Sunday, March 1, 2015

Impact of budget on Capital Goods and Infra sectors

a.       Increase in spending on infrastructure by Rs700bn vs. FY15; outlay on roads higher by Rs140b and Rail by Rs100bn. Total capex by Central PSU’s at Rs3178bn(+25% YoY): Positive for Infrastructure companies such as L&T, NCC, Simplex Infra.

b.      National Investment and Infra Fund to be established with a corpus of Rs2000bn – provide funding for infra projects.

c.       Tax free infra bonds to be allowed in road, rail and irrigation sectors – Will help provide long term funding to infra sector. This had been discontinued last year.

d.      Defence spending increased to Rs2,467bn vs. Rs2,223bn: Positive for Bharat Electronics, Astra Microwave on higher defence spending

e.      Basic Corporate tax to be reduced to 25% from 30% over next 4 years: Positive for the entire sector as it increases PAT by ~1-1.2% over each year

f.        Increase in clean energy cess by Rs100/ton to Rs200/ton – Will increase power tariffs by Rs0.06/unit. Will be a pass through for NTPC, Coal India as change in law and also for generators having PPA. Will be negative for power generation companies selling in the merchant markets

g.       Tax on royalty payments to parent cut from 25% to 10% - no effect on capital  goods companies

h.      Additional investment allowance (@15%) and depreciation(35%) to new units being set up in notified backward areas in AP and Telengana (2015-2020): Boost to investments and lead to higher industrial capex

i.        No reduction in MAT rates proposed in the budget  - Negative as the street was expecting a cut from the current 20%

j.        Delhi Mumbai Industrial Corridor allocation has been doubled to Rs12bn: Higher allocation as projects in Dholera and Shindra start gaining traction and are ordered out. Positive for infra players.

k.       Namami Gange allocation increased from Rs15bn to Rs21bn: Positive for sewerage treatment companies like VA Tech Wabag.

l.        Additional depreciation @ 20% is allowed on new plant and machinery installed by a manufacturing unit or a unit engaged in generation and distribution of power: Provide an incentive to increase capex by manufacturing units and power generators. +ve for Capital Goods equipment providers.

m.    Excise duty cut from 12% to 6% on inputs for use in the manufacture of LED drivers and MCPCB for LED lights, fixtures and LED lamps – Promote domestic manufacturing of LED lamps and +ve for Crompton Greaves, Havells, Eveready

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