WHAT IT MEANS FOR| YOU AS AN INVESTOR 2014

UNION
BUDGET
14
14
THE TIMES OF INDIA, MUMBAI
FRIDAY, JULY 11, 2014
I V E W R I T T E N B O O K S O N T H E E C O N O M Y C H E Q U E B O O K S
STATE OF THE INDUSTRY
Awarding of national high-
ways was muted over the
past two years, mainly ow-
ing to delay in project ap-
provals and weak financials
of road developers. In 2014-
15, the situation is expected to
improve a little to around
3,500km from 2,623km in the pre-
vious year, with over 80% of
contr acts awar d ed on an engi-
neering proc u rement construc-
tion basis. Implementation may
improve a little.
BUDGET IMPACT
Proposed investments of Rs
37,880 crore for national high-
ways and state roads work out to
around 12% increase over last
years spend. Additionally, alloca-
tion of Rs 500 crore could help
kickstart some expressway proj-
ects. The government plans to set
up an institution called 3P India
with a corpus of Rs 500 crore,
which will develop various mod-
els for public-prviate partnership
projects and ensure a quick dis-
pute-redressal mechanism.
INFRASTRUCTURE: ROADS
STATE OF THE INDUSTRY
In 2013, apartment sales decli n-
ed across most of the top 10 citi-
es. As economic recovery is li-
kely to be gradual, volumes are
expected to fall 7%in 2014 be-
fore recovering to 5-6% in 2015.
BUDGET IMPACT
The Budget has raised the inter-
est subvention limit from Rs 1.5
lakh to Rs 2 lakh and overall ex-
emption under Section 80C from
Rs 1 lakh to Rs 1.5 lakh. Buyers of
properties priced up to Rs 30 lakh
are expected to be the biggest
gainers. FDI norms in real estate
have been relaxed by reducing
the minimum built-up area from
50,000 square metres to 20,000
sq m and lowering minimum
capitalization from $10m to $5m.
This is expected to allow develop-
ers, especially mid-sized ones,
flexibility in raising capital and,
consequently, infuse much-need-
ed liquidity in the sector. Cur-
rently, nearly 15-17% of the up-
coming supply falls in this cate-
gory, which is likely to increase
over the long term.
REAL ESTATE
COMPANY IMPACT
DLF
Unitech
Sobha Developers
Prestige Estates
Indiabulls Real Estate
BUDGET EFFECT
COMPANY IMPACT
Larsen & Toubro
Hindustan Construction
IVRCL
IRB Infrastructure
ITNL
BUDGET EFFECT
STATE OF THE INDUSTRY
Slower economic growth and
high inflation hit consumer
spend in 2013-14. Even as vol-
ume gr o wth decelerated, mo-
st playe rs could increase rea-
l iz ations, which saw 12% gro-
w th in revenues.
BUDGET IMPACT
The overall impact on the sector
is neutral. Higher basic tax ex-
emption limit will increase dis-
posable income and, in turn, con-
sumer spending. Prices of soaps
and packaged foods will fall while
those of cigarettes, other tobacco
products and aerated drinks will
rise. Customs duty on various
raw materials, such as palm oil
and glycerin, used for making
soaps has been reduced to zero.
This will marginally lower soap
prices. Excise duty on processing
and packaging machinery for
agri-products has been lowered
to 6%, making processed fruits
and vegetables cheaper. Increase
in specific excise duty on tobacco
products is expected to adversely
hit volumes. Increase in excise
duty on aerated drinks to 17%
will make them more expensive.
FMCG
STATE OF THE INDUSTRY
Organized retailers revenues are
expected to grow 13-14% in 2014-
15, after growth fell to a decadal
low of 12% in 2013-14. It is like-
ly to be aided by higher same-
store-sales growth and store
rollouts. Despite sluggish dem-
a nd, most large retailers report-
ed higher earnings before inter-
est, tax, depreciation and amorti-
zation (EBITDA) margins in 2013-
14, due to rationalization of space
and rising share of private labels.
BUDGET IMPACT
The overall impact is seen as ne-
u tral. A higher basic tax exem p-
tion limit will drive up disposa-
ble incomes and, in tu rn, consu-
m er spending. Zero excise duty
on branded garmen ts, whi ch co-
n stitute 30% of organized re tail,
has been maintained. This wou-
ld continue to dr ive dem and for
garme n ts and push up sales vol-
umes by 5% ye ar-on-year. Foot-
wear accounts for 5% of ret a il
in India. Excise duty on foot-
wear, priced between Rs 500 and
Rs 1,000 per pair, has been redu-
ced. Players may pass on the
benefit partially to customers.
RETAIL
COMPANY IMPACT
Future Retail
Trent
Shoppers Stop
BUDGET EFFECT
COMPANY IMPACT
Nestle India
ITC
Hindustan Unilever
Asian Paints
BUDGET EFFECT
STATE OF THE INDUSTRY
Wireless operators revenues
are expected to grow 12-14%
in 2014-15, as operating met-
rics improve and data serv-
ice usage increases by over
50%. Earnings before inter-
est, tax, depreciation and am-
ortization (EBITDA) margins
are expected to rise by 100-200 ba-
sis points in 2014-15 as operators
attempt to rationalize marketing
costs. Delay in 4G service laun ch
will limit competition and help
operators improve profitability.
Outgo on spectrum (licences due
for renewal) during auctions sch-
e duled in the latter half of 2014-15
are seen driving large operato rs
capacity expansion. Norms on
spec trum trading and sharing
are expected to facilitate better
utilization of resources.
BUDGET IMPACT
A basic customs duty of 10% has
been imposed on specified tele-
com products. Since a large por-
tion of the equipment used will
remain subject to nil import
duty, though, this is not expected
to have a significant impact.
Budgeted receipts from auction
of spectrum and levy of one-
time charges have been estimat-
ed at Rs 45,400 crore for 2014-15,
against Rs 40,800 crore in 2013-14.
STATE OF THE INDUSTRY
In 2013-14, Indias apparel
exports grew 10-12%
whereas domestic apparel
demand rose at a moder-
ate 4-5%. Cotton yarn de-
mand zoo m ed owing to ris-
ing exports to China. Ap-
parel exports are expected to
stay healthy. Cotton yarn ex-
ports, though, could decline due
to lower demand from China. De-
mand for man-made fibres
(MMF)/yarns will be moderate.
BUDGET IMPACT
Budgetary allocation under Tech-
nology Upgradation Fund Scheme
(TUFS) has been increased to Rs
2,300 crore. It will continue to en-
courage capital expenditu re. Spin-
ners are expected to add 1.0-1.5m
spindles. Domestic demand for ap-
parels is expected to rise 5% in
volume te r ms. Continuation of
zero excise duty will support gro-
w th. To enco u rage export of appa-
r els, duty-free entitlement for imp-
ort of trimmings, embellishments
and other specified items used in
app a rel exports has been hiked to
5% of the value of exports. Sup-
port for developm ent of six textile
clusters and handloo ms is posi-
tive. Ba sic cust o ms duty on refor-
mate (feedstock for polyester) and
span d ex yarn is reduced. This may
lower prices and improve demand.
COMPANY IMPACT
Arvind Mills
Vardhman Textiles
Indo Rama Synthetics
Raymond
Welspun India
TEXTILES TELECOM BUDGET EFFECT
COMPANY IMPACT
Bharti Airtel
Idea Cellular
MTNL
Reliance Comm
Tata Comm
BUDGET EFFECT
STATE OF THE INDUSTRY
Slowdown in demand, over-
capacity and deterioration in
profitability have hit the in-
dustry. Though demand is
expected to gradually pick
up in the second half of
2014-15, overall gro w th would
be limited to 4%. Further, utili-
zation rat es will remain low due
to significant capacity additions.
From 2015-16, a more mea n i ngful
demand recovery is expected.
BUDGET IMPACT
Rise in outlays on actual spend
will lead to incremental annual
cement consumption growth of
0.5-1.5%. The outlay towards
roads and highways is Rs 37,900
crore13% higher than the spe nd
in 2013-14. Outlay towards urban
infrastructure is now Rs 20,100
crore, more than twice the spend
in 2013-14. Outlay for housing has
doubled to Rs 15,000 crore and that
for irrigation has been hiked
three-fold to Rs 1,500 crore, year-
on-year. Duties and tariffs directly
levied on cement are left uncha n-
ged. Clean energy cess on coal has
been hiked to Rs 100 per tonne and
basic customs duty on imported
coal is hiked to 2.5%. Th is would
increase power and fuel cost.
CEMENT
STATE OF THE INDUSTRY
Crude oil prices are expected to
remain high at $105-110/ba r rel
in 2014 owing to tensions in
Iraq, Libya and Uk r a ine. Pr-
ofitability of oil PSUs will
im prove, as under-recove r ies
fall by a third to Rs 90,000-
1,00,000 crore, aided by re gular
diesel price hikes. Natur al gas
de m and is seen flat owing to low
do mestic output and high LNG
pric es. Gas prices could be hiked,
be nefiting upstr e am companies
but hitting city gas distributors.
BUDGET IMPACT
Overall under-recoveries are
seen reducing to Rs 90,000-
1,00,000 crore in 2014-15 from Rs
1,40,000 crore in 2013-14, due to a
hike in retail diesel prices,
stronger rupee and stable crude
prices year-on-year. The govern-
ment is expected to share 50%
of under-recovery burden. The
total subsidy burden works out
to Rs 79,500-84,500 crore. Central
excise duty on branded petrol is
reduced to Rs 2.35 per li tre. This
is unlikely to impact oil market-
ing companies majorly as bran-
ded petrol accoun ts for less than
5% of sales. Overall impact is
ma r g i nally positive for OMCs.
OIL & GAS
COMPANY IMPACT
ONGC
Reliance Industries
Cairn India
Oil India
BUDGET EFFECT
COMPANY IMPACT
ACC
Ambuja Cements
India Cements
Shree Cement
UltraTech Cement
BUDGET EFFECT
Have you put your money in stocks and/or mutual funds? The Budget often impacts the bottomlines of industries and
companies and can make a difference to your investments. TOI commissioned CRISIL a global analytical company that
provides ratings, research, risk and policy advisory services to analyse how your market wealth could have been affected
What kind of return an
investment of 100 in July 2004
will give by July 2014
22.5%
COMPOUNDED
ANNUAL
GROWTH
RATE
10.25%
20.0%
REALTY SILVER SENSEX
RACKING UP
THE RETURNS
GOLD
13.25%
19.5%
Returns from July
2004 to July 2014
620
347
775
265
595
EQUITY FUNDS
STATE OF THE INDUSTRY
Credit outstanding is seen ris-
ing 16-18% year-on-year due
to expe c ted economic growth.
Non-performing assets wo u-
ld be around 4% till Ma r ch
due to slippages from res t ru-
ctured loans and stress in in -
frastructure and construction.
BUDGET IMPACT
Banks will be permitted to raise
long-term funds for lending to the
infrastructure sector. Proposed
minimal regulatory restrictions
on cash reserve ratio, statutory
liquidity ratio and priority sector
lending on these bonds will re-
duce their cost (by up to 120 basis
points) and also help banks man-
age the asset-liability mismatch.
Capital support to public sector
banks was maintained at Rs 11,200
crore. Higher tax rate and lock-in
period could reduce the attrac-
tiveness of debt mutual funds.
Banks may be able to attract part
of this money. FDI limit in insur-
ance has been hiked to 49%, a pos-
i tive for the se ctor. Increased exe-
mption for inte r est on home loans
and enhanced limit for tax-saving
investments and changes in tax
slabs wi ll boost housing finance.
STATE OF THE INDUSTRY
Fuel availability constraints,
aggressive bidding and weak
financial health of distribu-
tion companies continue to
plague the sector. In 2014-15,
operating margins of ge n-
eration companies would im-
prove by 50-70 basis points due
to decline in imported coal costs.
Nevertheless, debt servicing abil-
ity will remain weak, given high
leverage and weak cash flows.
BUDGET IMPACT
Extension of Section 80IA to
March 2017, which provides a 10-
year tax holiday, is expected to
benefit 18-20GW of competitively
bid capacities, likely to be com-
missioned in 2015-17. All o cation
for transmission and di stribution
segment has nearly doubled to Rs
8,000 crore. Ev en as appro val to
banks to ra i se long-term funds to
lend to infrastr uc t ure sector will
improve funds av a ilability, high
ex posure to the se ctor and impl e-
mentation iss u es must be add r e-
ssed. While a Rs 500 crore alloca-
tion has been announced for ult-
r a mega solar projects and Rs 400
crore for sol ar-driven water pu-
mp sets, the amount wi ll be inad-
e quate to boost capacity.
BANKING & FINANCE POWER
COMPANY IMPACT
NTPC
Adani Power
Tata Power
Reliance Power
JSW Energy
BUDGET EFFECT
COMPANY IMPACT
State Bank of India
Punjab National Bank
ICICI Bank
HDFC Bank
HDFC
BUDGET EFFECT
STATE OF THE INDUSTRY
Even as recovery is expected
across automobile segments,
it may be restricted to single
digits. Economic growth and
stabilization of vehicle own-
ership cost will fuel recovery.
Sales of passenger vehicles are
expected to grow 4-6%, led by the
small car segment. Two-wheeler
sales growth is seen at 9% and
MHCV 6-9%. LCV sales growth,
on the other hand, could reduce
to 4%. Growth in tractor sales is
expected to decelerate to 5-7% due
to the impact of unseasonal rains
on rabi crop.
BUDGET IMPACT
Extension of lower excise duty
rates till December 2014 (an-
nounced pre-Budget) is a positive
for the industry. Although fuel
costs are likely to remain firm,
reduced cost of vehicles due to a
lower excise duty and gradual
pickup in economic growth and
consumer sentiments would sup-
port demand. Direct tax sops and
focus on agriculture are margin-
ally positive for two-wheelers.
Monsoon, though, will play a
critical role in how the eventual
growth numbers pan out.
AUTOMOBILE
STATE OF THE INDUSTRY
Domestic passenger traffic
grew 5% in 2013-14, driven
by falling ticket prices. As
the economy improves,
passenger traffic is expect-
ed to grow 7-8% in 2014-15.
While airlines would con-
tinue to re co rd operating
losses in 2014-15, the extent of
losses would reduce to 3-5% of
the revenues, though. This wo-
u ld be aided by lower aviation
turbine fuel (ATF) prices and a
marginal hike in ticket prices.
BUDGET IMPACT
The Budget has proposed intro-
duction of e-Visa to encourage
foreign tourist arriva ls. While
the short-term impact is unlike-
ly to be material, over the long
term, this move will positively
impact international air traffic,
which currently constitutes 16-
18% of the total traffic for do-
mestic airlines. Besides, de-
velopment of Sarnath-Gaya-
Varanasi Buddhist circuit as a
world-class tourist destination
and creation of five other tour-
ist circuits would lead to increa-
s ed air travel in the long run.
The government has proposed
Rs 6,500 crore equity infusion in
Air India. The company, though,
is over-leveraged with Rs 42,000
crore debt as on March 31, 2014.
AIRLINES
COMPANY IMPACT
Maruti Suzuki India
Tata Motors
Ashok Leyland
Bajaj Auto
Mahindra & Mahindra
BUDGET EFFECT
COMPANY IMPACT
Jet Airways
Spicejet
BUDGET EFFECT
STATE OF THE INDUSTRY
In 2013-14, traffic at ports and
airports grew 4% and 6%,
respectively, owing to eco-
nomic slowdown. Utilizati-
on rate for ports is expected
to remain at 68% in 2014-15.
During the same period, traf-
fic growth is expected to im-
prove marginally at ports to 4-5%
and airports to 8-9%, led by some
improvement in freight and cor-
porate demand, respectively. Be-
tween 2013-14 and 2018-19, Rs
90,000-95,000 crore is expected to
be invested (ports: 60%, airports:
40%) towards infrastructure de-
velopment, with a 65-75% contri-
bution from the private sector.
BUDGET IMPACT
Construction of greenfield air-
port projects has been proposed
in Tier-I and Tier-II cities under
public-private partnership and
Airports Authority of India, pre-
senting a long-term opportunity
for developers. The Budget has
allocated Rs 11,600 crore for de-
velopment of the outer harbour
at Tuticorin port, and 15 other
port projects. A hardware manu-
facturing zone near Kakinada
port and SEZs near JNPT and
Kandla ports have also been pro-
posed. This could help improve
traffic at these ports over the
longer term.
STATE OF THE INDUSTRY
After a subdued 2013-14, do-
mestic demand for steel and
aluminium is expected to
rise 2-3% and 4-5%, respec-
tively, in 2014-15, following a
pickup in demand from end-
user sectors. Margins of
large steel players will im-
prove in 2014-15 as coking coal
prices continue to fall, whereas
profitability of aluminium play-
ers will remain stressed due to is-
sues with raw material linkages.
BUDGET IMPACT
Reduction in the countervailing
duty on coking coal to 2% from 6%
will more than offset the levy of
2.5% customs duty. As a result, large
players, who account for 50% of ste-
el production, will save Rs 100-200
per tonne in their cost of producti-
on. Similarly, the 2.5 percentage-
point reduction in customs duty on
scrap will lower input costs of
small- and mid-sized steel players.
The increase in the customs duty
rates on flat stainless steel products
to 7.5% from 5% will benefit domes-
tic players as imports will get cost-
lier by Rs 5,000 per tonne. Hike in
the export duty on bauxite is a posi-
tive for aluminium players, as this
will improve domestic availability
of bauxite. Around 24% of Indias
production was exported in 2013.
COMPANY IMPACT
Adani Ports and SEZ
Gujarat Pipavav Port
GMR Infrastructure
GVK Power and Infra
BUDGET EFFECT
COMPANY IMPACT
Steel Authority of India
Tata Steel
JSW Steel
Sesa Sterlite
Hindalco Industries
BUDGET EFFECT
METALS PORTS & AIRPORTS