Corporate Finance & Mergers and Acquisitions

Budget 2013-14
Over the past one month, the lndian finance minister has reiterated his commitment to fiscal consolidation and allayed fears of excessive populism associated with pre election years by stating that the budget will be responsible For the Union Budget 2013-14 the Government has targeted a fiscal deficit of 4.8%of GDP demonstrating a commitment to fiscal consolidation. while the Union Budget 2013-14 does not have an overly populist stance, fiscal consolidation is largely revenue driven with the finance Minister announcing an increase in direct and indirect taxes and higher revenue mobilization from divestments in public sector undertakings. Continued Focus on Rural Growth Allocation to Ministry of Agriculture increased by 22% over the revised estimate of FY 12-13. Target for agricultural credit kept at Rs7, 000 bn. Interest subvention scheme for short-term crop loans to be continued scheme extended for crop loans borrowed from private sector scheduled commercial banks.

Attempt to kick start the Investment Cycle Various new innovative instruments to mobilise funds for investment in infrastructure sector. A regulatory authority for road sector to be established and 3000 kms of road projects in Gujarat, Madhya Pradesh, Maharashtra, Rajasthan and Uttar Pradesh will be awarded in the first six months of 2013-14. Companies investing RS 1 bn or more in plant and machinery during the period April 1, 2013 to March 31, 2015 will be entitled to an investment allowance of 15% of the investment. Plans for seven new cities have been finalized and work on two new smart industrial cities at Dholera, Gujurat and Shendra Bidkin, Maharashtra will start during 2013-14. Delhi Mumbai Industrial Corridor (DMIC) to be provided additional funds during 2013-14 within the share of the Government of Indian in the overall outlay, if required. Two new major ports will be established in Sagar, West Bengal and in Andhra Pradesh to add 100 million tonnes of capacity. Compliance of public sector banks with Base III regulations to be ensured Rs 140bn provided in BE 2013-14 for infusing capital. Commitment to Fiscal Prudence: Fiscal deficit for year 2012-13 contained at 5.2% and for the year 2013-14 at 4.8%. Revenue deficit for the year 2012-13 at 3.9% and for the year 2013-14 at 3.3%. By 2016-17 fiscal deficit to be brought down to 3%, revenue deficit to 1.5% and effective revenue deficit to 0%.

Name: Vinit H Vaity, Div-C, Roll no- CIF-16, MBA(G)

Corporate Finance & Mergers and Acquisitions

Sector

Salient Features The budget proposed to provide Rs 140bn towards recapitalization of public sector banks (PSB) in 2013-14 & GOI will infuse Rs 125.2bn in PSBs before March 13. Loan from bank or a housing finance corporation upto Rs 2.5mn during the period 1 April 2013 to 31st March 2014 will be entitled to an additional deduction of interest of upto 100,000. Commodities Transactions Tax (CTT) to be levied on non-agricultural commodities futures contract at rate of 0.01% of the price of the trade. Further, Trading in commodity derivatives will not be considered as a speculative transaction and CTT shall be allowed as deduction if the income from such transaction forms part of business income. In order to reduce transaction costs in the capital markets, Budget proposes to reduce Securities Transaction Tax (STT) on equity futures & Mutual Fund/Exchange Traded Fund.

Budget Impact

Neutral

Financials

Real Estate

Budget proposed to apply TDS at the rate of 1% on the value of the transfer of immovable property (other than agricultural land) where the consideration exceeds Rs 5mn. Reduction in service tax abatement from 75% to 70% for luxury units (size of 2000 sq ft or more or cost of Rs 10 mn or more) Increase in customs duty from 0% to 2% and CVD from 1% to 2% on thermal coal Tax on royalty increased from 10% to 25%

Neutral

Cement

Negative

Name: Vinit H Vaity, Div-C, Roll no- CIF-16, MBA(G)

Corporate Finance & Mergers and Acquisitions Industrials Tax free bonds limit now at Rs500bn down from Positive Rs600bn. Companies incurring more than Rs1bn capex over FY14 & FY15 on plant and machinery would be entitled to get a 15% investment allowance deduction over and above the normal depreciation rate applicable. Re-introduction of Generation Based Incentives for wind energy sector and provision of low interest bearing funds for the Renewable sector are key positives. Road regulatory body to be set up and 3000kms of roads to be tendered out in 1HFY14. Capital defense expenditure increased by 9% to Rs867.4bn. Chennai Bengaluru Industrial Corridor & Bengaluru Mumbai Industrial Corridors to be developed.

Information Technology

Dividend distribution tax (DDT) on income received from foreign subsidiaries is eliminated Excise duty maintained at 12%

Neutral

Pharmaceuticals Consumer Staples

Neutral

Excise duty on cigarettes is being increased by Negative about 18% on all cigarettes except cigarettes of length not exceeding 65 mm. Tax on royalty increased from 10% to 25%
Negative

Utilities

Import duty on steam coal increased from 0% to 2%, C VD also increased from 1% to2%. Talk on coal imports and coal price pooling marginally positive. Eligible date for projects in the power sector to avail 80IA benefit extended by one year to 31st March 2014. (Public-Private Partnership) PPP with Coal India to raise production Fast track project approvals via Cabinet Committee of Investments (CCI) Neutral

Metals

Name: Vinit H Vaity, Div-C, Roll no- CIF-16, MBA(G)

Corporate Finance & Mergers and Acquisitions

Increase in customs duty from 0% to 2% and CVD from 1% to 2% on thermal coal Levy of 4% excise duty on silver extracted from smelting of zinc, lead and copper Auto No increase in standard excise duty or differential Neutral tax on diesel vehicles Increase in excise duty for SUVs from 27% to 30% for personal segment (non-taxi) New orders for 10,000 buses under JNNURM Increase in custom-duty on super luxury imported cars (2500cc+ diesel engine) from 75%-100% and luxury motorcycles (800cc+ engine) from 60%-75% No mention of a hike in import duty on crude or Neutral products as was widely expected - Positive for OMCs/Pvt Refiners. No switching of petroleum product pricing to export parity from trade parity - Positive for OMCs. However this may still be changed as this is more of a ministry level decision than a budget decision. Shale gas exploration policy to be formulated. Government expects revenue of Rs194.4bn from Neutral spectrum sale and other related charges in 201314. Excise duty on mobile phones priced over Rs2000 hiked to 6% FY14 fertiliser subsidy has been pegged at Rs Positive 660bn- In FY13, budgeted subsidy was Rs 610bn Interest subvention on farm loans repaid on time to continue 4% farm loan scheme extended to private sector banks Full exemption from basic customs duty for import of equipment for expansion or setting up of fertiliser projects upto March 31, 2015.

Oil & gas

Telecom

Agriculture Products, Fertilizer and Chemicals

Name: Vinit H Vaity, Div-C, Roll no- CIF-16, MBA(G)

Corporate Finance & Mergers and Acquisitions

Impact on Fixed Income Market Fiscal Deficit for FY13 is expected to be 5.2% (revised estimate) which is better than the market expectation of 5.3%. Deficit for FY14 has been budgeted at 4.8%, which was in line with the market expectations. Revenue Receipt has been budgeted at INR 10.56 tn, as against 8.71 tn for FY13. Of this, Tax Revenue to centre has been budgeted at INR 8.84 tn as compared to INR 7.42 tn for FY13, while Non- Tax Revenue for FY14 has been budgeted at INR 1.72 tn compared to INR 1.29 tn for FY13. Overall Expenditure for FY14 has been budgeted at INR 16.65 tn as compared to 14.30 tn for FY13. Plan expenditure for FY14 is budgeted at 5.55 tn as against 4.29 tn for FY13, while non-plan expenditure has been budgeted at 11.09 tn for FY14 compared to 1.00 tn for FY13. This translates into an overall fiscal deficit number of INR 5.42 tn and a net borrowing of INR 4.84 tn for FY14. While the revenue deficit stands at INR 3.79 tn as against INR 2.66 tn last year. While the fiscal deficit for FY14 is as per market expectation of 4.8%, the borrowing numbers are higher than last year. The gross borrowing number stands at INR 6.29 tn out of which INR 0.50 tn is the budgeted buy back of FY 15 G sec papers, while the net borrowing is INR 4.84 tn as against INR 4.67 tn last year. This is a negative surprise as it results in increased supply. Also, as seen in previous years, the borrowing calendar is expected to be front loaded with around 60-65% of the borrowing being scheduled for first half of FY14. This could exert pressure on yields in the short term. However, if RBI continues to cut policy rates going forwards, the yields could find support. OMO's from the RBI would also lend support to yields and could provide some relief to the bond market when fresh supply hits the market.

Name: Vinit H Vaity, Div-C, Roll no- CIF-16, MBA(G)