UnionBudget 2014 and Stock Review

8/12/2019 UnionBudget 2014 and Stock Review

http://slidepdf.com/reader/full/unionbudget-2014-and-stock-review 1/19



Index

Budget FY2015 - a good start 1

Sectoral Impact

Automobile 5

Banking 6

Capital Goods 8

Consumer Goods 9

n ras ruc ure

Metals & Mining 11

Oil & Gas 12

Pharmaceutical 13

Power 14

Real Estate 15

Top Picks 16



Budget FY2015 - a good start

Budget FY2015 highlighted the new government’s rational approach towards policies for taxation, governmentspending and growth. Infrastructure, housing and finance sectors were amongst the biggest winners, with key

- ,real estate projects (through Real Estate Investment Trusts [REITs]) and infrastructure development (through banksand infrastructure investment trusts). Amongst other key positives, foreign direct investment (FDI) limit in defense

equipment and insurance sectors has been increased to 49%.

Fiscal prudence was maintained, sticking to a 4.1% fiscal deficit target. While the tax revenue assumptions may still be a bit on the optimistic side, but a key area where the budget math differed from the vote on account wasin its assumption of higher non-tax receipts. This indicates the new government’s resolve to accelerate thedisinvestment a enda amon st other thin s. It has set the disinvestment tar et at ` 58 425cr for FY2015.

In line with the government’s election manifesto, smart cities, industrial corridors, higher education, low costhousing and various roads, ports, airports and other infra projects are expectedly going to be the thrust areas.The budget also indicated areas on which policy measures can be expected in the coming year such as coalavailability, gas pipelines, urea, ship-building, etc. All in all, there is a lot in the budget that creates optimism ofcontinued policy impetus yet to come across a range of sectors.

With the immense low-hanging fruits and huge decisive mandate, in our view, policy impetus is likely to continuen e wee s an mon s o come. vera , we ma n a n our s rong y pos ve v ew on e mar e w a con nuepreference for domestic cyclicals such as banking, infrastructure, capital goods, auto, cement as well as quality midcap stocks across a range of sectors.

1



Revenue and Expenditure break-up

Revenue (in crores) FY14 Actual FY15 VOA FY15 BE FY15 BE/FY14A FY15 BE/FY15 VOA

Revenue Receipts 10,29,252 11,67,131 11,89,763 15.6 1.9

Tax Revenue (net) 8,36,026 9,86,417 9,77,258 16.9% -0.9%

Non-Tax Revenue 1,93,226 1,80,714 2,12,505 10.0% 17.6%

Capital Receipts 5,61,182 5,96,083 6,05,129 7.8 1.5

Of which Disinvestment 24,000 51,925 58,425 143.4% 12.5%Borrowings and other liabilities 5,24,539 5,28,631 5,31,177 1.3% 0.5%

Total Receipts 15,90,434 17,63,214 17,94,892 12.9 1.8

Expenditure (in crores) FY14 Actual FY15 VOA FY15 BE FY15 BE/FY14A FY15 BE/FY15 VOA

Non-Plan Expenditure 11,14,902 12,07,892 12,19,892 9.4 1.0

On Revenue Account 10,27,689 11,07,781 11,14,609 8.5% 0.6%

On Capital Account 87,214 1,00,111 1,05,283 20.7% 5.2%

Plan Expenditure 4,75,532 5,55,322 5,75,000 20.9 3.5

On Revenue Account 3,71,851 4,42,273 4,53,503 22.0% 2.5%

On Capital Account 1,03,681 1,13,049 1,21,497 17.2% 7.5%

Total Expenditure 15,90,434 17,63,214 17,94,892 12.9 1.8

Expenditure (in crores) FY14 Actual FY15 VOA FY15 BE FY15 BE/FY14A FY15 BE/FY15 VOAxpenditure (in crores) FY14 Actual FY15 VOA FY15 BE FY15 BE/FY14A FY15 BE/FY15 VOA

Revenue Expenditure 13,99,540 15,50,054 15,68,111 12.0% 1.2%

Of which Subsidies 2,55,516 2,55,708 2,60,658 2.0% 1.9%

Capital Expenditure 1,90,894 2,13,160 2,26,781 18.8% 6.4%

2



Fiscal Deficit and Key fiscalindicators as % of GDP

FY14 Actual FY15 VOA FY15 BE FY15 BE/FY14A FY15 BE/FY15 VOA

Fiscal Deficit (in crores) 5,24,539 5,28,631 5,31,177 1.3 0.5

GDP FY2014 FY15 VOA FY15 BE

Tax Revenue (Net) 7.4% 7.7% 7.6%

- . . .

Plan Expenditure 4.2% 4.3% 4.5%

Non-Plan Expenditure 9.8% 9.4% 9.5%

Fiscal Deficit 4.6% 4.1% 4.1%

Revenue Deficit 3.3% 3.0% 2.9%

3





Positive

Automobile

Impact Announcement

Increase in exem tion limit for direct tax b ` 50,000 to ` 2,50,000 for individuals and to ` 3,00,000 for senior citizens. Exemption

under section 80C raised by ` 50 000 to ` 1 50 000 for individuals.

disposable income of individuals, thereby boosting demand in personal mobility

segments like two-wheelers and hatchbacks

Agricultural growth maintained at 4%;allocation of ` 8lakh cr for agricultural credit

,Maruti Suzuki, Bajaj Auto, TVS Motors).

Agricultural reforms will drive demand fortractors. Demand for two-wheelers in non

in FY2015 and ` 25,000cr for increasingwarehousing capacity.

urban areas will likely get a boost. Thus, apositive for companies like Mahindra &Mahindra, Hero MotoCorp, VST Tillers, andKirloskar Oil Engines.

15% additional allowance for investmentabove ` 25cr in plant in Manufacturing sector

for 3 years (till 31.03.2017).

Revival in investment cycle.

5







Positive

Capital Goods

Impact Announcement

The overnment has increased the com ositecap of foreign investment in the defensesector from 26% to 49%. This would be

applicable for companies with full Indianmana ement and control.

investments in the defense sector. Defenseequipment manufacturing companies like

Bharat Forge, Astra Microwave Products,

Allocation of ` 1,000cr for development ofrail connectivity in the North East region.

. .

Positive for companies involved inmanufacturing signals, locomotives and alsocontractors. KEC international, BHEL, ABB etcwould stand to benefit.

8





Positive

Infrastructure

Impact Announcement

` 14 389cr has been rovided for the Pradhan National Buildin Construction Cor orationMantri Gram Sadak Yojna(PMGSY).

Infrastructure Investment Trusts (InvITs) have

would be a beneficiary since it drawsconstruction orders from the government.

This is a positive for Build Operate Transfer.

operating portfolios for further investment inother project or to reduce their debt.Companies like IRB Infrastructure Developers,

An investment of ` 37,880cr in nationalhighways and state roads has been proposed

Buildcon could be huge beneficiaries. Positive for companies which are into

engineering procurement and construction,

the North East. A target of national highway construction of 8,500km has been announced(vs 4,000km in the 2013-14 budget)

. ,IL&FS Transportation Networks & AshokaBuildcon would be beneficiaries.

Allocation of ` 3,600cr fund for safe drinkingwater through community water purificationplants in next 3 years.

Positive for companies like VA Tech Wabag,Thermax, etc which are into EPC andmaintenance of water treatment plants.

10





Positive

Oil & Gas

Impact Announcement

Pro osal to develo an additional 15 000kmof pipelines through public-privatepartnership (PPP) model.

reduce dependency on oil as a transportfuel. Thus, a positive for companies like

GAIL, Petronet LNG, IGL, Welspun Projects.

12



Positive

Pharmaceuticals

Impact Announcement

Investment allowance at the rate of 15% to amanufacturing company that invests morethan ` 25cr in any year in new plant and

machinery. The benefit would be availablefor three ears ie for investments u to

,effect will be more pronounced in smallcompanies like Indoco Remedies and

Dishman Pharmaceuticals & Chemicals,

March 31st, 2017. This will enhanceinvestments in the sector, and hence thesector’s growth.

.Indoco Remedies’ stock price is expected torise higher by 8-10% on this account.

13





Positive

Real Estate

Impact Announcement

Incentives for Real Estate Investment Trusts(REITs). Complete pass through for thepurpose of taxation.

properties. Therefore companies like DLF,Prestige Estate and Nesco, which have a

substantial rental properties portfolio, can

Additional allocation for National HousingBank of ` 4,000cr for low cost housing (total

piled up debts.

This would be beneficial for companies likePoddar Developers and Puravankara Projects

allocation now stands at ` 12,000cr).

Extended additional tax incentive on homeloans shall be provided to encouragepeople, especially the young, to own houses.

among others, which operate in the low cost

housing segment.

15



Top Picks

Sector / Company CMP ( ) Target Price ( ) Upside

India Cement 104 168 61.0%

ICICI Bank 1,391 1,974 41.9%

South Indian Bank 33 44 31.6%

romp on reaves .

Siyaram Silk Mills 562 723 28.7%

Dr Reddy's 2,652 3,399 28.2%

St Bk of India 2,548 3,239 27.1%

TVS Srichakra 619 786 27.0%

HCL Tech 1,471 1,859 26.3%

Larsen & Toubro 1,655 2,090 26.3%

LIC Housing Finance 325 408 25.4%

ue ar .

ACC 1,458 1,727 18.4%

Note: CMP as of July 10, 2014

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UnionBudget 2014 and Stock Review