budget 2017-18 - krchokseybudget 2017-18 – kapada theme • aditya birla fashion & retail...

• We expect the budget to be a populist budget. Though expectations from Budget 2017-18 are not particularly high, there is room for some positive surprises.

The Union Budget 2017-18 (including Railway Budget)

is to be presented on 1st of February. This remains a

historic move to merge the budgets, away from the

trend followed for last 92 years.

• Reason for early budget being the timely completion of legislative approval for spending plans and tax proposals before

the beginning of the new financial year on 1 April.

BUDGET 2017-18 FOR “ 1 & ALL”

• Budget 2017-18 is expected to announce measures covering ‘1& All’ to encourage growth in rural and urban economy given the current impact of demonetization.

Budget 2017-18 likely thrust is on 4 core areas :

1. Agriculture 2. Consumption 3. Infra spending 4. Cashless transactions.

BUDGET 2017-18 – RURAL ECONOMY THRUST

Gap in Rich & Poor DeMo to open tap for Poor Need to Bridge the Gap

Need for Higher Rural spend Digital Path future for Rural Growth Home & Power for ALL

Expect to levy thrust on “Rural Economy” with higher spends and allocations towards Agriculture & Housing plus Power for all

• Irrigation and Agriculture

We expect there is likely to be more focus on irrigation and

agriculture. The government has already allocated Rs 5500 crores to

support micro-irrigation, watershed development and the Pradhan

Mantri Krishi Sinchai Yojana. This allocation is likely to be stepped up

in the 2017-18 budget.

• Housing For All

The real estate sector has been impacted by the demonetization

scheme. Hence Government may propose some benefit to low

cost housing to offset the slump in the housing market. The

affordable segment may well see more sops as a follow-up to

last year’s additional deduction offered to first-time house

buyers.

BUDGET 2017-18 – RURAL ECONOMY THRUST

Budget 2017-18 is expected to pave way towards reduced tax rate for

individuals and corporate on account of higher tax revenue to the

government post demonetization. This will have a huge consumption

boost with higher discretionary spending due to increased savings in

hands of individuals

Urban economy is set to receive consumption boost courtesy demonetization impact

• Infrastructure spending

Government may have higher allocation towards public expenditure. Budget

2017-18 is expected to focus on boosting public as well as private

expenditure to accelerate economic growth.

BUDGET 2017-18 – URBAN ECONOMY THRUST

Particulars Expected Tax Rate

Corporate Tax 18%

Personal Income Tax Slab

0-3 Lakh 0%

3-10 Lakh 10%

10-20 Lakh 20%

Above 20 Lakh 30%

The Confederation of Indian Industry (CII) recommendation

BUDGET 2017-18 – DIGITAL INDIA THRUST

$ 101.9 Bn Estimated E-Commerce Industry Size by 2020

Mobile Devices with internet access will drive online shopping. Upsurge in online orders from Tier 4 towns connected by NOFN

Encourage start ups in the payment space to grow and join in the ecosystem, making it more sustainable

Funds technological development, which holds the key for a sustainable growth of the e-commerce industry

Bharat Interface for Money (BHIM) app for cashless payments was launched on 31st Dec 2016 which will be directly connected to users bank account through with Unified Payments Interface (UPI).

AGRICULTURE SECTOR CONSUMPTION SECTOR HOUSING & POWER SECTOR

1. EPC INDUSTRIES

2. PI INDUSTRIES

1. ADITYA BIRLA FASHION

2. EMMBI INDUSTRIES

1. LIC HOUSING FINANCE

2. NBCC

3. NTPC

4. POWER GRID

BUDGET 2017-18 – Traditional Theme

Agriculture is the primary source of livelihood for about 58 per cent of India’s population GDP of agriculture and allied sectors in India was recorded at US$ 244.74 billion in FY16 According to the advanced estimates of MOSPI, agriculture and allied sector recorded a CAGR rise of 6.64 per cent during FY07-16

AGRICULTURE SECTOR

BUDGET 2017-18 – ROTI THEME

• PI Industries (PI) focuses on agri-Input, custom synthesis and polymer compounding. PI has a strong product portfolio and exclusive tie-ups with leading agro-chemical, pharmaceutical and fine chemical companies around the world.

We recommend ‘Buy’ with price target of Rs.1080 (27x on FY19E earnings), which implies potential upside of 33%.

• EPC industries (EPC), provide complete solution for agriculture with a focus on Micro-Irrigation System (MIS) and inter-related requirements of fertigation and agronomic support, with current market share of ~5%.


STOCK FOCUS

Expected Returns 48%


Consumer durables revenues have been growing at a healthy pace

Around two third of the total revenue is generated from urban population and rest is generated from rural population. In 2016, revenue from consumer durables sector in India stood at US$ 12.5 billion. Consumer durable market expected to grow at CAGR of 13 per cent from FY05 to FY20.

CONSUMPTION SECTOR

BUDGET 2017-18 – KAPADA THEME

• Aditya Birla Fashion & Retail (ABFRL)—formed by merger of Madura and Pantaloons Fashion & Retail (Pantaloons)—is India’s largest branded apparels player with retail space of 5.5 million sq ft.

We recommend ‘Buy’ with price target of Rs.210.4 (2.0x on FY19E Sales), which implies potential upside of 62%.

STOCK FOCUS

• Emmbi is a technical textile unit based out of Maharashtra, manufacturing synthetic packaging, flexible water tanks and agri products.

We recommend ‘Buy’ with price target of Rs.169.3 (12x on FY19E earnings), which implies potential upside of 46%.



For a large part of the Indian populace, an owned home is a distant dream.

Some estimates claim a demand of 22 million houses and growing.

The affordable housing segment (less than Rupees 50 lacs) comprising the bulk of this market is expected to get a huge boost especially the housing finance companies

HOUSING SECTOR

BUDGET 2017-18 – MAKAN THEME

• National Building corporation Ltd (NBCC) business verticals includes: Project management consultancy (PMC), Engineering Procurement & construction (EPC) and Real estate business.


• LIC Housing Finance (LICHF) provides loans for homes, construction activities, and corporate housing schemes. ~97% of the company’s loans are to retail customers and the balance ~3% to project developers. LICHF has loan outstanding of Rs.131096 crores as at September, 2016.

We recommend ‘Buy’ with price target of Rs.761.3 (2.5x on FY19E Price to Book), which implies potential upside of 39%.

STOCK FOCUS



POWER SECTOR

306 GW

523 GW

• The initiative encourages foreign companies/investors for building equipment as well as setting up new utilities and run them.

• Announcement of New Renewable Energy Policy

• Implementation of Deen Dayal Upadhyay Gram Jyoti Yojana (DDUGJY) and Integrated Power Development Scheme for rural and urban areas respectively

• Implementation of Ujwal DISCOM Assurance Yojana (UDAY) - Launched to provide financial turnaround for the state-owned power distribution companies (DISCOMs)

BUDGET 2017-18 – MAKAN THEME

POWER FOR ALL

• NTPC LTD (NTPC) is the largest power generator in India with Installed capacity stands at 48GW and contribute ~25% of generation of the electricity in India.

We recommend ‘Buy’ with price target of Rs.245 (2.0x on FY19E Price to book), which implies potential upside of 53%.

• Power Grid corporation of India (PGC) is a central transmission utility (CTU) with a mini-navratna status, which owns and operates most of India's interstate and inter-regional power transmission system.

We recommend ‘Buy’ with price target of Rs.236.3 (2.0x on FY19E Price to book), which implies potential upside of 31%.

STOCK FOCUS



Source: Railway Budget 2015-16 and 2016-17, Ministry of Railways, TechSci Research Note: Other Coaching includes service coaches such as pantry cars, parcen vans, mail cans etc

The sector allows for 100% FDI under the automatic route in the following areas:

• Construction, Operation and Maintenance of Suburban Corridor

Projects

• High-speed Train Projects

• Dedicated Freight Lines

• Railway Electrification and Signalling Systems

• Freight and Passenger Terminals

• Mass Rapid Transit Systems (MRTS).

Government’s proposal — increasing the track length by 20%, would present multi-billion opportunities

Railway Sector witnessed 5x increase in FDI inflows since 2008

BUDGET 2017-18 – RAILWAY BUDGET INSIGHTS

STOCK FOCUS

RAILWAY SECTOR

• Container Corporation of India (Concor) has network of 64 terminals (mostly rail-linked) gives it a commanding position in the industry, with market share of 76%.

We recommend ‘Buy’ with price target of Rs.1677.6 (25x on FY19E earning), which implies potential upside of 54%. Company remains beneficiary of dedicated freight corridors that is expected to envisage an investment of $132.4 bn by 2020

• Bharat Earth Mover Limited (BEML) is a Miniratna PSU company. Its business verticals are Mining & construction, defence and Rail & Metro.

We recommend ‘Buy’ with price target of Rs.1328.3 (2x on FY19E price to book), which implies potential upside of 36%. Company is expected to benefit from $13.8 bn worth project implementation in CY17



• Union Budget will attempt to achieve economic revival through consumption (sops for rural India) and investment. • We need to watch GDP growth assumptions (given the low inflation) and assumptions of growth in tax collections

post demonetisation.

• We expect the government will continue to maintain fiscal deficit of 3.5%, as well as Subsidy payments on fertiliser & fuel to be maintained.

• The Budget is likely to include announcements to boost Digital India.

• We expected some clarity on GST, as possibility of India missing its 1st April 2017 date on GST implementation.

• We expect thrust to implement capex expenditure especially in infrastructure could seen some reform in this Budget.

• The government’s actions to address banking‐sector woes will be critically observed.

Quick Sip of Budget expectations

BUDGET 2017-18 – Summary

For Guidance Contact Us – 022 66965500 Or Email Us – [email protected]

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