposed Urban Housing Fund to be set up
by the National Housing Bank (NHB). Such a fund is likely to assist the NHB in providing refinance and will
mitigate the shortage of houses in urban areas.
C. Farm credit
� For 2013-14, banks have been directed to lend Rs 7,000 billion to the agriculture sector, 21.7 per cent higher
than the target for 2012-13.
� Farmers who avail of farm loans from PSBs and repay in a timely manner, get loans at subsidised rates. They
will now be able to access this credit facility from private banks as well, thereby helping private banks increase
lending to this segment.
D. Improving insurance penetration
� Banks have also been permitted to sell insurance products of multiple companies to increase insurance
penetration. The move will supplement the fee income for such banks.
� Additionally, banking correspondents have also been allowed to sell micro-insurance products.
35
Banking
E. Post offices to contribute towards financial inclusion
� With an investment of Rs 49 billion (of which Rs 5.3 billion has be allocated in 2013-14) to modernise the postal
network, post offices will become part of the core banking solution and offer realtime banking services.
� Post offices are envisaged to contribute to financial inclusion in India.
F. Infrastructure Debt Funds (IDFs)
� In order to mobilise funds for an estimated Rs 55 trillion worth of investments in the infrastructure sector during
the Twelfth Five-Year Plan, the Union Budget encourages setting up of more IDFs. Currently, there are four
IDFs registered with SEBI.
� The IDFs will offer take-out finance, credit enhancements and other innovative means to provide long-term low-
cost debt for infrastructure projects.
G. Inflation-indexed bonds
� In order to increase household financial savings so that they can be used productively to boost the economy,
the Budget proposes to introduce instruments that will protect savings from inflation, like inflation-indexed bonds
or inflation-indexed national security certificates.
36
CRISIL BudgetAnalysis
Cement Growth in cement demand to improve in 2013-14
� CRISIL Research foresees growth in cement demand to be muted at around 5 per cent on a year-on-year (y-o-y)
basis in 2012-13 and reach around 236 million tonnes, due to subdued uptake in construction activity across realty
and infrastructure segments. However, with a revival in housing and infrastructure spending by the government in
2013-14, cement demand is expected to gain traction and grow at around 7 per cent y-o-y during the year.
� CRISIL Research expects industry operating rates to bottom out at around 71 per cent in 2012-13 due to muted
growth in cement demand and overcapacity in the industry. However, from 2013-14 onwards, we foresee a gradual
revival in the cement operating rates due to improvement in demand and cement industry approaching the end of its
investment cycle.
� CRISIL Research expects average cement price across India to rise sharply by around 15 per cent in 2012-13,
largely led by the steep price rise in the eastern region due to supply constraints on account of unavailability of
railway wagons. Going forward, with the industry poised for a revival, cement prices are estimated to rise by a
moderate 4-5 per cent in 2013-14.
� CRISIL Research believes that in 2012-13, the sharp rise in cement prices will more-than-offset the pressure
exerted by rising input costs, especially freight. Freight costs are likely to rise due to a hike in freight rates as well as
an increase in lead distances.Consequently, industry operating margin is estimated to improve by 300 bps to 23-24
per cent during the year. However, in 2013-14, as escalation in input costs is likely to more-than-offset increase in
realisatons, we estimate industry operating margin to marginally decline by 100 bps. Cement: Tariffs
(Per cent) Customs Excise Abatement rate
2012-13 2013-14 2012-13 2013-14 2012-13 2013-14
Portland cement 0 0 12.4 +Rs120/tonne 12.4 +Rs120/tonne 0 0
White cement 10.3 10.3 12.4 12.4 30 30
Cement clinker 10.3 10.3 12.4 12.4 0 0
Limestone 5.2 5.2 0 0 0 0
Gypsum 2.6 2.6 0 0 0 0
Pet coke 0 0 15.1 15.1 0 0
Source: CRISIL Research
37
Cement Hike in freight costs to offset benefits arising from boost to housing and infrastructure
Company Impact Impact factors
ACC Ltd �� A,B
Ambuja Cements Ltd �� A,B
India Cements Ltd �� A,B
Shree Cement Ltd �� A,B
UltraTech Cement Ltd �� A,B
Source: CRISIL Research Impact factors
A. The Union Budget has proposed many schemes to boost the infrastructure (especially roads) and housing
segments. This is expected to aid cement demand.
B. However, this upside is likely to be offset by the increase in freight costs for cement companies, due to the proposed
hike in railway freight. The Railway Budget 2013-14 has proposed fuel adjustment component linked revision for
freight rates.
38
CRISIL BudgetAnalysis
Construction Slow revenue growth; declining profitability
� The order book position of major construction companies has declined during the April-December 2012 period due
to weak order inflows. Slowdown in awarding projects in sectors such as roads, power and irrigation has been the
key reason for lower order inflows. Revenue growth has also been subdued due to the delays in execution, financial
stress of companies and the weak macroeconomic environment. Further, profitability has declined with the rising
share of low-margin segments in the overall business, and sustained pressure on contract pricing - especially in
road projects.
� The financial flexibility of most construction companies is currently stressed owing to increased leverage and
reduced ability to repay borrowings. Increase in long-term debt can be primarily attributed to the loans taken for BOT
projects, while the short-term loans have increased considerably due to higher working capital requirement of these
companies.
� In the near term, we foresee single-digit revenue growth with expected execution delays, particularly in power and
irrigation. Profitability is expected to decline on account of the muted revenue growth and competitive pressures.
However, the decline will be offset, to some extent, by the softening of material prices.
� Over the long term (next 5 years), CRISIL Research expects growth to pick up gradually and estimates the total
construction opportunity to be around Rs 19.2 trillion between 2012-13 and 2016-17. Over 85 per cent of the total
opportunity is likely to come from infrastructure spending, specifically the roads, irrigation and urban infrastructure
sectors. In the industrial segment, the opportunity is expected to be low on account of sluggish expansion plans in
the large contributors such as oil and gas, metals and automobiles.
� Roads will account for the lion's share of construction opportunity over the next 5 years. The Central government's
programmes including the National Highway Development Programme (NHDP), Pradhan Mantri Gram Sadak
Yojana (PMGSY), and road development programmes of the various state governments will support growth in road
investments.
39
Construction Measures to boost investments in roads, urban infrastructure
Company Impact Impact factors
Larsen & Toubro Ltd �� A,B,C
Hindustan Construction Co Ltd �� A,B,C
IVRCL Infrastructures & Projects Ltd �� A,B,C
IRB Infrastructure Developers Ltd �� A,B
Gammon India Ltd �� A,B,C
Source: CRISIL Research Impact factors
A. Government agencies (including NHAI and HUDCO) have once again been permitted to issue tax-free infrastructure
bonds in 2013-14 totalling up to Rs 500 billion. This will provide additional funds to various infrastructure sectors
such as roads, ports and power.
B. In the roads sector, the budget proposes to set up an independent regulatory authority. In the medium term, this
could help faster implementation of road projects. After the substantial completion of the Pradhan Mantri Gram
Sadak Yojana (PMGSY), the PMGSY – II has been introduced to support rural road development. This is expected
to benefit the small local road contractors.
C. Allocation towards the JNNURM programme (Jawahar Lal Nehru National Urban Renewal Mission) has been
doubled in 2013-14 from the previous year. This will boost spending on ongoing and upcoming urban infrastructure
projects. In addition, allocation to the Ministry of Drinking Water and Sanitation has been increased by 17 per cent in
2013-14, driving investment, particularly in water supply and sanitation.
40
CRISIL BudgetAnalysis
Fertilisers Higher international prices and inadequate monsoon impacts non-urea fertiliser consumption
� Domestic fertiliser demand is estimated to fall by 12 per cent y-o-y to 52.9 million tonnes (in product terms) in 2012-
13, because of a steep rise in non-urea fertiliser prices and delayed monsoons. While demand for urea is likely to
increase by 1 per cent to 29.9 million tonnes, sales of non-urea fertilisers are expected to decline by 24 per cent.
� In 2012-13, anticipating a decline in international fertiliser prices, the government cut subsidy rates on non-urea
fertilisers by 10-12 per cent for N and K nutrients, and by 32 per cent for the P nutrient. While international fertiliser
prices declined, a weakening rupee offset the benefits of same. Consequently, fetiliser manufacturers were forced to
increase non-urea fertiliser prices (by an average of 25-30 per cent y-o-y), which affected demand.
� Besides high prices, delayed monsoons impacted Kharif sowing, thereby further impacting fertiliser consumption.
The decline in demand has been more severe in southern and western regions as compared to North and East, due
to inadequate monsoons and water shortage.
� In 2013-14, overall fertiliser demand is expected to improve, assuming normal monsoons and an expected decline in
retail prices of non-urea fertilisers (by Rs 1,300-1,500 per tonne) owing to a decline in international prices. While
demand for non-urea fertilisers is expected to rise by 12 per cent to 25.9 million tonnes, demand for urea is expected
to grow by 4.1 per cent to 31.1 million tonnes.
� More urea plants will be set up, aided by a favourable investment policy approved by the government in December
2012. These capacity additions are likely to reduce dependence on imports over the long term.
41
Fertilisers
Fertilisers: Tariffs, prices and landed costs Landed costs
Tariffs (per cent) Prices (Jan 2013) (Rs/tonne)
Customs Excise Domestic International Pre- Post-
2012-13 2013-14 2012-13 2013-14 (Rs/tonne) ($/tonne) budget budget
Urea 5.2 5.2 12.4 12.4 5,360 421 25,595 25,595
DAP 5.0 5.0 12.4 12.4 24,000 470 30,538 30,538
MOP 5.0 5.0 12.4 12.4 17,000 453 28,394 28,394
Ammonia 5.2 5.2 12.4 12.4 n.a. 585 41,653 41,653
Phosphoric acid 5.2 5.2 - - NT 813 47,333 47,333
Sulphur 2.1 2.1 - - n.a. 166 9,386 9,386
Rock phosphate 5.2 5.2 - - NT 140 9,321 9,321
Naphtha - - - - 59,520 971 54,534 54,534
Fuel oil - - - - 39,400 643 36,300 36,300
Contracted LNG2 5.0 5.0 - - - - 24,268 24,268
DAP: Di-ammonium phosphate; LNG: Liquified natural gas
MOP: Muriate of potash; NT: Not traded; n.a.: Not available
"-" indicates not applicable
Notes:
1) There is no excise and customs duty on naphtha and fuel oil used for production of fertilisers.
2) International prices are FOB prices.
Source: CRISIL Research
42
CRISIL BudgetAnalysis
Fertilisers Fertiliser subsidy for 2013-14 to remain unchanged y-o-y
Company Impact Impact factors
Nagarjuna International Ltd �� B
Chambal Fertilisers & Chemicals Ltd �� A,B
Coromandel Fertilisers Ltd �� A
Gujarat State Fertilisers Company Ltd �� A,B
National Fertilisers Ltd �� B
Rashtriya Chemicals and Fertilisers Ltd �� A,B
Zuari Industries Ltd �� A,B
Source: CRISIL Research
Impact factors
In 2013-14, fertiliser subsidy is expected to stay constant at last year’s level of Rs 659 billion -
A. Subisidy on non-urea fertilisers is budgeted to decline by Rs 10 billion, despite higher demand, as nutrient-based
subsidy (NBS) rates are expected to be reduced due to a fall in international prices.
B. The increase in budgeted subsidy of Rs 10 billion on indigenous urea for 2013-14 implies that the government is not
expected to hike retail urea prices during the year. Further, unavailability of incremental domestic natural gas will
force plants converting from high cost naphtha/fuel oil feedstock to import gas at relatively higher spot prices, thus
keeping subsidy burden high.
43
Hotels Room additions to impact RevPARs
� During April-December 2012, growth in room demand remained subdued at around 4 per cent for 12 key business
and leisure destinations in India, due to an uncertain macroeconomic environment. However, room additions
continued to grow at a faster rate of 10 per cent. As a result, occupancy rates (ORs) declined by 200 basis points on
a year-on-year (y-o-y) basis to 60 per cent. Intense competition resulted in average room rates ( ARRs) declining
by 3 per cent and consequently, revenue per available room (RevPARs) declined by 5 per cent y-o-y during this
period.
� In 2013-14, growth in room supply is expected to outpace the growth in room demand in 12 key cities of India.
While room demand is expected to increase by a modest 8 per cent, room supply is likely to rise by 14 per cent.
� This demand–supply mismatch will lead to a 200-300 basis point decline in occupancy rates (ORs), which could
reach decadal lows of 58 per cent in 2013-14.
� Further, intensifying competiton, arising from supply additions, will cause ARRs to decline by 4-5 per cent y-o-y to
Rs 7,000 per day in 2013-14, from Rs 7,400 per day in 2012-13. As a result, RevPARs are expected to dip by 8-9
per cent to Rs 4,050 in 2013-14, from Rs 4,450 in 2012-13.
� All business destinations are expected to witness a drop in RevPARs. Premium segment hotels in cities like
Chennai, Bengaluru and Ahmedabad will witness RevPARs declining by over 15 per cent (y-o-y) in 2013-14.
RevPARs in NCR and Kolkata are expected to decline by around 10 per cent. On the other hand, RevPARs in
Mumbai, Pune and Hyderabad will decline at a relatively moderate pace of 2-5 per cent (y-o-y) in 2013-14, as supply
additions are expected to be relatively slow.
� Among leisure destinations, RevPARS in premium hotels in Kochi and Jaipur will decline by around 15 per cent y-o-
y in 2013-14. RevPARs in Goa and Agra will increase by 5-7 per cent y-o-y on account of limited supply additions.
44
CRISIL BudgetAnalysis
Hotels Union Budget 2013-14 - neutral impact on hotel industry
Company Impact Impact factors
Hotel Leelaventure Ltd �� A
EIH Ltd �� A
Oriental Hotels Ltd �� A
Taj GVK Hotels & Resorts Ltd �� A
Indian Hotels Company Ltd �� A
Source: CRISIL Research
Impact factors
A. As of July 2012, only air-conditioned restaurants that served liquor were levied a service tax at 12.36 per cent, with
an abatement of 60 per cent (net service tax of 4.95 per cent). In the Union Budget of 2013-14, it has been proposed
to include all air-conditioned restaurants, including those which do not serve liquor, under the service tax net. This
proposal is not expected to impact demand as the service tax will be passed on to consumers.
45
Household Appliances Demand for household appliances to improve in 2013-14
� The household appliance industry is estimated to grow by 10 per cent in 2012-13 to Rs 384 billion. The growth will
largely be supported by an increase in realisations as players have partially passed on the rise in raw material cost.
CRISIL Research expects volume growth to be a mere 3 per cent, marginally higher as compared to 2011-12 due to
weak consumer sentiment given the slow economic growth, high inflation, rising interest rates and rise in the prices
of most appliances.
� In 2013-14, we expect better growth prospects with improvement in economic scenario - relatively lower inflation,
stable product prices and decline in interest rates. Volume growth is expected to more than double to 7-8 per cent in
2013-14. Along with healthy volume growth, realisations would also increase due to a shift in favour of high-value
products like LCD TVs, split ACs and fully automatic washing machines. We project overall revenue of the industry
to grow at 11 per cent to Rs 426 billion.
� The different segments in the industry are expected to perform as follows:
a) Television sales are likely to rise by 5 per cent in volume terms during 2013-14 driven by a robust demand
growth in the LCD segment.
b) Refrigerator volumes are estimated to grow at 9-10 per cent with healthy demand in both frost-free and direct
cool segments.
c) Washing machine segment is expected to register a volume growth of 8-9 per cent in 2013-14.
d) Air conditioners (highly seasonal product), which recorded a marginal volume growth during 2012-13 due to a
relatively cooler summer and high product prices, are expected to clock double-digit volume growth assuming
favourable weather conditions.
� Prices of major raw materials used in household appliances are expected to come down in 2013-14 as steel prices
trend lower. As a result, player operating margins are expected to improve by 40-50 basis points.
� In the long term, demand growth will be largely driven by favourable demographics, rising disposable incomes, shift
in consumer preferences, low penetration (especially in rural areas) and competitive prices.
46
CRISIL BudgetAnalysis
Household Appliances Household appliances: Tariffs
(Per cent) Customs Excise Abatement rate
2012-13 2013-14 2012-13 2013-14 2012-13 2013-14
B/W TVs 10.3 10.3 12.4 12.4 - -
Colour TVs (CRT, LCD) 10.3 10.3 12.4 12.4 30 30
Refrigerators 10.3 10.3 12.4 12.4 35 35
Room ACs 10.3 10.3 12.4 12.4 25 25
Washing machines 10.3 10.3 12.4 12.4 35 35
CPT and glass parts 10.3 10.3 12.4 12.4 - -
LCD panel 0.0 0.0 12.4 12.4 - -
Compressors, thermostat and tubes 7.7 7.7 12.4 12.4 - -
Steel 5.2 5.2 12.4 12.4 - -
Polymers 5.2 5.2 12.4 12.4 - -
CRT: Cathode ray tube, LCD: Liquid crystal display, CPT: Colour picture tube
Source: CRISIL Research
47
Household Appliances
No impact on household appliance industry
Company Impact Impact factors
Videocon Industries Ltd �� -
Whirlpool of India Ltd �� -
MIRC Electronics Ltd �� -
Source: CRISIL Research
Impact factor
A. The Budget had no specific proposal pertaining to the household appliance industry. A tax credit of Rs 2,000 for a
person with income upto Rs 5 lakh per annum, introduced in the Union Budget 2013-14, will result in higher
disposable income in the hands of people coming in the lowest tax bracket. But, this is unlikely to translate into any
meaningful impact on the demand.
48
CRISIL BudgetAnalysis
Housing Poor demand, high interest rates weigh on housing companies
� Revenues of residential real estate developers remained almost flat y-o-y during April-December 2012, owing to
weak demand. High interest rates and slow economic growth resulted in tepid housing sales. Average capital values
have increased by about 5 per cent across the 10 major cities tracked by CRISIL Research.
� Profitability of developers has declined owing to an increase in input prices, cost overruns in some projects and
higher interest cost. Thus, financials of real estate companies have significantly deteriorated in the past 2-3 years.
Some players therefore are looking to sell non-core assets.
� Over the next 2 years, CRISIL Research expects residential real estate demand to pick up, led by an improvement
in economic growth and softening of interest rates. As demand improves, capital values are also expected to
increase. However, these factors are not expected to significantly improve developers’ financial profile over the
medium term.
49
Housing Measures to tackle housing shortage
Company Impact Impact factors
DLF Ltd �� A,C
Housing Development and Infrastructure Ltd �� A,C
Parsvnath Developers Ltd �� A,C
Sobha Developers Ltd �� A,C
Unitech Ltd �� A,C
Source: CRISIL Research
Impact factors
A. First-time home buyers taking a loan of up to Rs 25 lakh in 2013-14 can avail of an additional interest deduction of
Rs 1 lakh in the first year, over and above the existing Rs 1.5 lakh benefit. This is likely to boost new home sales.
B. Allocation towards the Rural Housing Fund has been increased by 50 per cent to Rs 60 billion for 2013-14. In line
with the Rural Housing Fund, an Urban Housing Fund is proposed to be established by National Housing Bank. The
fund has been allocated Rs 20 billion for 2013-14. These steps are aimed at boosting fund availability and
addressing the overall housing shortage.
C. For premium apartments (with a carpet area of 2,000 sq ft or above and/or valued at Rs 1 crore or more), abatement
in service tax has been reduced to 70 per cent from 75 per cent. While this would result in an increase of 0.6 per
cent in the effective service tax rate, the impact on demand is expected to be negligible.
50
CRISIL BudgetAnalysis
Information Technology Growth prospects to improve in 2013-14
The Indian information technology (IT) industry primarily consists of four segments – IT services, IT enabled services, IT
software and hardware.
� The slow economic growth in the US and European markets has adversely impacted Indian IT services exports
growth in 2012-13. As a result, exports are expected to grow only by 10 per cent in USD terms in 2012-13, down
from the 19 per cent growth seen in 2011-12. Growth is being led by volumes as billing rates are under pressure.
Blended billing rates fell by 1-2 per cent with a slowdown in the billing of BFSI clients, who account for 41 per cent of
total revenues, and the increasing proportion of lower value services in IT revenues. According to CRISIL Research
estimates, in 2013-14, IT services exports will grow at a relatively faster pace of 13-15 per cent y-o-y to reach $50
billion. Although we expect the IT budget of clients to remain flat in 2013, increase in the share of offshoring will
enable a higher growth in the coming year.
� According to NASSCOM, Indian ITeS exports grew by 12 per cent y-o-y in 2012-13. Although India is facing stiff
competition in the customer relationship management (CRM) space, higher-value knowledge-based services will
continue to drive growth in the ITeS industry. An inherent need to reduce costs will ensure continued offshoring by
clients, thereby supporting growth. CRISIL Research expects ITeS industry export revenues to grow by 11-13 per
cent y-o-y in 2013-14, driven by growth in transaction and knowledge based services.
� The domestic information technology (excluding IT hardware) is expected to grow by 14.1 per cent in rupee terms in
2012-13. Factors such as rapid advancement in technology infrastructure, enhanced focus by the government on e-
governance projects and emergence of business models that help provide IT to new customer segments are driving
technology adoption in India. During 2013-14, the Indian IT hardware Industry is expected to witness double-digit
growth in rupee terms.
� In 2012-13, the operating margins of IT services exports players are likely to improve on account of benefit arising
out of rupee depreciation. However, CRISIL Research expects this trend to reverse in 2013-14 as rupee is expected
to appreciate against the dollar while the billing rates remain more or less flat.
51
Information Technology
IT: Hardware and software tariffs Tariff (per cent)1
Customs Excise
2012-13 2013-14 2012-13 2013-14
Packaged software 0.0 0.0 0.0 0.0
Personal computers 0.0 0.0 12.4 12.4
Monitor 0.0 0.0 12.4 12.4
Keyboard 0.0 0.0 12.4 12.4
Mouse 0.0 0.0 12.4 12.4
Printer 0.0 0.0 12.4 12.4
FDD, HDD, CD-ROM drive and other storage drives2 0.0 0.0 6.2 6.2
Motherboards 0.0 0.0 12.4 12.4
Microprocessors3 0.0 0.0 6.2 6.2
Routers 0.0 0.0 12.4 12.4
Modems 0.0 0.0 12.4 12.4 1 Tax rate is inclusive of education cess. 2FDD: Floppy disk drive; HDD: Hard disk drive; CD-ROM: Compact disk-read only memory. 3Microprocessors meant for fitment inside the CPU housing/laptop body.
Source: CRISIL Research
52
CRISIL BudgetAnalysis
Information Technology No significant impact on the IT sector
Company Impact Impact factors
Infosys Technologies Ltd �� A,B
Tata Consultancy Services Ltd �� A,B
Wipro Ltd �� A,B
Polaris Software Lab Ltd �� A,B
Firstsource Solutions Ltd �� A,B
Zenith Computers Ltd �� A,B
Source: CRISIL Research Impact factors
A. The increase in surcharge from 5 per cent to 10 per cent for companies with taxable income higher than Rs 100
million will increase the effective MAT levied to 21 per cent, from the current 20 per cent. The additional surcharge
will be applicable only for the financial year 2013-14.
B. Focus on education and skill development is a structurally long term positive for the sector.
53
Media and Entertainment Muted growth in advertising spends due to subdued macroeconomic environment
� Advertising spends, which had slowed in 2011-12, have been further impacted in 2012-13 due to a weak macro-
economic environment. The overall growth in advertising spends is expected to be only 7-9 per cent in 2012-13, as
compared with 9-10 per cent in 2011-12. Growth is expected to remain muted in the first half of 2013-14, with a
rebound likely in the latter half of the year owing to a revival in economic activity. A slowing pace of growth in
advertising spends would impact the topline of media companies, particularly broadcasters and newspaper
publishers, where advertising constitutes more than 70 per cent of total revenues.
� Growth in advertising spends in mobile & digital media and radio is expected to be higher as compared to traditional
media such as television and newspapers. This would be on account of advertisers allocating an increasing share of
spends towards digital & mobile media, given its growing reach. The implementation of FM Phase III coupled with
increased traction from local advertisers is expected to drive growth in the radio segment.
� Growth in subscription revenue in 2012-13 is expected to be higher at around 12 per cent y-o-y, primarily owing to
impressive box office collections of films aided by a strong movie pipeline, increase in the number of multiplexes and
a rise in the average ticket price. While subscription revenue growth for television is being driven by migration of
subscribers to digital viewing platforms, for print, it is being driven by growth in circulation numbers. Growth in
subscription is expected to remain steady at 9-11 per cent in 2013-14. Overall media revenues are, thus, expected
to increase by 10-12 per cent in 2013-14.
� The proportion of digital television subscribers is on the rise, as the deadline for digitisation has passed in all the
metro cities and the Phase II deadline nears (April 2013) for 38 more cities. As a result, the digital television
subscriber base, as a proportion of cable and satellite subscribers, is expected to rise to over 65 per cent by 2013-
14 from 50 per cent in 2011-12. Digitisation would also ensure a higher proportion of subscription revenues being
received to broadcasters, direct-to-home operators and multi-system operators. Media and entertainment: Tariffs
(per cent) Customs Excise
2012-13 2013-14 2012-13 2013-14
Digital cinema equipment 7.7 7.7 12.4 12.4
Broadcast equipment 10.3 10.3 12.4 12.4
Set-top boxes 5.2 10.3 12.4 12.4
Source: CRISIL Research
54
CRISIL BudgetAnalysis
Media and Entertainment Overall impact neutral; negative for DTH operators and MSOs
Company Impact Impact factors
Balaji Telefilms Ltd �� -
Dish TV India Ltd �� A
Entertainment Network India Ltd �� B
Hathway Cable & Datacom Ltd �� A
HT Media Ltd �� B
PVR Ltd �� -
Sun TV Ltd �� -
Zee Entertainment Enterprises Ltd �� -
Source: CRISIL Research Impact factors
A. The hike in customs duty on set-top boxes (STBs) to 10 per cent from 5 per cent would increase the subscriber
acquisition costs of direct-to-home operators and multi-system operators in the short term, as most STBs are still
imported.
B. 839 FM channels in 294 cities are intended to be auctioned in 2013-14. While FM channels are expected to witness
a healthy uptake in bigger cities, we expect that their demand would be subdued in smaller cities, owing to weak
revenue earning potential.
55
Non-ferrous metals
Aluminium: Input costs to remain firm; prices to increase
� Domestic demand for aluminium is expected to rise by 6-8 per cent y-o-y in 2013-14, led by steady growth in the
power (the largest consumer) and consumer durables sectors. Further, a recovery in automobile demand during the
year is also expected to support growth.
� Global aluminium prices are expected to fall by 14 per cent (y-o-y) to average $1990 in 2012-13. In spite of a decline
in international prices, domestic prices are expected to increase by about 7 per cent (y-o-y) led by a weak rupee,
and will average Rs 141,500 per tonne. International prices are likely to increase in 2013-14 and range between
$2,100-2,300 per tonne in 2013-14.
� In 2013-14, operating profitability of domestic aluminium players will remain stable as increase in realisations is
expected to be offset by higher power costs.
Copper
� In 2012-13, domestic prices are expected to be 7-8 per cent higher (y-o-y) as the landed cost of copper increased on
account of a weak rupee. During the year, global copper prices are however expected to decline by 7-8 per cent on
account of lower demand from the European Union, Japan and China.
� Operating margins of fully-integrated players are likely to improve, benefitting from higher realisations. However,
margins of custom smelter players, treatment charges/refining charges (TC/RC) will remain under pressure because
of a global shortage of copper concentrate.
Zinc
� Domestic demand for zinc is estimated to increase by 4-6 per cent in 2012-13, because of slow growth in demand
from the domestic galvanised steel products sector, which is the largest consumer. Global demand declined by 3
per cent in 2012 following a decline in demand from China and Europe.
� Average international zinc prices are expected to decline by about 7 per cent in 2012-13, owing to increased supply
and weak demand in global markets, whereas rupee depreciation will push up average domestic prices by about 6-7
per cent during the year.
Lead
� In 2012, global demand for lead fell by 1.5- 2.0 per cent on account of lower demand from China and the European
Union. However, domestic production increased by 10.6 per cent during the year.
� Average international lead prices are expected to be 7-8 per cent lower in 2012-13. However, depreciation in the
rupee value will push up average domestic prices by 7-8 per cent over the same period.
56
CRISIL BudgetAnalysis
Non-ferrous metals
Non-ferrous metals:Tariffs, prices and landed costs Tariff (per cent)1 Prices (February 2013) Landed cost (Rs/tonne)
Customs Excise Domestic2 International3 Pre-budget Post-budget
2012-13 2013-14 2012-13 2013-14 (Rs/tonne) ($/tonne)
Aluminium ingots 5.2 5.2 12.4 12.4 145,000 2,078 137,764 137,764
Aluminium products
- Flat-rolled products 5.2 5.2 12.4 12.4 - - - -
- Foils 5.2 5.2 12.4 12.4 - - - -
Aluminium scrap 5.2 5.2 12.4 12.4 - - - -
Non-coking coal 0.0 2.1 0.0 0.0 - - - -
Caustic soda 7.7 7.7 12.4 12.4 - - - -
Calcined 2.6 2.6 12.4 12.4 - - - -
petroleum
coke
Copper 5.2 5.2 12.4 12.4 525,333 8,173 539,006 539,006
Copper scrap 5.2 5.2 12.4 12.4 - - - -
Copper ore and 2.6 2.6 4.1 4.1 - - - -
concentrates4
Lead 5.2 5.2 12.4 12.4 130,000 2,407 159,453 159,453
Lead ore and 2.6 2.6 4.1 4.1 - - - -
concentrates
Zinc 5.2 5.2 12.4 12.4 149,333 2,151 142,578 142,578
Zinc ore and 2.6 2.6 4.1 4.1 - - - -
concentrates
Note: Duties also include cess
Source: CRISIL Research
57
Non-ferrous metals
No significant impact for the industry
Company Impact Impact factors
Hindalco Industries Ltd �� B
Hindustan Copper Ltd ��
Hindustan Zinc Ltd �� A
National Aluminium Company Ltd �� B
Sterlite Industries (India) Ltd �� B
Source: CRISIL Research
Impact factors
A. Excise duty has been levied at 4 per cent on silver obtained from smelting zinc or lead, to bring the rate on par with
the duty levied on silver obtained from copper ores and concentrates. As the sale of by-products such as silver
typically account for a mere 5-10 per cent of a zinc manufacturer’s revenues, the impact of the increase in excise
duty is expected to be negligible.
B. Export duty levy of 10 per cent will help improve domestic availability of bauxite. However the impact will be
negligible as India exported only around 0.4 mn tonnes of bauxite (2 per cent of production) in 2011.
C. The Railway Budget for 2013-14 has proposed a hike of 5.8 per cent in the freight rate. This would translate into an
estimated increase of Rs 500-700 per tonne in logistics costs for aluminium facilities located away from the coal
mines.
58
CRISIL BudgetAnalysis
Oil and Gas Under-recoveries to surge to record levels in 2012-13 despite price revisions
� After averaging $114.4 per barrel in 2011-12, crude oil prices have remained high, averaging at $110 per barrel in
2012-13 (April 2012 to January 2013), due to sanctions imposed on Iran by the US and the EU, and political
tensions in some of the countries in the MENA (Middle East and North Africa) region. CRISIL Research expects
crude oil prices to average $112 per barrel in 2012-13.
� Crude oil demand rose by 5.3 per cent y-o-y to 160 million tonnes during April-December 2012. Imports also
increased by 6.8 per cent y-o-y to 134.2 million tonnes as domestic production did not keep pace with demand.
� Due to inadequate revision in prices of regulated fuels, high crude oil prices and a weak rupee vis-a-vis the US
dollar, the under-recoveries of oil marketing companies (OMCs) are expected to touch an all-time high of Rs 1,600
billion in 2012-13. The mounting under-recoveries have pushed OMCs into the red, as shrinking profits from their
refining business have not been able to offset the marketing losses. However, the government affected a Rs 5 per
litre increase in diesel prices in September 2012, and has allowed small revisions in diesel prices since January
2013 to gradually align the domestic prices to international prices. This will lead to a decline in under-recoveries in
2013-14.
� Gross refining margins (GRMs) remained flat at $5.2 per barrel during April-December 2012 as compared to the
same period last year.
� Due to technical issues in the KG-D6 basin, India’s gas production declined to 115 mmscmd during April-November
2012 from 133 mmscmd in the same period last year. This impacted the profitability of gas production and
transmission companies. Further, the higher usage of LNG affected the profitability of gas marketing companies.
59
Oil and Gas Oil and gas: Tariffs, prices and landed costs Tariffs Prices Landed costs
(per cent) (February 2013) (Rs/tonne)
Customs Excise Domestic International Pre-
Budget
Post-
Budget
2012-13 2013-14 2012-13 2013-14 (Rs/tonne) ($/tonne)
Motor spirit (MS) 2.6 2.6 Rs 9.476/ltr Rs 9.476/ltr 102,608 1,109 63,602 63,602
Aviation turbine fuel
(ATF)
8.2 8.2 8.2 8.2 86,633 1,036 62,915 62,915
Naphtha 19.6 19.6 14.4 14.4 59,520 971 65,206 65,206
Superior kerosene
oil (SKO)
- Industrial use 5.0 5.0 14.4 14.4 59,268 1,016 59,861 59,861
- Domestic use 0.0 0.0 0.0 0.0 15,236 1,036 58,125 58,125
High-speed diesel
(HSD)
2.6 2.6 Rs 3.563/ltr Rs 3.563/ltr 64,672 986 56,600 56,600
Fuel oil 5.0 5.0 14.4 14.4 39,400 643 38,115 38,115
Liquefied petroleum
gas (LPG)
- Domestic use 0.0 0.0 0.0 0.0 30,880 1,043 59,648 59,648
Bitumen 5.0 5.0 14.4 14.4 n.a. 643 38,500 38,500
Crude oil 1 0.0 0.0 0.0 0.0 n.a. 864 - -
Natural gas2
- APM 0.0 0.0 14.0 14.0 9,000 - - -
- Non-APM 0.0 0.0 14.0 14.0 11,250 - - -
LNG3 5.0 5.0 14.0 14.0 - 428 24,268 24,268
'-' indicates not applicable
n.a.: Not available 1 Cess on crude oil (in lieu of excise) is Rs 4,500 per tonne 2 Price per '000 scm 3 Prices are for contracted LNG (landed cost) in Rs per '000 scm as per estimates
Notes
1) International prices are FoB Arab Gulf prices.
2) Domestic price of petroleum products are ex-storage point prices.
3) Priority sectors for natural gas include power and fertiliser.
4) Domestic natural gas prices represent landfall prices for each category.
5) Customs duty and excise duty on naphtha used for fertiliser is nil.
6) Customs duty and excise duty on fuel oil used in fertiliser is nil.
Source: CRISIL Research
60
CRISIL BudgetAnalysis
Oil and Gas Change in exploration policy and review of current natural gas pricing policy to be positive
The proposed change in the exploration policy to revenue sharing from profit sharing for exploration and development
contracts is marginally positive for upstream companies, as this is expected to remove any ambiguity related to the
ascertaining of costs related to exploration and development, and will avoid delays in approvals from the regulatory
authority. This policy will be applicable for the blocks that will be awarded henceforth, and the benefits will accrue over
the long term. Furthermore, faster clearances will be provided to awarded but stalled NELP blocks. The government also
declared a review of the current natural gas pricing policy, which is positive for the sector as it is expected to incentivise
exploration investments. Additionally, a shale gas policy is expected to be announced in 2013-14. However, this would
improve domestic natural gas production only over the long term.
Company Impact Impact factors
Oil and Natural Gas Corporation Ltd �� A, B, C
Reliance Industries Ltd �� A, B, C
Cairn India Ltd �� A, B, C
Oil India Ltd �� A, C
Source: CRISIL Research Impact factors
A. Proposed change in the exploration policy
B. Clearances of stalled NELP blocks
C. Review of the current natural gas pricing policy
61
Paper
Operating margins are expected to increase in 2013-14 after three continuous years of decline
� Recent capacity additions coupled with weak domestic demand for paper (due to a slowdown in the macroeconomic
environment) has pulled down operating rates from 78.5 per cent in 2010-11 to 76 per cent in 2012-13. In 2013-14,
due to the recovery in the economy, demand growth is expected to improve from 5.9 per cent in 2012-13 to 6.4 per
cent in 2013-14. This is expected to push up operating rates marginally to 77 per cent in 2013-14.
� Global pulp and wastepaper prices have fallen by 15 per cent and 18 per cent in 2012 over 2011 levels. However,
domestic paper prices have not fallen in tandem, as the prices of domestic hardwood, which most of the large
players use, have risen steeply. In 2013-14,CRISIL Research expects paper prices to increase on the back of
improved demand and better pricing flexibility of players to pass on increases in raw material costs.
� Operating margins of players are expected to decline by 200 basis points in 2012-13 on account of subdued
demand and players’ inability to pass on steep increases in raw material costs. In 2013-14, operating margins are
expected to improve following improved demand, higher paper prices and decline in fuel costs.
� Despite global newsprint prices falling by 10 per cent in 2012, domestic newsprint prices have remained stable
because of depreciation of the rupee vis-a-vis the US dollar. Increase in global newsprint prices following the shut
down of capacitites in North America will support an increase in domestic newsprint prices in 2013-14.
� Margins of domestic newsprint players are expected to improve following an increase in domestic newsprint prices
and a fall in global wastepaper prices.
Tariffs (per cent) Tariff (per cent) Prices (February 2013) Landed cost (Rs/tonne)
Customs Excise Domestic International Pre-budget Post-budget
2012-13 2013-14 2012-13 2013-14 (Rs/tonne) ($/tonne)
Newsprint 0.0 0.0 0.0 0.0 33,500 630 33,877 33,877
Maplitho 10.3 10.3 6.2 6.2 58,000 1 n.a. - -
Duplex board 10.3 10.3 6.2 6.2 31,840 1 n.a. - -
Art board 10.3 10.3 6.2 6.2 59,000 1 n.a. - -
Wood pulp 5.2 5.2 2.1 2.1 NT 650 37,510 37,510
(hard)
Wood pulp 5.2 5.2 2.1 2.1 NT 645 37,222 37,222
(soft)
Waste paper 0.0 0.0 6.2 6.2 11,300 245 13,989 13,989
(OCC)
n.a. - Not available NT: Not traded 1 Prices are delivered prices excluding VAT (delivered: basic+excise+octroi+avg freight prices)
Source: CRISIL Research
62
CRISIL BudgetAnalysis
Paper Increase in education spending to help sustain demand for Writing & Printing paper
Company Impact Impact factors
Andhra Pradesh Paper Mills Ltd �� A
Ballarpur Industries Ltd �� A
JK Paper Ltd �� A
Seshasayee Paper and Boards Ltd �� A
Tamil Nadu Newsprint and Papers Ltd �� A
Source: CRISIL Research
Impact factors
A. Budgetary allocation for education has been increased by 19 per cent, which is expected to maintain demand for
creamwove variety of Writing & Printing paper. This variety, primarily used in the manufacture of textbooks,
notebooks and other stationery for education, accounts for 17 per cent of paper and paperboard demand.
63
Petrochemicals Petrochemical and polymer demand to improve gradually in 2013-14, resulting in an uptick in cracker margins
� In calendar year 2012, cracker margins fell to average $168 per tonne of ethylene produced from $234 per tonne in
2011 due to weak demand from the downstream segments amidst high economic uncertainty in the EU and the US.
Despite better realisations of by-products including olefins and aromatics, a sharp decline in butadiene prices led to
a drop in cracker margins.
� CRISIL Research forecasts cracker margins to improve y-o-y in 2013 to $170-210 per tonne, as feedstock prices are
expected to decrease. Additionally, improved demand from downstream segments will bring some respite and
pricing flexibility for players. Domestic prices are likely to follow the global price trend in the medium term.
� Domestic demand for petrochemicals is estimated to grow by 4-7 per cent y-o-y in 2012-13 on account of weak
demand from end-user sectors. However, demand growth is forecast to improve moderately at 6-9 per cent (y-o-y) in
2013-14, primarily driven by a recovery in demand in key end-use markets such as automotives, construction,
woven sacks, household appliances, and packaging material industries. Demand for commodity chemicals to grow at 6-9 per cent in 2013-14
� Recovery in the growth rate of automotive and construction industries will be the key growth driver of domestic
demand in the commodity chemicals sector, which is estimated to grow at 6-9 per cent annually in 2013-14. A large
proportion of domestic demand will be met through imports. Capacity constraints in phenol and Linear Alkyl Benzene
(LAB) and inadequate supply of feedstock (natural gas) for methanol will lead to an increase in imports.
� Prices of all commodity chemicals have increased in calendar year 2012 in line with the increase in crude oil and
feedstock prices. However, due to slowdown in demand globally, commodity chemical manufacturers were unable to
pass on the total increase in prices. This led to a decline in tolling margins for all the chemicals, except Phthalic
Anhydride (PAN), which recovered from the lowest decadal margins recorded in 2011. In 2013-14, tolling margins
for most commodity chemicals are expected to improve with a recovery in demand. However, we expect margin
pressure for PAN with relatively weak demand and higher feedstock prices.
64
CRISIL BudgetAnalysis
Petrochemicals Chemicals: Tariffs, domestic prices and landed costs
(per cent) Tariff (per cent) Prices (Jan 2013) Landed cost (Rs/tonne)
Customs Excise Domestic International Pre-
budget
Post-
budget
2012-13 2013-14 2012-13 2013-14 (Rs/tonne) ($/tonne)
Polymers
hdPE (IM) 5.2 5.2 12.4 12.4 99,317 1 1,458 3 99,259 99,259
ldPE 5.2 5.2 12.4 12.4 100,079 1 1,424 3 96,945 96,945
lldPE 5.2 5.2 12.4 12.4 99,766 1 1,444 3 98,306 98,306
PPHP (IM) 5.2 5.2 12.4 12.4 102,023 1 1,438 3 97,898 97,898
PVC 5.2 5.2 12.4 12.4 70,558 1 995 3 67,739 67,739
PS (GP) 5.2 5.2 12.4 12.4 124,764 1 1,881 3 128,057 128,057
ABS 5.2 5.2 12.4 12.4 130,970 2,024 3 137,792 137,792
SBR (1502) 10.3 10.3 12.4 12.4 160,000 2,250 3 160,680 160,680
PBR (1220) 10.3 10.3 12.4 12.4 157,000 2,500 3 178,534 178,534
Basic petrochemicals and intermediates
EDC 2.6 2.6 12.4 12.4 n.a. 361 3 23,535 23,535
VCM 2.6 2.6 12.4 12.4 n.a. 846 3 54,073 54,073
Styrene 2.6 2.6 12.4 12.4 n.a. 1,714 2 115,655 115,655
Ethylene 5.2 5.2 12.4 12.4 n.a. 1,293 2 89,754 89,754
Propylene 5.2 5.2 12.4 12.4 n.a. 1,280 2 88,885 88,885
Butadiene 5.2 5.2 12.4 12.4 105,000 1,764 2 121,321 121,321
Benzene 5.2 5.2 12.4 12.4 89,500 1,430 2 99,578 99,578
Toluene 5.2 5.2 12.4 12.4 84,000 1,325 2 91,893 91,893
Naphtha 5.2 5.2 14.4 14.4 52,395 959 4 66,485 66,485
Commodity chemicals
LAB 7.7 7.7 12.4 12.4 119,100 5 2,000 120,034 120,034
PAN 7.7 7.7 12.4 12.4 99,000 1,560 2 92,708 92,708
Methanol 7.7 7.7 12.4 12.4 24,500 325 19,507 19,507
Phenol 7.7 7.7 12.4 12.4 101,000 1,590 89,725 89,725
Orthoxylene 5.2 5.2 12.4 12.4 94,000 1,590 93,028 93,028 1 Market prices, 2 Fob prices, 3 C&F Far-East Asia, 4 C&F Japan, 5 Excludes trade discounts
LAB: Linear alkyl benzene; PAN : Phthalic anhydride
n.a - not available
Notes
Education cess of 3 per cent has been included in the customs duty and excise duty.
Additional CVD of 4 per cent has been levied on polymers and basic petrochemicals and intermediates.
Landed cost also includes handling charges.
Source: CRISIL Research
65
Petrochemicals Neutral impact for the industry The overall impact on the chemicals industry is neutral with no sector-specific announcements.
Company Impact Impact factors
Basic petrochemicals and intermediates �
Reliance Industries Ltd �� -
Supreme Petrochem Ltd �� -
Finolex Industries Ltd �� -
Chemplast Sanmar Ltd �� -
Commodity chemicals �
Phillips Carbon Black Ltd �� -
Tamil Nadu Petroproducts Ltd �� -
IG Petrochemicals Ltd �� -
Thirumalai Chemicals Ltd �� -
Hindustan Organic Chemicals Ltd �� -
Note
The impact specified is only for the petrochemicals business of the companies listed above.
Source: CRISIL Research
66
CRISIL BudgetAnalysis
Pharmaceuticals Industry on strong footing; healthy growth to continue
� The Indian pharmaceuticals industry is estimated to grow by a robust 16-17 per cent y-o-y (constant exchange rate)
to $33-34 billion in 2012-13. Exports (both bulk drugs and formulations) are estimated to grow by about 17 per cent
y-o-y during the year, driven primarily by formulation exports to regulated markets, especially the US. The domestic
formulations market is set to grow by an estimated 14-15 per cent y-o-y in 2012-13 with strong double-digit growth in
drugs catering to chronic and lifestyle-related ailments such as anti-diabetic, cardiovascular and neuro/central
nervous system.
� In 2013-14, CRISIL Research expects the industry to continue to expand at a healthy rate of 13-14 per cent y-o-y,
reaching $36-37 billion.
� Export growth of formulations as well as bulk drugs is expected to moderate due to lower opportunity from drugs
going off-patent in the global market in 2013-14 coupled with a high base in the previous year. Formulation exports
and bulk drugs exports are both expected to grow by 12-13 per cent.
� The domestic formulations market is expected to maintain its growth momentum, expanding at a steady 14-15 per
cent y-o-y to $13 billion in 2013-14. Growth will be driven by the chronic and lifestyle segments. The National Pricing
Pharmaceutical Policy is expected to marginally bring down this growth rate post implementation. Pharmaceuticals: Tariffs (per cent) Customs1,2 Excise1
2012-13 2013-14 2012-13 2013-14
Bulk drugs 7.7 7.7 12.4 12.4
Formulations 12.4 12.4 6.2 6.2 1 Tax rates include education cess of 3 per cent 2 Customs duty on select life saving drugs and bulk drugs used to manufacture them such as
treating life-saving diseases like breast cancer, hepatitis, rheumatic arthritis, etc is 5 per cent.
Source: CRISIL Research
67
Pharmaceuticals No dosage prescribed
The overall impact on the Indian pharmaceuticals industry is neutral with no sector-specific announcements.
Company Impact Impact factors
Sun Pharmaceutical Industries Ltd �� -
Cipla Ltd �� -
Dr Reddy's Laboratories Ltd �� -
Ranbaxy Laboratories Ltd �� -
Glenmark Pharmaceuticals Ltd �� -
Source: CRISIL Research
68
CRISIL BudgetAnalysis
Ports Traffic at Indian ports to remain flat, pressure on utilisation rates to continue
� Total traffic at ports is expected to remain flat at about 906 million tonnes in 2012-13 as compared to 908 million
tonnes in 2011-12. On the other hand, cargo handling capacity is likely to grow by 3 per cent to 1,353 million tonnes
in 2012-13. Consequently, capacity utilisation levels are expected to decline to 65 per cent in 2012-13 from 77 per
cent in 2011-12. In 2013-14, we expect port traffic to revive and grow by 5 per cent due to better growth in container
trade and coal imports. With capacity additions being moderate, utilisation rates are expected to witness marginal
improvement in 2013-14.
� The share of non-major ports in total traffic is expected to increase to 40 per cent in 2012-13 from 38 per cent in
2011-12. Going forward, non-major ports are expected to grow faster than major ports, due to higher operational
efficiency and lesser congestion.
� CRISIL Research expects the ports sector to attract investments of about Rs 160 billion in 2012-13 and a total of Rs
1 trillion over the next five years. Of the expected investments over the next five years, about 42 per cent would be
directed towards major ports and the rest towards non-major ports. The private sector is expected to contribute more
than 80 per cent of the expected investments. Announcement of new ports in a period of overcapacity
� The proposal to develop a new major port each in Sagar, West Bengal and in Andhra Pradesh will add 100 million
tonnes of capacity. Further, a new outer harbour in the V.O. Chidambaranar port in Tamil Nadu through PPP will add
another 42 million tonnes of capacity.
� Both these measures will lead to an increase in port capacities in a phased manner over a period of 5 -6 years.
Private players will derive limited benefits from these measures as traffic at ports continue to register moderate
growth and overall capacity utilisation rates are expected to remain subdued.
� Allocation of funds in the form of tax-free infrastructure bonds upto Rs 500 billion in 2013-14 is expected to
marginally benefit the sector by facilitating availability of funds for port projects.
69
Ports Budget has a neutral impact on port companies
Company Impact Impact factors
Mundra Airport and SEZ Ltd �� -
Gujarat Pipavav Port Ltd �� -
Source: CRISIL Research
70
CRISIL BudgetAnalysis
Power Favourable policy developments to result in improved fuel availability and stronger offtake from discoms
� Demand for electricity in India is expected to grow by around 7.5-8.5 per cent over the medium term. CRISIL
Research estimates capacity additions of around 80.5 GW in the Twelfth Five-Year Plan (2012-13 and 2016-17), led
by the private sector. This is significantly higher than the 56 GW of capacity added during the Eleventh Five-Year
Plan.
� New capacities are facing significant fuel constraints due to slow ramp-up of coal production by Coal India Ltd (CIL)
and falling KG-D6 basin gas output. To resolve the fuel availability issue, CIL has been mandated to sign Fuel
Supply Agreements (FSAs) with power project developers. Coal requirement for FSAs will be fulfilled through a mix
of domestic and imported coal. In addition, coal price pooling is expected to improve coal supply to the power sector.
However, an increase in notified coal prices will also raise power tariffs by 6 to 8 paise per unit. PLFs of coal-based
plants are expected to remain weak at 71 per cent in 2012-13. However, with improved coal supply, PLFs would
gradually improve to 81 per cent by 2016-17.
� Weak financials of the power distribution sector also pose a major challenge. Accumulated losses of state
distribution utilties are estimated at around Rs 2.4 trillion in 2011-12, due to lack of tariff hikes, high aggregate
technical and commercial (AT&C) losses and delays in disbursal of state government subsidies. To improve the
financial health of discoms, the Cabinet Committee of Economic Affairs has cleared a financial restructuring
programme for state-owned distribution companies. However, support from states, in ensuring timely tariff revisions
and operational discipline, in terms of reduction in AT&C losses, are key to successful execution of this plan.
71
Power Sunset clause extension and incentives for renewable energy to benefit power sector
Extension of the sunset clause by one year, to avail the 10-year tax holiday, would benefit 18-20 GW of capacities,
expected to commission in 2013-14. Funding availability for the sector will improve with issuance of tax free infrastructure
bonds of Rs. 500 billion and credit enhancement through IIFCL. Additionally, the proposal to adopt a PPP framework for
coal production will improve domestic coal supply in the long term. Customs duty on imported steam coal, which was previously exempt, has been increased to 2 per cent, while CVD has
been increased by 1 per cent. Further, as per Railway Budget 2013-14, freight rates have been hiked by 5.8 per cent.
Consequently, generation costs would increase marginally by 2-3 paise per unit for domestic coal-based projects
assuming blending of 10-12 per cent and inland transportation distance of 350 to 400 kms. On the other hand, imported
coal-based projects will see a much higher increase of 5-6 paise per unit. Investments in wind energy, which nearly halved in 2012-13 due to withdrawal of accelerated depreciation and
generation basd incentive (GBI) benefits, are expected to increase significantly due to reinstatement of GBI, with an
outlay of Rs. 8 billion. Further, capacity additions in solar power are expected to increase, with interest subvention for a
period of five years by IREDA, through the National Clean Energy Fund.
Company Impact Impact factors
National Thermal Power Corporation Ltd �� B, C, D
Reliance Power Ltd �� B, C, D
Tata Power Company Ltd �� A, B, C
Adani Power Ltd �� A, B, C, D
JSW Energy Ltd �� A, B, C
Orient Green Power Ltd �� E
Suzlon Energy Ltd �� E
Source: CRISIL Research Impact factors
A. Increase in customs duty by 2 per cent and CVD by 1 per cent, on imported steam coal for power sector; hike in
railway freight rate by 5.8 per cent
B. Extension of sunset clause by one year to avail the 10-year tax holiday for power projects
C. Issuance of tax-free bonds of Rs. 500 billion and credit enhancement through IIFCL
D. Proposal to adopt a PPP framework for coal production
E. Reinstatement of generation-based incentive (GBI) for wind power, with an outlay of Rs. 8 billion
72
CRISIL BudgetAnalysis
Roads EPC model expected to revive bidder interest in national highways
� In 2012-13, awarding under the NHDP has been extremely slow, with only 880 km being awarded till January 2013.
Many BOT (Build Operate Transfer) projects have not been able to attract private participation, given the highly
leveraged financial profile of developers and concerns over funding. Developers have been facing issues in
achieving financial closure as many of the banks are approaching their sectoral exposure limit for roads and are
being more cautious while lending to the sector.
� Since bidder interest for BOT projects remains lacklusture, NHAI (National Highways Authority of India) plans to
award a higher proportion of projects on the EPC model, as many low traffic density stretches are expected to be
bid.
� While there are concerns on awarding, execution under NHDP has been progressing at a steady pace in the last 2-3
years owing to a healthy pipeline of awarded projects. In 2011-12, 7,406 km of national highway projects were
awarded, whose implementation would start in 2012-13, as the typical lag is for 9-12 months.
� According to CRISIL Research estimates, investments of Rs 6.3 trillion are expected to flow into roads and highways
during the period, 2012-13 to 2016-17. Nearly 53 per cent of the investments will go into state roads, 32 per cent into
national highways and the rest into rural roads. State road projects and rural roads are largely government funded,
while national highways have a significant share of private participation.
73
Roads Budget addresses funding concerns and delays
Company Impact Impact factors
Larsen & Toubro Ltd �� A,B
Hindustan Construction Co Ltd �� A,B
IVRCL Infrastructures & Projects Ltd �� A,B
IRB Infrastructure Developers Ltd �� A,B
Gammon India Ltd �� A,B
IL&FS Transportation Networks (India) Ltd �� A,B
Source: CRISIL Research Impact factors
A. Issue of tax-free bonds raised by government agencies (including NHAI and HUDCO) for infrastructure, have once
again been allowed in 2013-14 up to a total limit of Rs 50,000 crore. In the context of the roads sector, this is
expected to provide additional funds to the NHAI (National Highways Authority of India) for executing national
highway projects. We believe that it will allow NHAI to award contracts on EPC basis.
B. Another positive for the roads sector is the proposal to set up an independent regulatory authority. In the medium
term, this could help in reducing delays and fastracking the implementation of road projects.
C. In order to support rural road development, the Pradhan Mantri Gram Sadak Yojana (PMGSY) – II has been
introduced, after the substantial completion of PMGSY. This is expected to benefit the small local road contractors.
74
CRISIL BudgetAnalysis
Steel Muted demand, high domestic ore prices to hit margins
� Domestic demand for steel has been hit by a subdued investment climate in the infrastructure and industrial sectors
during 2012-13. Demand has also been hit by a slowdown in end-user industries, such as automobiles and
consumer durables. Consequently, domestic demand is expected to rise by a mere 3-5 per cent y-o-y in 2012-13.
Hence, growth in demand will be significantly lower, compared to the robust growth rate of 8.4 per cent, recorded
over the past five years.
� Muted demand, coupled with huge capacities coming on-stream over the next two years, will exert pressure on
operating rates.
� During 2012-13 (April-January), global steel prices (based on HR, FoB CIS Black Sea) declined by about 14 per
cent y-o-y to $578 per tonne, amid weak global demand and macroeconomic uncertainties in Europe and the US.
However, domestic flat steel prices, which move in line with landed costs of imports, have remained flat between Rs
39,000-40,000 per tonne during this period. This is on account of a weak rupee, which has averaged at 54.5 to the
dollar in 2012-13 (April-January) vis-a-vis 47.5 to the dollar, during the corresponding period in 2011-12. Meanwhile,
domestic long steel prices have risen marginally, owing to tight supply in the domestic raw material market.
� The ban on Indian iron ore production in Karnataka, coupled with the government's drive to close illegal mining in
Odisha, has resulted in domestic iron ore prices remaining firm in 2012-13. Iron and steel companies have been
facing an acute shortage of iron ore in 2012-13. Many are resorting to closure of operations, while others are
experiencing low utilisation levels.
� CRISIL Research expects domestic steel demand to gather pace only from the second half of 2013-14, with an
expected pick-up in demand from key end-user sectors, such as construction, infrastructure and automobiles. Global
steel prices are expected to fall further by 6 per cent y-o-y on account of muted demand and lower contract prices of
iron ore and coking coal. Domestic steel prices too are expected to be on a downward slope during 2013-14.
� Owing to the weak demand environment, commissioning of huge capacities and firm domestic input costs, the
profitability of Indian steel players is expected to decline in 2012-13 and remain under pressure in 2013-14.
75
Steel
Steel: Tariffs, prices and landed costs
Tariff (per cent)1 Prices Landed cost (Rs/tonne)
Customs Excise Domestic International Pre-budget Post-budget
2012-13 2013-14 2012-13 2013-14 (Rs/tonne) ($/tonne)
GP/GC 7.7 7.7 12.4 12.4 48,300 715 46,293 46,293
CR coils 7.7 7.7 12.4 12.4 43,500 670 43,477 43,477
HR coils 7.7 7.7 12.4 12.4 39,000 580 37,847 37,847
Bars and rods 5.2 5.2 12.4 12.4 40,000 608 38,637 38,637
Alloy steel 5.2 5.2 12.4 12.4 - - - -
Billets/slabs 5.2 5.2 12.4 12.4 38,000 545 34,792 34,792
Pig iron 5.2 5.2 12.4 12.4 27,000 398 25,819 25,819
HBI/sponge iron - - 12.4 12.4 19,300 - - -
Ferro alloys - - 12.4 12.4 - - - -
Steel melting - - 12.4 12.4 28,433 387 23,896 23,896
scrap
Iron ore 2.1 2.1 12.4 12.4 - - - -
Coking coal (< 12% - - - - - - - -
ash content)
Coking coal (> 12% - - - - - - - -
ash content)
Metallurgical coke - - - - - - - -1 Tariff rates are inclusive of 3 per cent education cess.
Notes
1) HBI: Hot Briquetted Iron
2) International prices are on FOB (CIS Black Sea) basis for February 2013
3) Domestic prices are average prices for February 2013
Source: Metal Bulletin, CRISIL Research
76
CRISIL BudgetAnalysis
Steel Neutral impact for the steel industry
Company impact
Company name Impact Impact factors
Steel Authority of India Ltd �� A, B, C
Tata Steel Ltd �� A, B, C
JSW Steel Ltd �� A, B, C
Essar Steel Ltd �� A, B, C
Bhushan Steel Ltd �� A, B, C
Source: CRISIL Research
Impact factors
A. The export duty on certain galvanised steel sheets has been brought down to nil, from 7.5 per cent earlier with ‘full
exemption from export duty’ being provided, with effect from March 1, 2011, retrospectively. This move will benefit
Indian galvanised steel exporters such as JSW Steel, Bhushan Steel, Essar Seel etc.
B. The proposed schemes, providing a boost to the infrastructure (especially roads) and housing segments, are likely
to give a fillip to overall demand for steel in the long run.
C. The Railway Budget for 2013-14 has proposed a hike of 5.8 per cent in the freight rate for coal, iron ore and steel.
This would translate into an estimated increase in logistics costs, by Rs 300-500 per tonne, for steel manufacturers.
We believe that steel players will pass on the hike in railway freight to end-users.
77
Sugar Profitability of north- and south-based mills to move in opposite directions
� Sugar production in the country will range between 23.5-23.8 million tonnes in Sugar Season (SS) 2012-13 (SS:
October 2012 to September 2013), a decline of 8-10 per cent as compared to the production in SS 2011-12. The fall
in sugar production will largely be due to lower acreage in key sugar-growing states of Maharashtra and Karnataka,
deficient rainfall, low reservoir levels and diversion of cane towards fodder in Maharashtra.
� As domestic consumption is expected to be around 23.7 million tonnes, India will not have surplus sugar during the
season. With demand being slightly higher than supply, closing stock as months' consumption will decline marginally
to around 2 months in SS 2012-13.
� Domestic sugar prices (Mumbai S-30 variety) will average Rs 34.5-35 per kg in SS 2012-13, 12-13 per cent higher
than the average price of Rs 30.8 per kg in SS 2011-12, mainly on account of the decline in domestic sugar
production and increase in regulated cane procurement prices (SAP - State Advised Price, and F&RP - Fair and
Remunerative Price), especially in the state of Uttar Pradesh (UP).
� SAP in UP has risen to Rs 280 per quintal in SS 2012-13, a rise of 17 per cent from Rs 240 per quintal in SS 2011-
12. SAP in Tamil Nadu has increased to Rs 235-240 per quintal from Rs 215 per quintal, while F&RP, which is
applicable in most of the other regions in the country, rose to Rs 170 per quintal from Rs 145 per quintal over the
same period. In order to encourage sugarcane planting, the government has announced an increase of 23.5 per
cent in F&RP to Rs 210 per quintal for SS 2013-14.
� While the SAP for north-based mills has risen by Rs 40 per quintal, sugarcane procurement costs for south-based
mills have increased by Rs 25 per quintal for SS 2012-13. Consequently, EBIDTA margins of UP-based mills are
expected to decline by 50-100 basis points, whereas that of south-based mills will improve by 100-130 basis points
in SS 2012-13.
78
CRISIL BudgetAnalysis
Sugar Sugar: Tariffs
Tariff Prices (January 2012) Landed cost
(Rs/tonne)
Customs Excise Domestic International Pre- Post-
(per cent) (Rs per tonne) (Rs/tonne) ($/tonne) budget budget
2012-13 2013-14 2012-13 2013-14
Domestically
produced sugar
Free sale n.a. n.a. 978.5 978.5 33,309 - - -
Levy n.a. n.a. 638.6 638.6 19,048 - - -
Imported white sugar 10.3 10.3 n.a. n.a. - 505 33,075 33,075
Imported raw sugar 10.3 10.3 n.a. n.a. - 417 27,799 27,799
Molasses 10.3 10.3 772.5 772.5 - - - -
n.a.: Not applicable
Notes
1) Domestic and international prices are the average for February 2012.
2) Excise duty includes basic duty, additional duty and education cess.
3) Landed cost includes the duties, freight, port handling and transport costs.
Source: CRISIL Research
79
Sugar No impact on industry
Company Impact Impact
factors
Bajaj Hindustan Ltd �� -
Balrampur Chini Mills Ltd �� -
Bannari Amman Sugars Ltd �� -
EID Parry Ltd �� -
Shree Renuka Sugars Ltd �� -
Source: CRISIL Research Impact factors
There is no impact of the Budget on the domestic sugar industry.
80
CRISIL BudgetAnalysis
Telecom Competitive intensity on the decline
� Operators are undertaking a large-scale clean-up of inactive subscribers from their network, due to which the
wireless subscriber base is expected to drop in 2012-13. It has already declined by 54 million (to 865 million) till
December 2012, as compared to additions of 108 million in 2011-12. This has boosted the proportion of active
subscribers to 81 per cent. Such clean-up of the inactive subscriber base, along with the increased use of value-
added services, would help industry ARPUs increase in 2013-14.
� Some moderation in competitive intensity would aid a 9 per cent growth in wireless revenues in 2012-13; steady
increase in ARPUs would ensure that revenue growth remains around 8-10 per cent in 2013-14.
� Operating margins for 2012-13 (up to December 2012) have declined from 2011-12 levels, owing to an increase in
network operating costs, as operators expanded their coverage. However, an expected moderation in these costs
and subscriber acquisition costs would lead to a 150-200 bps rise in EBITDA margins for the wireless industry, over
the next two years.
� The wireline segment recorded a drop of 1.4 million subscribers in the first nine months of 2012-13, which shrunk
the total subscriber base to 30.8 million, as of December 2012. Currently, even as BSNL and MTNL account for over
70 per cent of the wireline subscriber base, there has been a decline in their subscriber share. In 2013-14 too, we
expect wireline subscribers to dwindle, as additions by private operators will not be able to cushion the fall in BSNL
and MTNL’s subscriber base.
� Recent announcements on spectrum refarming (replacing spectrum in the 900 MHz frequency with the less-efficient
1800 MHz) would adversely impact large operators. In all, 36 licences, which constitute a substantial 45 per cent of
industry revenues, shall be due for renewal by April 2016. Such refarming (on licence renewal) would entail a
substantial outgo for operators, on account of both, higher capital costs and payouts for spectrum at the time of
licence renewal.
� In addition, any one-time payments on existing spectrum, if required to be paid, would further strain the cash flow
position of operators.
Telecom: Tariffs (per cent) Customs Excise
2012-13 2013-14 2012-13 2013-14
Cellular phones (price <= Rs 2000) 0.0 0.0 1.0 1.0
Cellular phones (price > Rs 2000) 0.0 0.0 1.0 6.2
Telecom networking equipment 0.0 0.0 12.4 12.4
Base stations 0.0 0.0 12.4 12.4
Wireless internet data card 0.0 0.0 0.0 0.0
HDSL 0.0 0.0 12.4 12.4
HDSL: High bit-rate digital subscriber line
Source: CRISIL Research
81
Telecom Neutral impact on the sector
Company Impact Impact factors
Bharti Airtel Ltd �� -
Idea Cellular Ltd �� -
Mahanagar Telephone Nigam Ltd �� -
Reliance Communications Ltd �� -
Tata Communications Ltd �� -
Source: CRISIL Research Impact factors
A. Excise duty on mobile phones, with a retail price exceeding Rs 2,000, has been hiked to 6 per cent from 1 per cent.
This will not significantly impact domestic manufacturers, since most of their phones sold are basic feature handsets,
priced below this level.Conversely, a large proportion of high-end smartphones are imported.
B. Receipts of Rs 408 billion have been estimated from ‘other communication services’, which includes spectrum
auctions, one-time spectrum charges, licence fees and spectrum usage charges. Going by the muted response to
spectrum auctions in 2012-13, we believe that the government may find it difficult to achieve the budgeted receipt
target in 2013-14.
82
CRISIL BudgetAnalysis
Textiles
Demand to improve in domestic and international markets across the value chain
Growth in apparel sales have been sluggish in 2012-13 due to the economic slowdown and negative consumer
sentiment. A decline in exports caused by a fall in demand from the US and EU has also added to manufacturers’ woes.
The spinning industry however, recovered from its 2011-12 lows as exports grew strongly. High yarn prices and low
cotton prices helped spinners’ margins improve in 2012-13. In 2013-14, we expect growth in apparel sales to improve
marginally on account of better consumer sentiment. Consequently, sales volumes are expected to improve across the
textile chain.
Readymade garments
� In calendar year 2012, the domestic economic slowdown limited revenue growth to about 3 per cent, with volumes
growing dismally. Export revenues declined by 6 per cent, because of a demand slump in the US & EU.
� An improvement in domestic economic growth is expected to drive demand for garments, leading to moderate
growth in sales volumes. Exports are also expected to increase marginally as global economic growth recovers.
Cotton yarn spinners
� In 2012-13, cotton yarn sales volumes increased significantly, led by strong exports (mainly to China). Lower raw
material (cotton) and high finished product (yarn) prices also helped spinners earn higher margins.
� Increased domestic and export demand for textiles will boost cotton yarn demand in 2013-14. Healthy demand and
an increase in cotton prices are expected to keep operating margins stable in 2013-14.
Man-made fibres (MMF)
� In 2012-13, modest MMF demand, due to subdued demand for blended and non-cotton yarn, led to a expansion of
160 bps in players’ margins.
� In 2013-14, demand is likely to improve, primarily driven by increased substitution of cotton by MMF, on the back of
higher cotton prices.
83
Textiles
Apparels and fabrics: Tariffs Tariff (per cent)
Customs Excise
2012-13 2013-14 2012-131 2013-14
Cotton-based apparels 10.3 10.3 6.18/12.36* 6.18/12.36**
Non-cotton-based apparels 10.3 10.3 12.4 12.4
Cotton woven fabrics 10.3 10.3 6.2 6.2
Non-cotton woven fabrics 10.3 10.3 12.4 12.4
Cotton knitted fabrics 10.3 10.3 6.2 6.2
Non-cotton knitted fabrics 10.3 10.3 12.4 12.41 Excise duty on cotton fabrics was concessional and optional * Excise duty on readymade garments was made mandatory at 12.36 per cent on 30 per cent of the MRP in 2012-13 ** Excise duty on readymade garments has been made optional, thus effectively bringing it down to zero in 2013-14
Education cess of 3 per cent on basic customs and excise duty
Source: CRISIL Research
Cotton and cotton yarn: Tariffs, prices and landed costs Tariff (per cent) Prices Landed cost4
(February 2013)
Customs Excise2 DomesticInter-national3 Pre-budget Post-budget
2012-13 2013-14 2012-13 2013-14 (Rs/tonne) ($/tonne) (Rs/tonne) (Rs/tonne)
Cotton yarn (40s) 10.3 10.3 6.2 6.2 197,667 3,700 223,961 223,961
Cotton1 0.0 0.0 0.0 0.0 97,662 1,977 108,472 108,4721 Domestic price of S-6 variety and international cotton price of a comparable variety 2 Concessional and optional excise duty 3 FOB prices 4 Landed cost includes handling charges of 2 per cent
Source: CRISIL Research
84
CRISIL BudgetAnalysis
Textiles
Man-made fibres and intermediates: Tariffs, prices and landed costs Tariff (per cent) Prices Landed cost2
(January 2013)
Customs Excise Domestic Inter-national1 Pre-budget Post-budget
2012-13 2013-14 2012-13 2013-14 (Rs/tonne) ($/tonne) (Rs/tonne) (Rs/tonne)
PSF 1.5d 5.2 5.2 12.4 12.4 100,250 1,831 124,653 124,653
VSF 1.4d 5.2 5.2 12.4 12.4 142,000 2,593 176,529 176,529
POY 150d 5.2 5.2 12.4 12.4 108,000 1,972 134,252 134,252
VFY 150d 5.2 5.2 12.4 12.4 350,000 6,392 435,162 435,162
PV 30s (70:30) 10.3 10.3 12.4 12.4 150,000 n.a. n.a. n.a.
PTA 5.2 5.2 12.4 12.4 78,821 1,194 75,127 75,127
MEG 5.2 5.2 12.4 12.4 78,427 1,193 72,284 72,284
Paraxylene 0.0 0.0 12.4 12.4 n.a. 1,645 94,789 94,789
PSF: Polyester staple fibre; VSF: Viscose staple fibre; POY: Partially oriented yarn; VFY: Viscose filament yarn;
PV: Polyester viscose; PTA: Purified terephthalic acid; MEG: Mono-ethylene glycol n.a.: Not available 1 FOB prices 2 Landed cost includes handling charges of 2 per cent
Source: CRISIL Research
85
Textiles
Extension of TUFS and excise duty removal positive for industry
Company Impact Impact factors
Alok Industries Ltd �� B
Gokaldas Exports Ltd �� B
Indo Rama Synthetics (India) Ltd ��
Vardhaman Textiles Ltd �� B
Welspun India Ltd �� B
JBF Industries Ltd ��
Arvind Mills Ltd �� A,B
Raymond Ltd �� B
Grasim Industries Ltd �� B
Aditya Birla Nuvo Ltd �� A,B
Source: CRISIL Research
Impact factors
A. Excise duty of 3.6 per cent on readymade garments, which was made mandatory last year, has been removed.
Garment manufacturers are expected to see an improvement in margins despite partially passing on the benefit to
end-users.
B. The Technology Upgradation Fund Scheme(TUFS) has been extended for the 12th Five-Year Plan, with an
investment target of Rs 1,510 billion as compared to Rs 1,506 billion under the 11th Five-Year Plan. Budgetary
allocation under the TUFS has been increased to Rs 24 billion in 2013-14 from Rs 22 billion in 2012-13.
Notes
A. Customs duty on textile machinery and parts has been reduced to 5 per cent from 7.5 per cent, making it more
affordable for Indian manufacturers.
B. Other initiatives like incentives like additional funds for establishing apparel parks under the Scheme of Integrated
Textile Parks and interest subventions for handloom sector have been announced to support the textile industry.
88
Equity market
Lacks punch despite positives
The Union budget proposal for 2013-14 lacks punch but holds out a few positives for the Indian equity market and
sectors such as infrastructure, financial services and housing. The budget has also focused on rationalising the fiscal
deficit at 4.8 per cent in FY14 compared to 5.2 per cent, which is a positive.
The proposal to allow an additional 15 per cent tax deduction for investments in plant and machinery will provide fillip to
the flagging investment climate. However, policy bottlenecks need to be removed to make this proposal effective. The
deduction will be allowed on new assets acquired and installed, totalling investment of Rs 1 bn or more made during
FY14 and FY15. The infrastructure sector will benefit from this and a few other proposals such as one-year extension of
Section 80IA of Income Tax Act allowing tax deduction, re-introduction of generation-based incentive for the wind power
sector, introduction of a regulator for the road sector, and issuance of tax-free bonds of Rs 500 bn. The textile sector is
expected to benefit with the continution of the Technology Upgradation Funds scheme in the 12th plan. Further, by
permitting banks to act as insurance brokers and allowing insurance companies to open branches in tier II cites without
prior approval will help increase penetration of insurance products. The budget has also focussed on rural development
and has increased allocation to rural development by 46 per cent to Rs. 802 bn. Additional deduction on interest of upto
Rs. 1 lakh on home loan of upto Rs. 25 lakh, will encourage low cost housing segment.
We believe the focus on start-ups and small companies in the budget are also positive over the long term. Small and
medium enterprises (SMEs) will now be allowed to list on SME exchanges without an IPO; as the issue will be restricted
to informed investors, it will ease the listing process for SMEs. Also, SMEs will continue to enjoy non-tax related
benefits and preference up to three years after these graduate to the higher category.
Some of the positive proposals for the equity markets are a) reduction in securities transaction tax, b) extension of Rajiv
Gandhi Equity Saving Scheme, and c) a few foreign-investor friendly proposals. The budget seeks to reduce the
securities transaction tax (STT) on equity futures from 0.017 per cent to 0.01 per cent, on mutual funds/exchange-
traded funds to 0.001 per cent (from 0.25 per cent for redemptions at fund counter and 0.1 per cent for sale on
exchanges). The retail participation in equity markets could increase on account of extension in the Rajiv Gandhi Equity
Savings Scheme (RGESS) which will now allow 50 per cent tax deduction for investment in mutual funds and listed
shares for three successive years. Further, the first time investor’s income limit for this scheme has been increased
from Rs 10 lakh to Rs 12 lakh. A few proposals such as deferment of implementation of modified General Anti
Avoidance Rule (GAAR) to April 2016, and allowing FIIs—to participate in exchange traded currency derivative segment
and to use their investment in corporate bonds/G-sec for margin requirement—are expected to increase FII inflows in
the markets. Further, pension funds and provident funds will now be allowed to invest in exchange traded funds, debt
mutual funds and asset backed securities—this is expected to lead to high inflow in the latter.
The budget’s proposals to raise income tax surcharge will adversely affect the corporate sector and high networth
individuals. Increase in income tax surchage for corporates from 5 per cent to 10 per cent, surchage on dividend
distribution tax from 5 per cent to 10 per cent, and increase in rate of tax on royalty and fees for technical services to
non-residents from 10 per cent to 25 per cent will adversely affect corporate profitability. However, for companies
undertaking capital expenditure over the next two years, the negative impact of surchage will be mitigated by the tax
deduction allowed on investment in plant and machinary. The budget also has proposed to levy 10 per cent surcharge
on individuals having income greater than Rs 10 mn.
89
Equity market
Nifty may deliver 11-14 per cent returns in FY14 Improvement in economic scenario and liquidity inflows may take Nifty to 6300-6500 by FY14-end
CRISIL Research has arrived at a fair value range of 6300-6500 for Nifty by FY14-end. This is based on our
expectations of fair value of 50 index companies. We expect Nifty EPS of Rs 379 in FY13, Rs 440 in FY14 and Rs 493
in FY15, representing a 14 per cent CAGR over FY13-15. The implied range for P/E multiples for our range are 14.3x-
14.8x FY14E and 12.8x-13.2x FY15E earnings. Earnings growth will be driven by sectors such as financials, pharma,
FMCG, and information technology. However, the sectors such as capital goods, metals and mining, and are expected
to lag due to weak capex cycle and lower volumes. Though the tax incentives announced in the budget for large
investments is a positive, a revival in the investment pipeline can be expected only in the second half of FY14.
CRISIL Research expects India’s GDP to grow by 6.4 per cent in FY14 as against 5 per cent projected for FY13. Our
forecast is based on expectation of normal monsoons and industrial growth. We expect revival in demand during the
year, which should lead to improved capacity utilisation. Further, the service sector is expected to clock a healthy
growth rate of 7.7 per cent in FY14. We expect only marginal improvement in corporate investment in FY14, hence
policy actions are a monitorable. Some of the key proposed legislations may be put to vote in the Parliament, while
some others - that were decided earlier - may be implemented.
For companies with a global exposure, the scenario is also expected to improve, albeit marginally, in 2013. The US
GDP is likely to grow at 2.7 per cent (as against 2.2 per cent in 2012). In the US, continued tax cuts for middle-income
households and extension of unemployment benefits will help the economy to avert a recession. The euro zone is
expected to recover, although it will continue be in recession; 0.1 per cent contraction compared to 0.5 per cent
contraction in GDP in 2012. In the euro zone, fiscal deficits have reduced and few countries are now running primary
budget surpluses (fiscal deficit excluding interest payments). The slowdown in China also appears to have bottomed out
but Japan has slipped back into a recession with the positive impact from post-Tsunami reconstruction activities fading
away.
From a valuation perspective, the year is expected to remain range-bound. The global liquidity situation improved
substantially in 2012 and we expect it to sustain through the year. The resultant flows into emerging markets, especially
India, should reduce the downside risk to valuation multiples. During 2012, India attracted US$24.5 bn FII inflows,
marginally lower than Japan’s US$27.7 bn and far higher than that of countries such as South Korea, Taiwan, The
Philippines, Thailand and Indonesia. At the same time, valuation multiples may not expand much until economic growth
rate improves and investment cycle revival is visible. Volatility in equity markets due to global socio-political factors may
also remain high, as was experienced with the recent political stalemate after the elections in Italy. We reiterate our fair
value range for Nifty at 6300-6500 by the end of FY14.
Impa
ct o
f bu
dget
on
com
pani
es u
nder
CR
ISIL
Equ
ity
Res
earc
h co
vera
ge
Shor
t Nam
e
Fund
amen
tal
grad
e Fa
irva
lue
CM
PEP
SFY
13
EPS
FY14
EP
SFY
15
P/E
FY13
P/
EFY
14
P/E
FY15
B
udge
t Im
pact
Det
ails
of I
mpa
ct
Alo
k In
dust
ries
Ltd
2/5
18.0
8.5
3.4
5.6
7.3
2.5
1.5
1.2
��
Inve
stm
ent a
llow
ance
of 1
5 pe
r cen
t on
inve
stm
ent (
mor
e th
an
Rs
1,00
0 m
n be
twee
n FY
14-F
Y15)
A
pollo
Hos
pita
ls E
nter
pris
e Lt
d 5/
598
2.0
826.
922
.927
.834
.636
.129
.723
.9��
Ash
iana
Hou
sing
Ltd
4/
530
3.0
232.
523
.226
.253
.310
.08.
94.
4��
Add
ition
al d
educ
tion
of in
tere
st o
f Rs
1 la
kh fo
r loa
ns u
pto
Rs
25 la
kh to
incr
ease
dem
and
in m
id-in
com
e ho
usin
g se
gmen
t
Ast
ra M
icro
wav
e P
rodu
cts
Ltd
4/5
55.0
38.9
3.2
5.5
-12
.27.
1–
��
Incr
ease
in d
efen
ce c
apita
l exp
endi
ture
by
9 pe
r cen
t to
bene
fit c
ompa
nies
dire
ctly
invo
lved
in th
e de
fenc
e pr
ojec
ts
Bha
rtiya
Inte
rnat
iona
l Ltd
3/
524
7.0
175.
912
.116
.117
.214
.510
.910
.2��
But
terfl
y G
andh
imat
hi A
pplia
nces
Ltd
3/
541
2.0
276.
219
.126
.333
.014
.510
.58.
4��
Con
tinue
d fo
cus
on M
GN
RE
GA
pro
gram
Cen
tury
Ply
boar
ds (I
ndia
) Ltd
3/
558
.054
.06.
08.
1-
9.0
6.7
–��
The
addi
tiona
l ded
uctio
n of
inte
rest
of u
pto
Rs
1 la
kh o
n th
e fir
st h
ome
loan
of l
ess
than
or e
qual
to R
s 2.
5 m
n w
ill p
rom
ote
hous
e ow
ners
hip
and
henc
e w
ill p
rovi
de fi
llip
to th
e ce
men
t an
d pl
ywoo
d in
dust
ry
Dew
an H
ousi
ng F
inan
ce C
orpo
ratio
n Lt
d 4/
528
4.0
167.
332
.037
.042
.05.
24.
54.
0��
Pos
itive
s ar
e (i)
Add
ition
al d
educ
tion
of in
tere
st o
f Rs
1 la
kh fo
r lo
ans
upto
Rs
25 la
kh to
incr
ease
dem
and
in lo
wer
-to-m
id
inco
me
hous
ing
segm
ent (
ii) R
ural
hou
sing
fund
allo
catio
n of
R
s 60
bn
Dha
nuka
Agr
itech
Ltd
4/
511
7.0
122.
613
.013
.80.
09.
48.
9–
��
Con
tinue
d su
ppor
t to
agric
ultu
re th
roug
h hi
gher
allo
catio
n to
m
inis
try o
f rur
al d
evel
opm
ent a
nd m
inis
try a
gric
ultu
re a
s w
ell
as re
tent
ion
of a
ttrac
tive
rate
s fo
r sho
rt te
rm c
rop
loan
s
Dhu
nser
i Pet
roch
em a
nd T
ea L
td
3/5
163.
098
.617
.238
.5-
5.7
2.6
–��
Dol
phin
Offs
hore
Ent
erpr
ises
(Ind
ia) L
td
2/5
100.
011
0.0
13.3
--
8.3
––
��
Ele
ctro
stee
l Cas
tings
Ltd
3/
545
.019
.92.
44.
58.
08.
34.
42.
5��
Em
mbi
Pol
yarn
s 2/
520
.011
.21.
62.
7-
6.9
4.2
–��
Eve
rest
Kan
to C
ylin
der L
td
2/5
33.0
22.4
-2.3
0.8
--9
.727
.9–
��
Forti
s H
ealth
care
Ltd
3/
512
5.0
97.1
-2.6
0.9
1.9
-37.
310
7.8
51.1
��
Gita
njal
i Gem
s Lt
d 3/
554
0.0
581.
862
.566
.5-
9.3
8.7
–��
Hel
ios
& M
athe
son
Info
rmat
ion
Tech
nolo
gy L
td
2/5
80.0
48.3
12.3
17.2
20.1
3.9
2.8
2.4
��
Not
es:P
ls n
ote
that
all
com
pani
es w
ill b
e im
pact
ed n
egat
ivel
y du
e to
incr
ease
in s
urch
age
on in
com
e ta
x an
d di
vide
nd d
istri
butio
n ta
x
Sou
rce:
CR
ISIL
Res
earc
h
CRISIL BudgetAnalysis
90
Shor
t Nam
e
Fund
amen
tal
grad
e Fa
irva
lue
CM
PEP
SFY
13
EPS
FY14
EP
SFY
15
P/E
FY13
P/
EFY
14
P/E
FY15
B
udge
t Im
pact
Det
ails
of I
mpa
ct
Her
o M
otoC
orp
Ltd
5/5
1842
.016
67.5
108.
111
9.6
150.
215
.413
.911
.1��
Incr
ease
in a
lloca
tion
to th
e ru
ral d
evel
opm
ent m
inis
try w
ould
le
ad to
hig
her s
ales
from
rura
l Ind
ia. I
ncre
asin
g ta
x ra
te o
n pa
ymen
ts b
y w
ay o
f roy
alty
from
10
per c
ent t
o 25
per
cen
t is
a
nega
tive
Hite
ch P
last
3/
573
.050
.16.
39.
314
.48.
05.
43.
5��
HS
IL L
td
4/5
185.
098
.09.
712
.817
.710
.17.
75.
5��
Infin
ite C
ompu
ter S
olut
ions
(Ind
ia) L
td
3/5
180.
094
.832
.535
.2-
2.9
2.7
–��
Inno
vent
ive
Indu
strie
s Lt
d 4/
521
5.0
128.
716
.222
.628
.87.
95.
74.
5��
Inse
ctic
ides
(Ind
ia) L
td
3/5
395.
039
2.6
31.5
35.0
0.0
12.5
11.2
–��
Con
tinue
d su
ppor
t to
agric
ultu
re th
roug
h hi
gher
allo
catio
n to
m
inis
try o
f rur
al d
evel
opm
ent a
nd m
inis
try o
f agr
icul
ture
as
wel
l as
rete
ntio
n of
attr
activ
e ra
tes
for s
hort
term
cro
p lo
ans
IS
MT
Ltd
3/5
23.0
14.6
-2.1
4.5
--6
.93.
2–
��
JBF
Indu
strie
s Lt
d 3/
519
4.0
106.
531
.554
.33.
42.
0–
��
Inve
stm
ent a
llow
ance
of 1
5per
cen
t on
inve
stm
ent (
mor
e th
an
Rs
1,00
0 m
n be
twee
n FY
14-F
Y15)
JM F
inan
cial
Ltd
4/
536
.016
.42.
33.
3-
7.1
5.0
–��
(i) L
ower
ing
of S
TT o
n eq
uity
futu
res
from
0.0
17pe
r cen
t to
0.01
per
cen
t and
(ii)
liber
alis
atio
n of
Raj
iv G
andh
i Sav
ings
S
chem
e - t
o ha
ve h
ardl
y an
y po
sitiv
e im
pact
K
ewal
Kira
n C
loth
ing
Ltd
4/5
628.
070
7.1
38.8
44.1
53.9
18.2
16.0
13.1
��
Ben
efit
from
rem
oval
of e
xcis
e du
ty o
n ga
rmen
ts
KN
R C
onst
ruct
ions
Ltd
3/
512
0.0
96.3
5.3
19.1
0.0
18.2
5.0
–��
~3,0
00 k
m o
f roa
d pr
ojec
ts w
ill b
e aw
arde
d in
a fe
w s
tate
s in
ne
xt s
ix m
onth
s; th
is is
exp
ecte
d to
incr
ease
ord
er in
flow
s.
Bes
ides
, the
app
oint
men
t of a
road
regu
lato
r mig
ht e
ase
exec
utio
n re
late
d bo
ttlen
ecks
but
will
be
a ke
y th
ing
to w
atch
fo
r
KR
BL
Ltd
3/5
33.0
24.1
6.1
6.6
0.0
4.0
3.7
–��
Dut
y w
ithdr
awn
on d
e-oi
led
rice
bran
oil
cake
. Mar
gina
lly
posi
tive
as it
con
tribu
tes
arou
nd 1
per
cen
t to
KR
BL'
s re
venu
es. C
ontin
ued
supp
ort t
o ag
ricul
ture
thro
ugh
high
er
allo
catio
n to
min
istry
of r
ural
dev
elop
men
t and
min
istry
of
agric
ultu
re a
s w
ell a
s re
tent
ion
of a
ttrac
tive
rate
s fo
r sho
rt te
rm
crop
loan
sK
SE
Ltd
3/
522
0.0
210.
112
.130
.6-
17.4
6.9
–��
Mag
ma
Finc
orp
Ltd
3/5
106.
081
.96.
59.
713
.912
.68.
45.
9��
Hig
her a
lloca
tion
for r
ural
dev
elop
men
t wou
ld le
ad h
ighe
r cr
edit
dem
and
Not
es:P
ls n
ote
that
all
com
pani
es w
ill b
e im
pact
ed n
egat
ivel
y du
e to
incr
ease
in s
urch
age
on in
com
e ta
x an
d di
vide
nd d
istri
butio
n ta
x S
ourc
e: C
RIS
IL R
esea
rch
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
� �
�91
Shor
t Nam
e
Fund
amen
tal
grad
e Fa
irva
lue
CM
PEP
SFY
13
EPS
FY14
EP
SFY
15
P/E
FY13
P/
EFY
14
P/E
FY15
B
udge
t Im
pact
Det
ails
of I
mpa
ct
Mah
araj
a S
hree
Um
aid
Mill
s Lt
d 2/
528
0.0
118.
018
.816
.1-
6.3
7.3
–��
MB
L In
frast
ruct
ure
Ltd
3/5
304.
016
5.5
37.3
40.2
-4.
44.
1–
��
~3,0
00 k
m o
f roa
d pr
ojec
ts w
ill b
e aw
arde
d in
a fe
w s
tate
s in
ne
xt s
ix m
onth
s; th
is is
exp
ecte
d to
incr
ease
ord
er in
flow
s.
Bes
ides
, the
app
oint
men
t of a
road
regu
lato
r mig
ht e
ase
exec
utio
n re
late
d bo
ttlen
ecks
but
will
be
a ke
y th
ing
to w
atch
fo
rM
SP
Ste
el &
Pow
er L
td
2/5
39.0
20.8
5.1
11.3
0.0
4.1
1.8
–��
Nav
in F
luor
ine
Inte
rnat
iona
l Ltd
3/
534
9.0
232.
561
.941
.245
.23.
85.
65.
1��
Nite
sh E
stat
es L
td
2/5
25.0
12.7
-0.5
2.5
3.5
-25.
45.
13.
6��
Red
uctio
n in
aba
tem
ent r
ate
to 7
0 pe
r cen
t fro
m 7
5 pe
r cen
t fo
r fla
ts w
ith c
arpe
t are
a of
2,0
00 s
q ft
and
valu
e of
Rs
1 cr
ore
or m
ore
will
hav
e m
argi
nally
neg
ativ
e im
pact
N
TPC
Ltd
5/
521
4.0
150.
912
.815
.4-
11.8
9.8
–��
Ext
ensi
on o
f 80I
A b
enef
it fo
r one
mor
e ye
ar
Om
kar S
peci
ality
Che
mic
als
Ltd
3/5
130.
012
6.5
11.9
17.9
22.3
10.6
7.1
5.7
��
Inve
stm
ent a
llow
ance
of 1
5 pe
r cen
t on
inve
stm
ent (
mor
e th
an
Rs
1,00
0 m
n be
twee
n FY
14-F
Y15)
O
mni
tech
Info
solu
tions
Ltd
3/
518
2.0
167.
822
.833
.2-
7.4
5.1
–��
Par
svna
th D
evel
oper
s Lt
d 2/
554
.043
.21.
72.
02.
425
.421
.618
.0��
Red
uctio
n in
aba
tem
ent r
ate
to 7
0 pe
r cen
t fro
m 7
5 pe
r cen
t fo
r fla
ts w
ith c
arpe
t are
a of
2,0
00 s
q ft
or m
ore
and
valu
e of
Rs
1 cr
ore
or m
ore
will
hav
e m
argi
nally
neg
ativ
e im
pact
P
hilli
ps C
arbo
n B
lack
Ltd
4/
514
0.0
73.6
1.7
26.3
-43
.32.
8–
��
Pow
er F
inan
ce C
orpo
ratio
n Lt
d 4/
522
9.0
201.
532
.139
.3-
6.3
5.1
–��
Qua
ntum
of t
ax fr
ee b
onds
pos
itive
Pra
tibha
Indu
strie
s Lt
d 3/
566
.040
.38.
39.
30.
04.
84.
3–
��
Allo
catio
n of
Rs
15,2
60 c
rore
to th
e m
inis
try o
f drin
king
wat
er
and
sani
tatio
n an
d R
s 1,
400
cror
e to
war
ds s
ettin
g up
wat
er
purif
icat
ion
plan
ts to
ben
efit
EP
C p
laye
rs in
the
wat
er s
uppl
y an
d sa
nita
tion
indu
stry
Rai
nbow
Pap
ers
Ltd
3/5
67.0
79.2
5.1
11.0
-15
.57.
2–
��
Inve
stm
ent a
llow
ance
of 1
5 pe
r cen
t on
inve
stm
ent (
mor
e th
an
Rs
1,00
0 m
n be
twee
n FY
14-F
Y15)
R
espo
nsiv
e In
dust
ries
Ltd
4/5
107.
094
.04.
97.
4-
19.2
12.7
–��
S M
obili
ty L
td
2/5
50.0
27.1
1.0
2.6
-27
.110
.4–
��
Incr
ease
in e
xcis
e du
ty o
n m
obile
pho
nes
abov
e R
s 2,
000
from
1 p
er c
ent t
o 6
per c
ent w
ould
impa
ct p
rofit
abili
ty fo
r m
obile
han
dset
and
mob
ile re
tail
busi
ness
S
. E. I
nves
tmen
ts L
td
2/5
240.
038
6.0
18.0
19.0
24.0
21.4
20.3
16.1
��
Not
es:P
ls n
ote
that
all
com
pani
es w
ill b
e im
pact
ed n
egat
ivel
y du
e to
incr
ease
in s
urch
age
on in
com
e ta
x an
d di
vide
nd d
istri
butio
n ta
x S
ourc
e: C
RIS
IL R
esea
rch
CRISIL BudgetAnalysis
92
Shor
t Nam
e
Fund
amen
tal
grad
e Fa
irva
lue
CM
PEP
SFY
13
EPS
FY14
EP
SFY
15
P/E
FY13
P/
EFY
14
P/E
FY15
B
udge
t Im
pact
Det
ails
of I
mpa
ct
San
gam
(Ind
ia) L
td
3/5
73.0
39.3
14.0
12.2
14.5
2.8
3.2
2.7
��
San
ghvi
For
ging
and
Eng
inee
ring
Ltd
2/5
61.0
27.8
3.2
10.4
-8.
72.
7–
��
Shr
iram
City
Uni
on F
inan
ce L
td
3/5
803.
010
79.2
78.0
99.0
0.0
13.8
10.9
–��
Hig
her a
lloca
tion
for r
ural
dev
elop
men
t wou
ld le
ad h
ighe
r cr
edit
dem
and
Som
any
Cer
amic
s Lt
d 4/
512
0.0
61.9
9.3
11.8
14.6
6.7
5.2
4.2
��
Incr
ease
in e
xcis
e du
ty o
n m
arbl
e to
Rs
60 fr
om R
s 30
per
sq
mt t
o ha
ve m
argi
nally
pos
itive
impa
ct o
n de
man
d fo
r tile
s (s
ubst
itute
of m
arbl
e)
Ste
rlite
Tec
hnol
ogie
s Lt
d 3/
537
.027
.70.
92.
7-
30.7
10.2
–��
Sup
rem
e In
frast
ruct
ure
Indi
a Lt
d 3/
559
5.0
202.
562
.667
.2-
3.2
3.0
–��
~3,0
00 k
m o
f roa
d pr
ojec
ts w
ill b
e aw
arde
d in
a fe
w s
tate
s in
ne
xt s
ix m
onth
s; th
is is
exp
ecte
d to
incr
ease
ord
er in
flow
s.
Bes
ides
app
oint
men
t of a
road
regu
lato
r mig
ht e
ase
exec
utio
n re
late
d bo
ttlen
ecks
but
will
be
a ke
y th
ing
to w
atch
for
Tech
nofa
b E
ngin
eerin
g Lt
d 3/
516
8.0
125.
128
.729
.933
.64.
44.
23.
7��
Than
gam
ayil
Jew
elle
ry L
td
3/5
301.
025
4.8
39.0
43.9
46.3
6.5
5.8
5.5
��
The
Sup
rem
e In
dust
ries
Ltd
4/5
291.
031
6.7
20.7
27.7
-15
.311
.4–
��
Inve
stm
ent a
llow
ance
of 1
5 pe
r cen
t on
inve
stm
ent (
mor
e th
an
Rs
1,00
0 m
n be
twee
n FY
14-F
Y15)
Tim
e Te
chno
plas
t Ltd
4/
563
.040
.85.
26.
88.
37.
86.
04.
9��
TTK
Pre
stig
e Lt
d 5/
532
50.0
3305
.910
9.8
143.
022
7.4
30.1
23.1
14.5
��
Con
tinue
d fo
cus
on M
GN
RE
GA
pro
gram
me
Not
es:P
ls n
ote
that
all
com
pani
es w
ill b
e im
pact
ed n
egat
ivel
y du
e to
incr
ease
in s
urch
age
on in
com
e ta
x an
d di
vide
nd d
istri
butio
n ta
x S
ourc
e: C
RIS
IL R
esea
rch
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
� �
�93
94
CRISIL BudgetAnalysis
Funds and Fixed Income Mutual Fund AUM at all time high in January 2013
� The Indian mutual fund industry’s assets under management (AUM) rose to an all-time high of Rs 8.26 trillion in
January 2013 following a sharp rise in 2012 vis-a-vis flat growth in 2011.
� Average AUM rose by 15 per cent in 2012 to Rs 7.87 trillion in December 2012, while the month-end AUM rose by
over 24 per cent to Rs 7.60 trillion.
� Asset growth in 2012 was led by inflows of Rs 613 billion into income funds (long-term debt funds, dynamic bond
funds and ultra-short term debt funds) and gilt funds on expectations of fall in interest rates following slowing
domestic growth and easing inflation. Bond prices (net asset values) and interest rates (yields) move in opposite
directions owing to which these funds benefit from a fall in interest rates.
� The Reserve Bank of India (RBI) lowered its key interest rate (repo rate) by 0.50 per cent (50 basis points or bps) in
April 2012 and later by 25 bps in January 2013 to 7.75 per cent.
� While the AUM of all debt funds (income, gilt and liquid funds) rose by over 26 per cent in 2012 to Rs 5.34 trillion,
equity funds’ AUM rose by nearly 19 per cent to Rs 1.92 trillion as of December 2012.
� Equity funds rose on account of mark to market gains as the benchmark CNX Nifty was up by 28 per cent in 2012
mainly on reform measures announced by the Indian government and inflows from foreign institutional investors
(FIIs).
� Equity market saw FII investments worth Rs 1.3 trillion (USD 31 billion) during 2012 as compared with withdrawal of
Rs 34 billion in the previous year. The domestic equity market gained FII confidence following the government’s key
reforms such as fuel price hike and raising of foreign direct investment (FDI) in varying levels in retail, airlines,
trading exchanges and broadcast services.
� Investors, however, booked profits in equity funds and the category witnessed net outflows of Rs 156 billion during
2012 as compared with inflows of Rs 77 billion in 2011.
� Debt-oriented funds continued to corner a major share of mutual fund assets at 70 per cent in 2012, marginally up
from 69 per cent in 2011.
� The industry consisting of 44 fund houses continued to remain top heavy, with the share of assets of top 5 fund
houses aggregating 54 per cent of AUM as of December 2012. The top 10 fund houses occupied a share of 77 per
cent while the bottom 10 fund houses continued to occupy less than 1 per cent of the industry AUM.
95
Funds and Fixed Income Chart 1 - Industry AUM and Net Flows
Source: Association of Mutual Funds in India (AMFI)
The important regulations announced during the year included -
� The Securities and Exchange Board of India (SEBI) has allowed asset management companies (AMCs) to charge
additional expenses up to 30 bps proportionate to the inflows from locations beyond the top 15 cities so as to
improve the geographical penetration of mutual funds. However, the expenses will need to be reversed if the inflows
are redeemed within one year.
� AMCs are allowed to have fungibility across various expense heads in total expense ratio (TER). This provides
them increased flexibility to allocate costs.
� To avoid differential treatment across investor classes, SEBI directed all AMCs to follow a single expense structure
across plans from October 1, 2012 instead of plans based on the minimum investment amount. Further, a new plan
called ‘Direct Plan’ was introduced w.e.f. January 1, 2013 through which investors can apply directly to the AMC
instead of through distributors. Such plans will have a lower expense ratio as they will not charge distribution
expenses.
� SEBI issued final guidelines for the launch of the Rajiv Gandhi Equity Savings Scheme (RGESS) announced in the
previous Union Budget. First-time equity investors with annual income less than or equal to Rs 1 million will be
eligible for a 50 per cent tax deduction under Section 80CCG (new section) on investments up to Rs 50,000.
Investments will be allowed only in stipulated stocks through direct equity, closed-ended mutual fund schemes and
exchange traded funds (ETFs) besides public offerings from select government companies.
� SEBI has allowed cash transactions in mutual fund schemes to the extent of Rs 20,000 to enhance the reach to
small investors.
� Fund houses launching fixed maturity plans (FMPs) will need to spell out the sectors they will not invest in.
� Debt-oriented mutual funds have been allowed to take an additional exposure to housing finance companies (HFCs)
within the financial services sector to the extent of 10 per cent of net assets of the scheme. This is over and above
the existing 30 per cent limit for investment in a single sector by a mutual fund scheme.
-1000
-500
0
500
1000
5.8
6.3
6.8
7.3
7.8
8.3
Dec
-11
Jan-
12
Feb
-12
Mar
-12
Apr
-12
May
-12
Jun-
12
Jul-1
2
Aug-
12
Sep-
12
Oct
-12
Nov
-12
Dec
-12
Jan-
13
Net flows (Rs billion)
AUM (Rs trillion)
Net flows (Rs billion) Industry AUM (Rs trillion)
96
CRISIL BudgetAnalysis
Funds and Fixed Income
� Mutual funds have been allowed to participate in repos in corporate debt securities with some riders.
� SEBI has stipulated a ceiling of 0.12 per cent for cash market transactions and 0.05 per cent for derivatives dealings
with respect to brokerage and transaction costs to investors.
� To energise the distribution system and to increase the 'feet-on-street' in distribution, it has been decided to:
o Simplify the distributors' registration process and increase the base of mutual fund distributors by including
postal agents, retired officials from government, banks, retired teachers, etc. for distribution of simple products.
o Introduce varied levels of certification and registration depending on products and services offered.
o Reduce fees for National Institute of Securities Market (NISM) certification and the Association of Mutual Funds
in India (AMFI) registration.
� As per the last suggestion by SEBI in the above regulation, AMF reduced the registration fees for mutual fund
distributors w.e.f. November 1, 2012 to increase the penetration of mutual funds and incentivise distributors beyond
the metros.
� AMFI has waived off the Rs 3,000 registration fee for six months between February 1 and June 30 for first-time
mutual fund distributors and independent financial advisors.
� Further, AMFI has started issuing mutual fund common account statements (CAS) in an electronic form, called
‘eCAS’; it will replace paper statements.
97
Funds and Fixed Income Budgetary measures and their impact
1. To provide uniform taxation for all types of funds, other than equity oriented funds, the budget has
proposed to increase the rate of tax on distributed income from 12.5 per cent to 25 per cent in all cases
where distribution is made to an individual or HUF. This amendment will take effect from June 1, 2013.
Impact
This will reduce the net income in the hands of the investor. It will also bring debt mutual funds at par with money
market and liquid funds. The tax arbitrage, between investing in bank fixed deposits and debt mutual funds, earlier
available to investors in the highest tax bracket, has reduced significantly. This is likely to impact assets under
management (AUM) of ultra short term and short term debt funds. The tax implications are as follows
Existing Structure Individual / HUF Domestic Company NRI
Debt schemes 12.5 per cent tax (additional 5 per cent surcharge and 3 per cent cess)
30 per cent tax (additional 5 per cent surcharge and 3 per cent cess)
12.5 per cent tax (additional 5 per cent surcharge and 3 per cent cess)
Effective tax rate 13.519 per cent 32.445 per cent 13.519 per cent
Money market and liquid schemes
25 per cent tax (additional 5 per cent surcharge and 3 per cent cess)
30 per cent tax (additional 5 per cent surcharge and 3 per cent cess)
25 per cent tax (additional 5 per cent surcharge and 3 per cent cess)
Effective tax rate 27.038 per cent 32.445 per cent 27.038 per cent
New Structure Effective June 1, 2013 Individual / HUF Domestic Company NRI
Debt schemes 25 per cent tax (additional 10 per cent surcharge and 3 per cent cess)
30 per cent tax (additional 10 per cent surcharge and 3 per cent cess)
25 per cent tax (additional 10 per cent surcharge and 3 per cent cess)
Effective tax rate 28.325 per cent 33.990 per cent 28.325 per cent
Money market and Liquid schemes
25 per cent tax (additional 10 per cent surcharge and 3 per cent cess)
30per cent tax (additional 10per cent surcharge and 3 per cent cess)
25 per cent tax (additional 10 per cent surcharge and 3 per cent cess)
Effective tax rate 28.325 per cent 33.990 per cent 28.325 per cent
2. The Rajiv Gandhi Equity Savings Scheme (RGESS) has been modified with a view to improve participation
from new retail equity investors. Accordingly, provisions of section 80CCG will now include listed units of
RGESS compliant equity oriented funds (those having greater than 65 per cent equity holding) besides
exchange traded funds, close-ended equity mutual funds and direct equities. Further, the deduction will be
allowed for three consecutive financial years, starting from the year in which the first RGESS investment
was made. The gross total income of the investor has been increased to Rs.1.2 million from Rs.1 million
now.
Impact
This will help broaden the base of equity mutual funds as more first time investors are likely to be attracted to invest in
the scheme. For mutual funds, this will be a good source of stable AUM as RGESS has a one year fixed lock-in period
and two years of flexible lock-in.
98
CRISIL BudgetAnalysis
Funds and Fixed Income 3. Stock exchanges to have a dedicated debt trading segment. Insurance companies, provident funds and
pension funds will be permitted to trade directly in the debt segment with the approval of the sectoral
regulator.
Impact
As there has not been much action on this front, markets are bound to be cautiously optimistic and watch the roll out of
the new segment. It will also depend on how the institutional investors make use of this new opportunity. This can help
deepen debt markets and improve price discovery, if successfully implemented. Further, it will help reduce transaction
cost of these institutional investors and may impact fixed income brokers in the long run.
4. Introduction of inflation indexed bonds and inflation indexed National Security Certificates.
Impact
This is an innovative product whose details will be announced in due course. These bonds are expected to help
investors get higher inflation adjusted returns as well as divert some investments from gold.
5. The government had allowed many institutions to issue tax free infrastructure bonds which raised Rs.300
billion in 2011-12 and are expected to raise about Rs.250 billion in 2012-13. The budget proposed to allow
some institutions to issue tax free bonds in 2013-14, strictly based on need and capacity to raise money in
the market, upto a total sum of Rs.500 billion. Further, India Infrastructure Finance Corporation Ltd (IIFCL),
in partnership with the Asian Development Bank, will offer credit enhancement to infrastructure companies
that wish to access the bond market to tap long term funds.
Impact
This will help deepen bond markets besides encouraging retail participation in infrastructure bonds.
6. FII investments in corporate bonds and government securities permitted as collateral for margin
requirements.
Impact
This has provided greater flexibility to FII investments in fixed income securities and is expected to attract greater
foreign inflows into the debt segment as well as deepen these markets. The FII limits are also likely to be utilized more
efficiently.
7. ETFs, debt mutual funds and asset backed securities allowed as investments for provident and pension
funds.
Impact
This will broaden the investment options/avenues of provident and pension funds and at the same time help mutual
funds attract more stable AUM over the long run from these long-term institutional investors.
99
Funds and Fixed Income 8. Securities Transaction Tax (STT) has been reduced for equity futures and mutual funds/ ETF redemptions
as follows. Further, only the seller of units will need to pay STT. This will be effective from June 1, 2013.
Security Payable By Existing STT Rate Proposed STT Rate 1. Delivery based purchase of units of an equity
oriented funds entered into in a recognized stock exchange
Purchaser 0.1 per cent Nil
2. Delivery based sale of units of an equity oriented fund entered into in a recognized stock exchange
Seller 0.1 per cent 0.001 per cent
3. Sale of a futures in securities Seller 0.017 per cent 0.01 per cent 4. Sale of a unit of an equity oriented fund to the
mutual fund Seller 0.25 per cent 0.001 per cent
Impact
This will help reduce overall transaction cost for investors and mutual funds (for equity futures) and thereby increase
returns proportionately. Further, the STT will be only one way, i.e. for the seller.
9. Insurance companies will be empowered to open branches in tier II cities and below without prior approval
of Insurance Regulatory and Development Authority (IRDA). Further, all Indian towns with a population of
10,000 or more will have an office of LIC and an office of at least one public sector general insurance
company.
Impact
This will help improve penetration of insurance products
10. Banks will be permitted to act as insurance brokers, know your customer (KYC) norms of banks will be
sufficient to acquire insurance policies, Banking correspondents will be allowed to sell micro-insurance.
Impact
This will allow banks to distribute products of more than one insurance company. A common KYC will reduce
operational hassles with respect to purchase of insurance policies for retail investors. Further, penetration of insurance
is likely to be enhanced through the branch network of banks.
11. The budget has proposed that a foreign investor having a stake of 10 per cent or less in a company will be
treated as Foreign Institutional Investment (FII), and, where the foreign investor has a stake of more than 10
per cent, the investment will be treated as Foreign Direct Investment (FDI).
Impact
This imparts greater clarity with respect to FDI and FII investments and is as per international best practices.
100
CRISIL BudgetAnalysis
Funds and Fixed Income 12. Mutual fund distributors will be allowed to become members in the mutual fund segment of stock
exchanges so that they can leverage the stock exchange’s network to improve their reach and distribution.
Impact
While the aim is to improve penetration of mutual funds across the length and breadth of the country through the stock
exchange route, it needs to be seen whether distributors will be keen to avail this additional opportunity.
13. Introduction of a special taxation regime in respect of taxation of income of securitization entities, wherein
no additional income-tax shall be payable, if the income distributed by the securitization trust is received by
a person who is exempt from tax under the Income Tax Act.
Impact
This offers greater clarity on taxation of investments in securitized instruments for mutual funds and will also help
deepen the structured finance market.
14. The budget has introduced parity in taxation between an IDF-Mutual Fund that distributes income and an
IDF-NBFC that pays interest for payments made to a non-resident Indian (NRI). The rate of tax on such
distributed income or interest will be 5 per cent. Earlier, the taxation for IDF-Mutual Fund was higher and in
line with dividend distribution tax (DDT) of debt mutual funds
Impact
Earlier, the taxation for IDF-Mutual Fund vis-à-vis IDF-NBFC was higher and in line with dividend distribution tax (DDT)
of debt mutual funds. The above has brought them at par.
Our Capabilities
Economy and Industry Research
Funds and Fixed Income Research
� Largest and most comprehensive database on India’s debt market, covering more than 15,000 securities
� Largest provider of fixed income valuations in India
� Value more than Rs.53 trillion (USD 960 billion) of Indian debt securities, comprising outstanding securities
� Sole provider of fixed income and hybrid indices to mutual funds and insurance companies; we maintain 12 standard indices and over 100 customised indices
� Ranking of Indian mutual fund schemes covering 70 per cent of assets under management and Rs.4.7 trillion (USD 85 billion) by value
� Retained by India’s Employees’ Provident Fund Organisation, the world’s largest retirement scheme covering over 60 million individuals, for selecting fund managers and monitoring their performance
Equity and Company Research
� Largest independent equity research house in India, focusing on small and mid-cap companies; coverage exceeds 125 companies
� Released company reports on 1,442 companies listed and traded on the National Stock Exchange; a global first for any stock exchange
� First research house to release exchange-commissioned equity research reports in India
� Assigned the first IPO grade in India
� Largest team of economy and industry research analysts in India
� Coverage on 70 industries and 139 sub-sectors; provide growth forecasts, profitability analysis, emerging trends, expected investments, industry structure and regulatory frameworks
� 90 per cent of India’s commercial banks use our industry research for credit decisions
� Special coverage on key growth sectors including real estate, infrastructure, logistics, and financial services
� Inputs to India’s leading corporates in market sizing, demand forecasting, and project feasibility
� Published the first India-focused report on Ultra High Net-worth Individuals
� All opinions and forecasts reviewed by a highly qualified panel with over 200 years of cumulative experience
Making Markets Function Better
CRISIL Limited CRISIL House, Central AvenueHiranandani Business Park, Powai, Mumbai - 400 076. India Phone: +91 22 3342 3000 | Fax: +91 22 3342 8088www.crisil.com
CRISIL Ltd is a Standard & Poor's company
Our Offices
Ahmedabad
706, Venus Atlantis
Nr. Reliance Petrol Pump
Prahladnagar, Ahmedabad, India
Phone: +91 79 4024 4500
Fax: +91 79 2755 9863
Bengaluru
W-101, Sunrise Chambers
22, Ulsoor Road
Bengaluru - 560 042, India
Phone: +91 80 2558 0899
+91 80 2559 4802
Fax: +91 80 2559 4801
Chennai
Thapar House
43/44, Montieth Road, Egmore
Chennai - 600 008, India
Phone: +91 44 2854 6205/06
+91 44 2854 6093
91 44 2854 7531Fax: +
Gurgaon
Plot No. 46
Sector 44
Opp. PF Office
Gurgaon - 122 003, India
Phone: +91 124 6722 000
Hyderabadrd
3 Floor, Uma Chambers
Plot No. 9&10, Nagarjuna Hills
(Near Punjagutta Cross Road)
Hyderabad - 500 482, India
Phone: +91 40 2335 8103/05
Fax: +91 40 2335 7507
Kolkatath
Horizon, Block 'B', 4 Floor
57 Chowringhee Road
Kolkata - 700 071, India
Phone: +91 33 2289 1949/50
Fax: +91 33 2283 0597
Pune
1187/17, Ghole Road
Shivaji Nagar
Pune - 411 005, India
Phone: +91 20 2553 9064/67
Fax: +91 20 4018 1930
top related