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Budget 2013 - Shipping

Tuesday 19 March 2013

Shipping set to make positive waves post Union Budget 2013!

The Union Budget 2013 has been extremely positive for the Shipping sector with the scrapping of Excise duty on shipbuilding companies. Earlier, there was a 5% excise duty plus 3% cess on shipbuilding companies which will now be scrapped enabling Indian companies to aggressively compete with their Chinese or Korean counterparts.

The Budget has proposed an increase in the CAPEX for the Defence from Rs 695 bn to Rs 867 bn (+25% YoY) of which 20% is earmarked for the Navy, will be extremely positive for shipyard companies.

However the government’s decision to scrap the counter veiling duty on import of ships may nullify the positive impact of excise duty scrap in case of domestic orders. Also, the Budget made no mention of new shipbuilding subsidy policies which would have helped the domestic shipbuilding companies improve their cash-flow and also made them more competitive. The above factors coupled with the hike in corporate income tax surcharge from 5 to 10% for FY 13 may impact profitability of the companies in this sector by 1.5%.

So who wins this year?

Despite few challenges that may marginally impact companies in this sector, the overall impact of the Union Budget 2013 is expected to be positive for Indian Shipping.

Companies are empowered to be more competitive globally thereby increasing the possibility of improving order books while on the domestic front, expected CAPEX benefits due to an increase in defence spends will profit bottom-lines across the sector.

Want the stalwart of the industry analyze the budget for you? Click here.

Looking to invest in the Shipping sector? Click here to open an account with Kotak Securities.

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