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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.
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Time to get the dream house you always wanted!
With the proposed additional tax break for properties costing up to Rs. 40 lakhs with a loan component of up to Rs. 25 lakhs, first time home buyers bring cheers to real estate companies engaged in residential housing and to prospective home buyers, positively impacting the real estate sector in 2013.
The Union Budget has also allocated additional funds of Rs. 60 bn to the Rural Housing fund for FY14 as against Rs. 40 bn last year. These funds are used to refinance lending institutions that extend loans for rural housing. The Budget has also proposed to set up Urban Housing fund for Rs. 20 bn for FY14 to provide funds for urban housing. Added to this, the allocation for Indira Awaas Yojana has also been fixed at Rs. 152 bn resulting in a positive impetus for low cost housing projects.
The positive impact of the Budget is neutralized with the proposed TDS of 1% on large property transactions above INR 50L that will be charged on the transfer of immovable property and the proposed increase in Excise duty on marbles from its current levels of Rs 30 per sq meter to Rs 60 per sq meter, increasing the overall cost of construction. This in turn may be passed on to the end consumers, thus making luxury homes upward of Rs 1Cr extremely expensive for customers.
So who wins this year?
Home loans are set to be attractive and the added impetus on low cost housing would see proud many first homeowners in FY13. However, the proposed TDS is expected to strain budgets and impact real estate developers adversely. Project Funding is expected to still be a challenge continues to be a challenge for developers as the Union Budget 2013 has not accorded an industry status for the RE sector.
On the other hand, capital allocation to projects such as JNNURM scheme will positively impact the real estate sector. Coupled with the expected progress on various industrial corridors, there will be an increase in demand for both commercial and residential real estate.
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Power stays neutral and low voltage!
The Union Budget 2013 has proposed a PPP policy framework with Coal India Limited as one of the partners to step up the production of coal for supply to power producers and other consumers. This move is also expected to reduce dependence on imported coal. The move is expected to positively impact the power sector in general as it grapples with the shortage of domestic coal.
However, the announcement to increase import duty on steam coal from 0% to 2%, reducing the import duty on bituminous coal from 5% to 2% is expected to impact companies in this sector. Simultaneously, increasing CVD on steam coal to 2% from 1% and CVD on bituminous coal reduced from 6% to 2% is expected to impact the power producers based on imports of coal, although such an impact is largely expected to be minor in nature.
The Union Budget has also proposed an extension of the sunset date by one year for power sector undertakings so that they can be set up on or before March 31, 2014 in order to claim 100 per cent deduction of profits for 10years. While this move is extremely positive, it was largely expected and hence has no major impact on the sector.
So who wins this year?
While the recommendations and proposals for the Power sector seem lack lustre, consumers can expect much in terms of renewable energy sources and thereby cleaner, cheaper and efficient energy in the days to come.
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Union Budget 2013 powers Oil and Gas positively.
The Union Budget 2013 announcement has announced a review of the natural gas pricing policy so as to remove the "uncertainties" on the issue. This move is expected to encourage further exploration and boost domestic gas output in the country.
The Budget announcement has further announced that the New Exploration Licensing Policy (NELP) blocks which were awarded earlier but are stalled will be cleared on priority basis. This move is expected to boost oil and gas production and restore confidence in International Investors. Also, in order to boost India's energy security, do expect a policy to encourage exploration and production of shale gas which is turn is expected to have a long term positive impact on the economy.
However, the proposed additional surcharge of 5% will lead to an increase in tax liabilities of companies with the outgoings on tax likely increase by about 1.5. This in turn is expected to marginally impact profit margins.
So who wins this year?
The Union Budget is extremely beneficial for all upstream oil and gas exploration companies. However, while the proposed shift in Oil and gas exploration contracts from profit to revenue-sharing is in line with the recommendations of the Rangarajan committee, if implemented, it will enhance the risk profile of exploration and production companies. In order to increase the risk appetite of the operator, it will be better to have a cost sharing basis, as whatever a Company spends on exploration, it will recover if the discovery is made. However, here also there is a risk that whatever the company spends may not be totally recovered and will be linked to revenue sharing.
The Union Budget is more generic in nature rather than specific at any point. However if the same is implemented properly then it can boost domestic oil and gas production to best meet the energy needs of the country.
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Expect faster progress on Industrial Corridors and GST implementation.
The Union Budget has the Delhi Mumbai Industrial Corridor (DMIC) on fast track. It is being developed on either side along the alignment of the Western Dedicated Rail Freight Corridor. With the assistance of Rs 185 bn provided by the Indian Government and financial assistance from Japan, the project is expected to be completed in the next 5 years.
The long awaited GST implementation also received due consideration. Work is underway to draft model legislations for Central and State GST. Among the other steps that are being taken for the introduction of GST is the establishment of a strong IT infrastructure. The introduction of GST will lead to rationalization and simplification of the tax structure at both the centre and state levels and there would be continuous tax credit; right from the producer to the final consumer level.
However the hike in corporate income tax surcharge from 5 to 10% could impact the sector in this financial year by impacting the profitability of Companies by 1.5%.
So who wins this year?
Overall, the Budget has been positive for the logistics industry as it would facilitate easier interstate movement of goods and shift of business from the unorganized to the organized sector, thereby providing additional logistics opportunities.
Increased assistance from NABARD for construction of warehouses, godowns, silos and cold storage units designed to store agricultural produce, both in public and the private sectors will help companies to enhance storage facilities.
The pre-allocation of Rs. 9000 crore as compensation to States on the passage of the GST is expected to enable existing infrastructure such as warehouses, logistics systems etc. leading to such facilities being set up to improve business efficacy instead of for saving taxes, thereby leading to an expected reduction in cost.
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Construction to lead to better projects, jobs and facilities.
Budget 2013 announced enhanced allocations for the Jawaharlal Nehru National Urban Renewal.
Mission (JNNURM) to Rs 148.7 bn for FY14 as against Rs 73.8 bn for FY13, thereby increasing spends on urban infrastructure. Along with this, the second phase of Pradhan Mantri Gram Sadak Yojana has also been announced with allocation of Rs 217 bn to boost construction of roads in states like Andhra Pradesh, Haryana, Karnataka, Maharashtra, Punjab and Rajasthan. Lastly, with the focus on better facilities, the Budget has also catered for Rs.153 bn to be allocated the Ministry of Drinking Water and Sanitation.
Construction Companies will also be able to raise funds for CAPEX easily with India Infrastructure Finance Corporation Ltd (IIFCL) and the Asian Development Bank partnering to offer credit enhancement to infrastructure companies to access bond markets better and tap long term funds. Infrastructure Debt funds (IDF) are being made attractive to encourage Companies to raise finances through take-out financing and credit enhancement at long-term low-cost debt.
The Government also intends to award 3000 km of road projects in Gujarat, Madhya Pradesh, Maharashtra, Rajasthan and Uttar Pradesh in the first six months of FY14. For better compliance and quality and to improve the bottlenecks in the road sector, the Budget looks at constituting a regulatory authority for the road sector for faster execution of stalled projects.
However, the additional 5% surcharge will lead to an increase in the tax liabilities of companies that may marginally impact profits.
So who wins this year?
More orders, easier fund raising and upto Rs 500 bn in tax free bonds through NHAI, Indian Railway Finance Corporation, HUDCO and ports, would lead to better financing options for infrastructure projects. With a regulatory body in place, projects are expected to be implemented and completed faster thereby leading to better looking bottom-lines in the sector overall.
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It is all about cementing the future with better infrastructure, housing and investments.
The Cement Sector outlook is extremely positive post the Budget 2013 announcement with an expectation of increased demand with continuous thrust on infrastructure creation. The Government is focusing on sound infrastructure by increasing expenditure by 29% for Fiscal 2014. Also expected are award orders for 3000 km of road projects across states.
Also expected are increased investment allowances which have been introduced to enhance the pace of project implementation and execution. An investment allowance has been introduced for Companies investing upto Rs 1 bn or more in plant and machinery of upto 15 percent of the investment which will be in addition to the current rates of depreciation.
However, the proposal to equalize duties on Steam coal and Bituminous coal and levy 2% customs duty and 2% CVD would marginally increase prices as Steam coal was earlier exempt from customs duty.
So who wins this year?
First Home Buyers can rejoice with the additional income tax benefit on home loans upto Rs.25 lakhs. Also, infrastructure projects will be undertaken and executed faster, leading to increase in the demand for cement thereby impacting Companies in this sector positively.
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Budget 2013 is green for the sector and green for environment.
With increased investment allowance of 15% for manufacturing companies, decision to continue Technology Upgradation Fund Scheme in the 12th plan with an investment target of Rs 1.5 trillion and increase in the Defence CAPEX by up to 11%, the Budget this year is more likely to give thrust to industrial CAPEX and benefit capital goods sector.
Capital expenditure on defence for 2013-14 has been raised by 11% to Rs.867 bn. The increase in planned CAPEX on defence is positive and should translate into increase in orders for related companies.
The Budget has also finely balanced growth with responsibility by providing meaningful allocations to areas like renewable energy, safe drinking water and sanitation. With increased allocations to environment friendly vehicles, especially in hilly regions and providing low interest bearing funds to National Clean Energy Fund (NCEF) to IREDA (Indian Renewable Energy Development Agency), the Government aims at providing thrust to long term sustainable energy sources.
So who wins this year?
While the sector stands to win with the added capital infusion and increase in the likely business flows, we see a definite thrust on sustainability with the focus on renewable energy. This may indicate that these sectors having attention and validation, with a prospect of more friendly policies in the future enabling them to perform better and faster.
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The Union Budget 2013 has been marginally positive for large flat steel companies with the export duty on galvanized steel sheets being reduced from 7.5% to NIL. Additionally the proposed Investment allowance of 15% to manufacturing companies investing > Rs1bn in plant and machinery is expected to positively impact the sector as most of the companies are likely to have higher than stipulated capital expenditure for investment allowance.
The Budget has also laid emphasis on the need for sustained thrust on infrastructure to stimulate the demand for steel. Provisions such as Tax free bonds of Rs. 500bn have been allowed for the financing infrastructure projects in FY13-14. The impetus is also on promoting housing for low/medium income groups with additional deduction of interest being allowed on the first home loan up to Rs2.5mn. Faster progress is also expected to be made on the Delhi-Mumbai Industrial Corridor and setting of 3 new ports.
The proposed increase in excise duty from NIL to 4% on silver manufactured from zinc/lead smelting is expected to be marginally negative for Hind Zinc and would be negated to some extent through passing on the costs to the buyers. The increase in import duty on thermal coal is expected to be negative for base metal producers who use mix of domestic and imported thermal coal for producing captive thermal power for their smelting process. However, the proposed export duty on bauxite is increased from NIL to 10% is expected to be positive for Indian aluminium companies as for some it would reduce the price of domestic bauxite and for some it would lead to higher realisation on improved international alumina prices.
So who wins this year?
The reductions in export duty of galvanized steel sheets is marginally positive as Indian Companies in the sector produce around 4 mtpa of galvanized steel but have not been able to make much headway in international markets as it was uncompetitive for them due to the prevailing duty. Reduction in the duty to nil is expected to help them to make exports competitive and improve sales revenue. Also budget is positive for domestic commercial coal producers as realizations under e-auction route would increase due to net 3% increase in import duty and CVD on imported thermal coal.
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Budget 2013 not really music to the ears of the Media Industry.
Posts the Union Budget 2013, what consumers can expect are higher costs of the mandatory digitization of the media industry. Pre Budget Demands for nil duty and aid relating to help in funding digitization have been met with an unexpected response. The Budget has actually proposed raising the customs duty on set-top boxes to 10% from the previous 5%.
In order to digitize content, set-top boxes have become mandatory and such requirements are usually being fulfilled by overseas vendors. Thus, the imposed duty is expected to have a negative impact on DTH/ MSO companies.
The Union Budget has also announced the next Phase of auctions for radio FM licensing. The Budget has proposed to expand private FM radio services to 294 more cities and approximately about 839 new FM radio channels are expected to be auctioned in the coming year. Expansion of the radio networks is expected to positively impact the sector that has already been showing strong growth with a CAGR of 15% over last 3-4 years.
The Union Budget has proposed to continue full exemption of service tax on copyright on cinematography but has limited this to films exhibited in cinema halls only. This does seem like a positive move and is expected to reduce the costs for various players of the Indian film industry.
So who wins this year?
Expect slower digitization as there remains a possibility of companies offsetting the price rise in set top boxes with a higher price to the consumer. While the move has been made to promote the indigenous manufacturing of STBs, this move is expected to have a negative impact on digitization efforts and expected to affect stocks in the sector.
Also the announcement for radio FM licensing was as expected and is not of any significant consequence to impact market sentiments and stocks. Other demands from the industry, including abolishing service charge on advertising in broadcasters, rationalization of taxes in entertainment / broadcasting, and grant of infrastructure status to broadcasting distribution companies (DTH/ MSO) have not been met, leading to the Union Budget being neutral.
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There is still growth and promise to IT.
The Union Budget announcement did not have any positive or negative implications for the IT sector, making it largely neutral for the companies, barring minor positives.
The exemption of dividend received from foreign subsidiaries from DDT is expected to have a positive impact on the IT companies as the outgoing costs on DDT will be lower. As IT companies receive significant sums from their foreign subsidiaries as dividends, this could result in some savings on costs. Some companies may increase the dividend payout. This is not expected to have any material impact on the earnings of Companies.
However the additional 5% surcharge will lead to an increase in the tax liabilities of IT Companies by about 5% and may marginally impact profits. Companies, in the sector are also experiencing higher competitive pressures and are improving efficiencies to counter the same.
So who wins this year?
Stocks of most IT companies have risen post 3Q numbers. We expect decent returns over the medium term, subject to near term volatility.
Indian vendors have moved up the value chain. They are focusing on newer opportunities like cloud computing, analytics, mobility, etc. Newer pricing models are likely to emerge and increase growth prospects of companies while also making business more non-linear.
Also, a few focused smaller companies with expertise on select verticals are moving up the value chain and are attracting larger clients, thereby, improving their longer term prospects.
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Looking to invest in the IT sector? Click here to open an account with Kotak Securities.
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Here is hoping for many to quit smoking and saving on essential foods.
The Union Budget 2013 has raised excise duties on cigarettes roughly by 18%. For the first time in several years, there has been a back-to-back 15%+ hike in cigarette excise duties. What this essentially means is that smoking will possibly now be an expensive habit across brands.
The long awaited GST implementation and the Direct Benefits Transfer scheme is expected to come into force by end 2014, which is turn is a significant move for FMCG companies as it offers greater parity with the unorganized sector and multiple supply chain benefits. This in turn is expected to boost profits across the sector.
The proposed exemption of service tax on freight charges and on alcohol based products could lead to large savings for the sector and may either be offset against the increase in transport costs as a result of the deregulation of diesel or passed on as benefits to customers. In either case, there is no price rise expected in 2013.
So who wins this year?
Consumers could look forward to better prices on essential food items like tea, coffee, flour, sugar and edible oil, as well as discretionary products like premium soaps and deodorants. With the proposed exemption on service tax imposed on freight charges of foodstuff including flour, tea, coffee, jaggery, sugar, milk products, salt and edible oil, there could be resultant savings for FMCG and food companies. Additionally service tax of 12.36% has been removed for alcohol-based soaps and deodorants, which is also expected to benefit companies.
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Strong fundamentals, more capital infusion, stringent compliance norms - Budget 2013 says hello to BASEL II.
The Budget this year is more financially inclusive with propriety being to insurance and lending. Using the wide networks public and private banks possess, the Budget has made room for both these banks to use their networks to help the spread of insurance and also lending to farmers, helping them achieve loan targets. A 1000 crore capital infusion has also been announced for India’s first PSU Bank for Women – run by women and for women. Homeowners can only rejoice on the proposed increase in the tax deductions allowed on housing loans.
More capital is also been earmarked for the recapitalization of PSU Banks to strengthen their equity and future lending capabilities, thereby ensuring that PSU banks are also ready for BASEL II compliance by the end of the year. ETF funds stand to benefit from the reduction in the Securities Transaction Tax and also the nod for Pension Funds to utilize and invest in ETFs to boost earnings.
So who wins this year?
We see this as a win- win for both PSU and Private Banks that will benefit from the various changes introduced in the banking system. The outlook for BASEL II compliance with strong fundamentals and capital is being undertaken and this will put both PSU banks and Private Banks on a level playing field. Additional benefits will boost financial inclusion through better lending rates for farmers and home owners, more power to women and more lucrative banking conditions for the end customer.
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Luxury just got more expensive.
The Budget announced earlier this year, heralds more taxes for the SUV segment with an increase of 3 % more in excise duty from 27% to 30% in 2013. With the increase in excise duty, also be prepared for increase in import duty on car and SUVs from 75% currently to 100% in 2013-14. It is not just four wheel drives that will set your hearts palpitating, the two wheeler bikes are not far behind. Costs of bikes is also expected to spiral upward with the proposed hike in import duty from the erstwhile 60% to 75% in the coming year.
So who wins this year?
It will be the agricultural and transport vehicles primarily that are set to benefit from the Budget. A larger number of public transport vehicles to be bought via increased Government spend outlay and a drop in excise duty from 14% to 13% on chassis of diesel motor vehicles that is set to benefit the companies contributing to these segments.
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