Budget 2009-2010 impact on Sectors

Budget Impact on Sectors:

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The Budget can impact bottomlines of industries and companies through changes in excise, customs, corporate taxes and other proposals. Following is a detailed analysis of Budgetary impact on sectors.

AUTOMOBILE

Current Status:

Growth fell 3% in 2008-09 to Rs 163,500 crore due to a significant 22.3% drop in commercial vehicle volumes.

BUDGET IMPACT

Budget announcements are unlikely to have any major impact on the sector.
Lowering of specific additional duty on passenger car and utility vehicles above 2,000cc to Rs 15,000 from Rs 20,000 is expected to have negligible impact on demand.
Continued focus on rural development and change in the exemption limit of income tax slabs will marginally benefit twowheeler sales.
The 75% increase in irrigation spend in 2009-10 will be marginally positive for tractor sales.

COMPANY IMPACT

Tata Motors, Mahindra & Mahindra, Maruti Suzuki - No impact
Bajaj Auto, Hero Honda Motors - Gains

BANKING & FINANCE
Current Status:

Credit growth fell to 17.3% year on-year in 2008-09 due to the slowdown in retail advances and borrowing by corporates.

BUDGET IMPACT

The overall impact is expected to be neutral.
Much hyped hike in FDI (Foreign Direct Investment) limit in Banks, to 49% did not happen.
Hence many banks which were rallying on FDI possibility were punctured.
Absence of any mention about hike in housing loan exemption to revive real estate sector did dampen the growth in credit offtake.

COMPANY IMPACT
No impact on any banks

CEMENT
Current Status:

Cement demand increased 8.4% year-on-year during 2008-09. Demand is expected to rise approximately 7% over the next two years, primarily driven by increased consumption from infrastructure activities and independent housing in semi-urban and rural areas.

BUDGET IMPACT

The overall impact is expected to be neutral. As excise duty and customs duty for cement and clinker remain unchanged, cement prices are likely to be stable. Similarly, duties on raw materials such as coal, limestone and gypsum have been kept unchanged. Increase in infrastructure investments will have a marginally positive impact on cement demand.

COMPANY IMPACT

ACC - No impact I Gujarat Ambuja Cement - No impact I India Cement - No impact I Shree Cement - No impact I Ultratech Cement - No impact

INFRASTRUCTURE
Current Status:

Investment of about Rs 600,000 crore is expected to flow into the sector between 2009-10 and 2013-14 for the development of roads, ports and airports, with roads making up nearly 80% share of the total funds. Private sector participation is expected to drive investment in road projects of National Highways Development Project (NHDP), airports and ports sectors. Global slowdown is expected to result in slower growth in port traffic at 7.9% in 2009-10. However, de-growth of 3% is expected in airport traffic in 2009-10 due to slowing business and leisure travel. Awarding of road projects has been slow due to litigation and lack of interest from private players due to the liquidity crunch.

BUDGET IMPACT

The overall impact is expected to be neutral. Implementation of NHDP is expected to remain slow due to policy issues despite a 23% increase in allocation. Although allocations under the Pradhan Mantri Gram Sadak Yojana have increased 59% to Rs 12,000 crore, they are expected to be inadequate. Since the refinancing scheme through India Infrastructure Finance Company was announced in the interim Budget, it is not expected to have any incremental impact on investment plans.

COMPANY IMPACT

IRB - No impact I L&T - No impact I Reliance Infrastructure - No impact I Mundra Port - No impact I GMR Infrastructure - No impact


Consumer Goods:
Current Status:

While the first half of 2008-09 saw robust growth across products such as colour televisions, refrigerators and washing machines, consumer sentiment weakened from the third quarter due to the global economic slowdown. Consumer demand, though, has shown some signs of revival in the fourth quarter. Household appliance sales are expected to show a moderate 4% growth in 2009-10. Liquid Crystal Display (LCD) television sets are expected to show a robust 75% growth in 2009-10.

BUDGET IMPACT

Reduction in customs duty on LCD panels to 5% from 10% is likely to have a marginally positive impact on the industry. LCD panels account for around 45-70% of the price of an LCD television, depending on the screen size. If the reduction in customs duty is passed on entirely to the consumer, the price of a 32-inch LCD television may fall by approximately Rs 600. This cut in duty would also boost domestic assembling of LCD sets. Additionally, the rise in personal disposable income by Rs 10,000 per annum due to the increase in personal tax exemption limit is likely to boost the demand for consumer durables.

COMPANY IMPACT

Samtel Color - No impact I LG India - Gains I Videocon - Gains I Whirlpool India - No impact I MIRC Electronics - Gains

INFORMATION TECHNOLOGY
Current Status:

IT and ITeS export growth rates are expected to plummet due to the cut in IT spends in major developed economies and delay in decision-making cycles. Export revenue of IT services is expected to stay flat. The growth rate of ITeS is expected to decelerate to 7-8% in fiscal year 2009-10. However, long-term prospects for the industry are promising. Continuing maturity of the global offshore delivery model, increased focus on targeting new markets and developing capabilities in emerging service lines such as infrastructure management services, and the inherent need of clients to reduce costs would together help propel growth, once the global economy recovers.

BUDGET IMPACT

The overal impact is expected to be marginally negative. The extension of the information technology tax exemption by a year to March 31, 2011, the scrapping of the fringe benefit tax and the removal of duty on packaged software, are favourable. However, the positive impact of extension is expected to be more than offset by an increase in MAT to 15%. Tier-II players would be relatively more impacted by an increase in the minimum alternative tax (MAT) rate compared with Tier-I players.

COMPANY IMPACT

Infosys Technologies - Loses I TCS - Loses I HCL Technologies - Loses I Firstsource Solutions - Loses I Zenith Computers - No impact

OIL & GAS
Current Status:

The dual factors of increasing demand and tighter supply caused crude oil prices to touch new highs during April-December 2008. The situation, though, reversed in the last quarter of 2008-09 as the economic downturn affected demand. Consequently, the overall gross refining margins (GRMs) for 2008-09 averaged lower, at $5.8/bbl ($10.6/bbl, 2007-08).

On the marketing front, oil marketing companies continued to suffer losses on retail fuels as domestic retail prices are controlled. Oil marketing companies were provided total aid of Rs 1,04,230 crore in 2008-09. In 2009-10, product prices and GRMs are likely to average lower due to easing demand. Under-recoveries on auto and cooking fuels are thus expected to reduce.

BUDGET IMPACT

The overall impact is expected to be marginally positive. The tax holiday extension for natural gas production with retrospective effect could result in a better response to future exploration licencing policy rounds. The hike in MAT to 15% is expected to lead to higher initial tax outflow. Given the expected rise in production, 100% deduction for capital expenditure on pipelines operating on a common carrier principle will ensure better distribution.

COMPANY IMPACT

ONGC - Gains I GAIL India - Gains I IOC - No impact I Reliance Industries - Loses I HPCL - No impact

POWER
Current Status:


Demand is expected to grow approximately 7-8% over the medium term. Capacity additions of approximately 45 GW (giga watts) would result in a marginal reduction in the demand-supply deficit to 10% by the end of the Eleventh Plan. The generation segment has opened up significantly with the entry of private players.

However, the transmission and distribution segments are yet to see significant private participation with the exception of certain areas. Key success factors for the sector include tackling land availability issues, timely environmental clearances, equipment supply (in generation) and open access, cross subsidy and loss reduction (in transmission and distribution).

BUDGET IMPACT

There were no major announcements that impacted the sector. IIFCL has been given greater flexibility to re-finance infrastructure projects. Budgetary allocation for the APDRP and RGGVY programmes has been increased to Rs 2,080 crore and Rs 7,000 crore, respectively. While MAT has been increased to 15%, the credit period for the same has been extended to 10 years, thus neutralising the impact. Also, the players can pass any changes through tariffs.

COMPANY IMPACT

NTPC - No impact I Power Grid Corporation - No impact I BHEL - Gains I Tata Power Company - No impact I Suzlon Energy - Gains
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STEEL
Current Status:


Steel players managed to pass on the increase in raw material costs till the first half of 2008-09 due to the then prevailing tight demand-supply situation. However, as prices plummeted in tandem with demand, margins fell significantly due to a relatively slower pace of raw material price correction. Global demand is expected to fall 9-10% in 2009, whereas domestic demand is likely to be resilient and grow at 5-6% in 2009-10. With raw material contract prices estimated to revise considerably downward, margins are expected to improve in 2009-10 compared with the second half of 2008-09.

BUDGET IMPACT

The overall impact for the steel industry is expected to be neutral . Considering that there has been no change in customs or Cenvat duty on steel products, prices and profitability of the industry are unlikely to be impacted. However, the provision of higher investment in roads, railways and JNNURM (Jawaharlal Nehru National Urban Renewal Mission) is expected to marginally improve the demand for steel. Overall growth measures in the economy may indirectly spur demand for steel.

COMPANY IMPACT

Essar Steel - No impact I Bhusan Steel - No impact I JSW Steel - No impact I SAIL - No impact I Tata Steel - No impact

TELECOM
Current Status:


In 2008-09, the telecom subscriber base registered a 43% growth to touch 430 million, driven by a sharp rise in the number of mobile subscriptions. The wireless segment added a record 130 million subscribers and stood at 391 million at the end of 2008-09.

The wireless subscriber base is expected to reach 611 million by 2010-11, fuelled by increased focus on the rural market, changing competitive dynamics and the rollout of 3G services by private players. Investment is expected to peak in 2009-10 with new licensees launching services and existing players expanding their footprints across the country.

BUDGET IMPACT

The overall impact on the telecom services sector is expected to be marginally negative. While the fringe benefit tax has been abolished, the increase in MAT to 15% of book profits will more than offset the benefit from the fringe benefit tax elimination. This would negatively impact cash flows of players in the sector. The government has extended the full exemption from special additional duty of customs on components and accessories of mobile handsets, including cellphones, for a year, thereby ensuring the affordability of owning a mobile connection.

COMPANY IMPACT

Bharti Airtel - Loses I ITI - No impact I MTNL - No impact I Reliance Communications - Loses I Tata Communications - No impact

TEXTILES
Current Status:


The textile industry has been severely impacted by the global economic slowdown, with exports of both garments and made-ups declining. Domestic demand has been less affected and expected to grow 6-7% in the medium term. Challenges from high fragmentation and a weak weaving and processing sector will need to be met if India is to be globally competitive. The government’s measures of boosting the sector have had only a marginally positive impact and it has continued to face margin pressure.

BUDGET IMPACT

The overall impact is expected to be neutral. Interest costs for exporters will decline 1% on account of extension of 2% interest subvention on pre- and postshipment export credit until March 31, 2010. Excise duty on cotton textiles has been restored to 4% optional duty. Excise duty on man-made fibres and yarn has been increased by 4% to 8%. While this will lead to a rise in polyester prices by Rs 2.5 per kg, it will not affect demand as polyester continues to be cheaper than cotton and substitution will continue.

COMPANY IMPACT

Gokaldas Exports - Gains I Vardhaman Textiles - Gains I Welspun India - Gains I Indo Rama Synthetics - No impact I JBF Industries - No impact

PHARMACEUTICALS
Current Status:


Exports are expected to drive overall industry growth. Fuelled by the growing generics and outsourcing opportunity in regulated markets, overall exports are likely to grow at a compound annual growth rate (CAGR) of 20-22% to $15-17 billion by 2010-11 compared with a 30% CAGR in the past two years. The domestic formulations segment is expected to grow moderately at a CAGR of 13-15% and range between $10 billion and $11 billion by 2010-11. Accordingly, the overall Indian pharmaceutical market is expected to grow at a CAGR of 18-20% to touch $25-27 billion by 2010-11.

BUDGET IMPACT

The overall impact on the sector is expected to be neutral. The reduction in the customs duty from 10% to 5%, and exemption of CVD on imports of select life-saving drugs and their bulk drugs for treating ailments such as breast cancer, hepatitis, rheumatic arthritis and so on, will have a negligible impact, as life-saving drugs account for a marginal share of the formulations market. Further, abolishment of the fringe benefit tax will partly offset the marginally negative impact resulting from the hike in the minimum alternative tax (MAT) to 15%.

COMPANY IMPACT

Aurobindo Pharma - No impact I Cipla - No impact I Dr Reddy's Laboratories - No impact I Piramal Healthcare - No impact I Glenmark Pharma - No impact