CRISIL_Budget Analysis 2013-14

7/28/2019 CRISIL_Budget Analysis 2013-14

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CRISILBudgetAnalysisMarch 2013

Responsible for nowNeed to watch expenditure as election nears


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CRISILBudgetAnalysis

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Contents

Foreword 1

Economy

Highlights 4

Detailed economic analysis 5

Industry

Overall sectoral impact 14Overall company impact 21

Airpor ts In fras tructure 25

Auto components & Tyres 27

Automobi les 30

Banking and Finance 33

Cement 36

Construction 38

Fertilisers 40

Hotels 43

Household appliances 45

Housing 48

Information technology 50

Media and Entertainment 53

Non-ferrous metals 55

Oil and Gas 58

Paper 61

Petrochemicals 63

Pharmaceuticals 66

Ports 68

Power 70

Roads 72

Steel 74

Sugar 77

Telecom 80

Textile 82

Continued


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CRISIL BudgetAnalysis

Contents

continued

Capital markets

Equity market 88

Mutual funds 94


5/1061

Foreword

Responsible, for now

Budget 2013-14 has taken forward the fiscal consolidation programme which began in the current fiscal year. It targets

fiscal deficit at 4.8 per cent of GDP in 2013-14 as against the revised estimate of 5.2 per cent for this year. While fiscal

consolidation can hurt growth in the short run, it does create an environment in which the Reserve Bank of India (RBI)

can cut interest rates and provide some support to growth. These steps will also encourage domestic savings, boost the

confidence and expectations of domestic and foreign investors. As budgetary proposals are broadly in line with our

expectations, we retain our pre-budget forecast of 6.4 per cent GDP for 2013-14, which is the midpoint of the GDP

growth range (6.1 to 6.7 per cent) that the budget has assumed.

In the budget, the finance minister has broad-based the thrust areas of infrastructure beyond ports and roads; he has

focused on coal, industrial corridors, national waterways, and rural road construction (PMGSY-II). In addition, urban

infrastructure will receive a boost through the allocation of Rs 14,873 crore for the JNNURM scheme. Other positive

measures for infrastructure include the constitution of a regulatory authority for the road sector and the promise to award

3,000 km of road projects in five states in the first six months of 2013-14. Housing and textiles stand to benefit from

concessions and continuation of the Technology Upgradation Funds Scheme respectively.

The revival of private investment is a key to raise Indias GDP growth, which is estimated to have reached a decadal low

of 5.0 per cent in 2012-13. In order to improve the investment climate, the government has announced an investment

allowance of upto 15.0 per cent of the total investments over Rs 100 crore in plant and machinery during the two years

ending March 2015. But a substantial and sustainable boost to investment sentiment will come only when issues such as

mining rights, land acquisition, environmental clearances are satisfactorily resolved. For sustenance of revenue growth

and ensuring feasibility of medium-term fiscal targets, a sustained lift in GDP growth will be needed as some of the

revenue gains through hike in surcharges will not last beyond 2013-14.

How credible is the fiscal arithmetic and medium-term consolidation programme?

We expect fiscal deficit to settle at 5.0 per cent of GDP against the budget target of 4.8 per cent. We believe the

government is likely to miss the revenue growth target of 23.4 per cent in 2013-14 as disinvestment and spectrum saletargets are too ambitious.

In the recent past, while both expenditure overshooting and revenue underperformance have been responsible for

higher-than-budgeted fiscal deficits, the latter has contributed more to the fiscal slippage. This year too, the budget is

likely to miss the revenue growth target due to a possible slippage on the disinvestment and spectrum auction targets.

Shocks from unanticipated changes in growth can throw the budgeted revenue estimates out of gear. However, in the

past few years, irrespective of whether growth was higher or lower than expected, the government has consistently

missed the tax revenue targets. This shows poor revenue marksmanship. Some overshooting on the expenditure front

too is likely, particularly on food subsidies if the Food Security Bill is implemented during 2013-14.


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Foreword

The medium-term target of trimming the fiscal deficit to 3 per cent of GDP by 2016-17 relies on healthy growth and a

reduction in the subsidy bill by at least 1 percentage point of GDP. The subsidy roadmap outlined in the budget aims to

cut subsidies to 1.6 per cent of GDP by 2015-16 from 2.6 per cent in 2012-13.

As raising agricultural productivity will take time and concerted effort, the hike in food subsidy may result in upward

pressure on food inflation in the near term. Food inflation was already high at 11.9 per cent in January 2013. It has

averaged 9.3 per cent in the past seven years as compared to 4.3 per cent in the preceding decade. Sadly, despite

certain sporadic efforts, agriculture has not received the attention it deserves in previous budgets and this budget is no

exception.

Overall, while the budget has taken a step towards fiscal discipline as well as announced steps to promote corporate

investment and infrastructure, lasting fiscal discipline will depend on the ability to raise the projected revenue and to stick

to the budgeted expenditure - an arduous task when growth is weak and elections are near.

Dharmakirti Joshi

Chief Economist, CRISIL


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Econom

3


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Highlights

x Fiscal deficit for 2012-13 pegged at 5.2 per cent of GDP and estimated at 4.8 per cent for 2013-14.

x Revenue deficit for the current year at 3.9 per cent and for 2013-14 at 3.3 per cent.

x Fiscal deficit to be brought down to 3 per cent, revenue deficit to 1.5 per cent and effective revenue deficit to zero

per cent by 2016-17.

x Plan expenditure in 2013-14 will be 29.4 per cent more than the Revised Estimate of 2012-13.

Infrastructure

x To mobilise funds for investment in infrastructure, the following measures will be taken:

o Encourage Infrastructure Debt Fund (IDF)

o Allow some institutions to raise tax-free bonds up to 50,000 crore (100 per cent more than the current year)

o India Infrastructure Finance Corporation (IIFC), in partnership with ADB, to help infrastructure companies to

access the bond market to tap long-term funds

x States which have completed Pradhan Mantri Gramin Sadak Yojana will be eligible for PMGSY-II, others will

continue with PMGSY-I.

x Rs 14,873 crore allocated to Jawaharlal Nehru Urban Renewal Mission (JNNURM) in budget estimate 2013-14 as

against revised estimate of Rs 7,383 crore.

x Constitute a regulatory authority for the roads sector.

Investment

x 15 per cent investment deduction allowance apart from depreciation for companies investing Rs 100 crore or more

in plant and machinery in April1, 2013 to March 31, 2015.

Savingsx To incentivise greater savings, Rajiv Gandhi Equity Savings Scheme to be liberalised.

x Proposal to launch inflation indexed bonds or inflation indexed national security certificates to protect savings from

inflation.

Financial Sector

x Rs 14,000 crore will be provided to public sector banks for capital infusion in 2013-14.

x Foreign institutional investors will be allowed to participate in exchange-traded currency derivatives.

x FIIs, will be permitted to use their investments in corporate bonds and government securities as collateral to meet

their margin requirements.

Tax proposals

x Slabs and rate for personal income tax unchanged.

x Tax credit of Rs 2,000 to every person with total income up to Rs 5 lakh.

x 10 per cent surcharge on persons (other than complanies) with taxable income exceeding Rs 1 crore.

x Increase in surcharge from 5 to 10 per cent on domestic companies whose taxable income exceeds Rs 10 crores.

x Duty-free limit on gold raised to Rs 50,000 in case of males and Rs 100,000 in case of females.

x Specific excise duty on cigarettes and SUVs increased.

x Proposal for service tax on all air conditioned restaurants.

Subsidies

x Rs 10,000 crore of additional allocation to the Food Security Bill.

x Petroleum subsidies, at Rs 65000 crore, have been adequately provisioned for.


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Economy analysis

Key messages

x CRISIL Research estimates fiscal deficit at 5 per cent of GDP in 2013-14 as against the budget estimate of 4.8 per

cent. We expect a revenue shortfall since the governments disinvestment and spectrum auction targets are

ambitious given the past experience.

x To revive infrastructure investments, the budget announced an investment allowance of 15.0 per cent on plant and

machinery and setting up of two new industrial corridors, among other measures. However, fast-tracking procedural

approvals and removing administrative hurdles hold the key.

x The budget relies on one- time increase in tax revenue via surcharges to finance higher expenditure. Since these

one-off gains might not continue beyond 2013-14, the medium term fiscal consolidation looks difficult unless growth

picks up sharply.

Budget Realistic on growth

Figure 1: Real GDP growth

9.6

9.3

6.7

8.6

9.3

6.2

5.0

6.4

FY 07

FY 08

FY 09

FY 10

FY 11

FY 12

FY13AE

FY14Fy-o-y%

AE: Advance es timate, F: CRISIL Forecast

Source: Central Statistical Organisation (CSO), CRISIL

Research

x CRISIL Research retains its pre-budget outlook

for Indias GDP at 6.4 per cent in 2013-14. Our

forecast is broadly in line with the budgets growth

estimate (6.1 6.7 per cent).

x Drivers of growth as per the budget 2013-14 are

similar to that assumed by us: (i) normalmonsoons, (ii) continued efforts to maintain fiscal

discipline, (iii) removal of bottlenecks in the

mining sector and (iv) recovery in exports. While

the budget has announced steps to raise

corporate and infrastructure investment, speedy

implementation of these policies will be critical to

improve the growth outlook.

Services7.7% F

Industry5.1% F

Agriculture3.5% F


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Economy analysis

Figure 2: Extra budgetary measures needed to turn

around private sector investment

17.3

11.312.1

13.4

10.6

FY08 FY09 FY10 FY11RE FY12RE

% of GDP

RE: Revised estimate

Source:CSO, CRISIL Research

x The budget seeks to promote private corporate

investment by (i) speeding up project clearance

through the Cabinet Committee on Investment, (ii)

development of new industrial cities and corridors

and (iii) the provision for deduction of investment

allowance.

x Private corporate sector investment has fallen

from a high of 17.3 per cent of GDP in 2007-08 to10.6 per cent during 2011-12. Policy

announcements in the budget will have to be

complemented with the removal of procedural and

administrative hurdles to boost private

investment.

Figure 3: Boost to infrastructure investment

18.7

39.1

-10.3

7.6 8.98.5

27.5 29.6

19.9 21.7

Ministry ofPower

Ministry ofShipping

Ministry ofRoad transport

and highways

Ministry ofUrban

development

Railways

y-o-y% FY 13 (RE over actual) FY 14 (BE over RE)

Note:Based on Central Plan Outlay

Source:Budget documents, CRISIL Research

x The budget announced some measures to revive

investment in infrastructure such as raising thelimit for issuance of tax-free infrastructure bonds

up to Rs.50,000 crore and encouraging

infrastructure debt funds.

x The government proposes to award 3000 km of

roads during the first six months of 2013-14.

States which have successfully completed

PMGSY-I will now be eligible for PMGSY-II.

Setting up of a regulator for the road sector is

expected to expedite the projects.

x Allowing additional deduction of Rs 1 lakh on

interest on housing loan of Rs 25 lakh is expected

to spur affordable housing demand in the

economy.


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Economy analysis

Inflation expected at 6.5 per cent

Figure 4: WPI Inflation (average)

6.5

0.0

2.0

4.0

6.0

8.0

10.0

12.0

FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY13F FY14F

y-o-y %

F: CRISIL Forecasts

Source: Office of Economic Advisor, CRISIL Research

x In line with the budget, CRISIL Research expects

inflation to decline during 2013-14. We expect

WPI inflation to average 6.5 per cent during

2013-14 due to (i) lower international crude

prices, (ii) strengthening of the rupee against the

dollar and (iii) lower core inflation. However,

upside risks to inflation could stem from the Food

Security Bill if implemented.

x The budget proposes to conatin food inflation

through investments in agricultural supply chain

and research and development. The budget

allocated Rs. 27049 crore to the Ministry of

Agriculture, an increase of 22 per cent over the

previous year.

Marginal slippage on the fiscal front

Figure 5: Missing the deficit target

2.6

6.06.4

5.1

5.8

5.2 5.0 F

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 RE FY14 BE

% of GDP Budget ed Fis cal D ef icit Act ual Fis cal Def icit

RE: Revised Estimate, BE: Budget Estimate,

F: CRISIL Forecasts

Source: Budget Documents, CRISIL Research

x We believe that the fiscal deficit would slip to 5.0

per cent of GDP as against 4.8 per cent forecast

in the budget. This will be largely due to revenue

shortfall since we believe that the budgets target

of a 23.4 per cent revenue growth is difficut to

achieve.

x Given the governments poor track record of

meeting disinvestment and non-tax revenue

targets, the budget estimates for 2013-14 appear

ambitious.


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Economy analysis

Mild downside to bond yields

Figure 6: Interest Rates (March-end)

7.7-7.8

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 F Mar-14 F

10-year G-Sec yield Repo rate%

F: CRISIL Forecasts

Source: RBI, CRISIL Research

x The budget estimates net market borrowings to

be Rs. 4,84,000 crore in 2013-14, up from Rs

4,67,000 crore during 2012-13, which will create

an upside pressure on 10-year G-sec yields.

However, we expect a lowering of the repo rate

by 50-75 bps during the rest of 2013-14, due to

lower inflation. This will lower the floor for the G-

sec rate and soften yields to around 7.7-7.8 per

cent by March-end 2014.

x Lower yields will help reduce lending rates and

thereby increase credit growth to around 17.0 per

cent during 2013-14.

Policy measures to strengthen foreign inflows

Figure 7: Exchange Rate (March-end)

51.0

45.144.7

51.2

53.0

51-52

44.0

46.0

48.0

50.0

52.0

54.0

FY09 FY10 FY11 FY12 FY13 F FY14 F

INR/USD

F: CRISIL Forecasts

Source: RBI, CRISIL Research

x Given Indias high current account deficit, the

outlook for the rupee will depend on robust

capital inflows in 2013-14. Clarity over

implementation of GAAR provisions,

governments commitment to maintain fiscal

discipline and improved policy communication

should boost investor confidence and attract

foreign investments.

x Allowing FIIs to use their investments in

corporate and government bonds as collateral to

meet their margin requirements will help in

bringing foreign inflows into the economy.

x With the capital inflows providing sufficient cover

to the current account deficit (estimated at 3.5 per

cent of GDP in 2013-14), we expect the rupee to

settle around 51-52 by March-end 2014.


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Economy analysis

Table 1: Outlook 2013-14

(y-o-y, % growth) 2012-13 F 2013-14 F

GDP (factor cost) 1.8* 3.5

Agriculture 3.1* 5.1

Industry 6.6* 7.7

Services 5.0* 6.4

Other macroeconomic variables

WPI inflation (average) 7.4 6.5

Interest rate (10-year G-sec March-end) 8.0 7.7-7.8

Exchange rate (Rs-$ March end) 53 51-52

Fiscal deficit (% of GDP) 5.2** 5.0

Note: * CSO Advance Estimates, ** Revised Estimate, F- CRISIL forecast

Source: CSO, CRISIL Research

Fiscal Arithmetic?

Figure 8: Share of revenue and expenditure in GDP

6.0

9.0

12.0

15.0

18.0

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13RE

2013-14BE

Expenditure Revenue%

Note: RE: Revised Estimate, BE: Budget Estimate

Source: Budget Documents, CRISIL Research

x Revenue shortfall will push the fiscal deficit to 5.0

per cent of GDP. In recent years, most of the

fiscal slippage has been more an effect of

revenue shrinking - with actual revenues lower

than budgeted in the past four out of five years

(Table 2). Irrespective of the phase of growth, tax

revenues, which form around 80 per cent of total

revenues, have underperformed.

x Some of the revenue gains through hike in

surcharges will not last beyond 2013-14. Thus

achieving the medium term fiscal targets looks

difficult.


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Economy analysis

Table 2 Origins of fiscal slippage% of GDP FY 09 FY 10 FY 11 FY 12 FY 13 RE

1. Budgeted Fiscal Deficit 2.5 6.8 5.5 4.6 5.1

2. Effect of revenue shrinking (a+b+c+d) 1.9 1.2 -0.1 0.6 0.6

a) Tax revenue 1.6 1.0 0.4 0.4 0.3

b) Non tax revenue 0.1 0.6 -0.7 0.0 0.3

c) Disinvestment 0.1 -0.4 0.3 0.3 0.1

d) Other non debt receipts 0.0 0.0 -0.1 -0.1 0.0

3. Effect of expenditure overshooting (i+ii) 1.6 -1.5 -0.6 0.5 -0.5

4. Actual Fiscal Deficit (1+2+3) 6.0 6.5 4.8 5.7 5.2

RE: Revised Estimates

Source: Budget documents, CRISIL Research

Revenues: High targets, low achievement

Table 3 : Growth in revenue (y-o-y %)

2009-10 2010-11 2011-12 A 2012-13 RE 2013-14 BE

Direct tax 15.0 19.2 12.7 14.6 18.1

Indirect tax -10.0 38.1 11.5 19.5 20.2

Non-tax

revenue

19.9 88.0 -44.3 6.6 32.8

Total

Receipts *

(net of

borrowings)

10.8 35.9 -4.3 15.4 23.4

Note: Total receipts excluding borrow ings and other liabilities

RE: Revised Estimates, BE: Budget Estimates

Source: Budget docum ents , CRISIL Res earch

x In 2013-14, we expect revenue growth to be

lower (Table 3) due to lower proceeds from

disinvestment and spectrum sale.

Figure 9: Disinvestments consistenly fall short of targets

0.0

1.0

2.0

3.0

4.0

5.0

6.0

FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13RE

FY 14BE

BE Actual

% of total revenue

Note: RE Revised Estimate, BE- Budget Estimate

Source: Budget documents, CRISIL Research

x With its inability to raise tax revenue (Table 2),

the government has been increasing its

dependence on sources other than tax revenue,

such as disinvestment.

x This years disinvestment target of Rs 400 billion

seems difficult to achieve since revival in growth

is not expected to be as much and likely to hurt

investor sentiments. In order to achieve the

target, the government might need to start the

process of disinvesting early in the fiscal.


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Economy analysis

Subsidies adequately budgeted

Table 4: Growth in expenditure (y-o-y %)

2009-10 2010-11 2011-12 A 2012-13 RE 2013-14 BE

Revenue

Expenditure

14.9 14.1 10.1 10.2 13.7

Capital

Expenditure

25.0 39.0 1.3 5.8 36.6

Plan

Expenditure

10.2 24.9 8.8 4.1 29.4

Non-Plan

Expenditure

18.5 13.5 9.0 12.3 10.8

TotalExpenditure

15.9 16.9 8.9 9.7 16.4

RE: Revised Estimates, BE: Budget Estimates

Source: Budget docum ents , CRISIL Res earch

x CRISIL Research expects government

expenditure to grow at around 16.4 per cent in

2013-14, in line with budgetary estimates. Unlike

previous years, petroleum subsidies have been

adequately budgeted for. The budget also

accounts for petroleum under-recoveries carried

forward to 2013-14 from the previous year.

x However, an unforeseen increase in global

crude oil prices or a discontinuation of phased

deregulation in diesel prices during 2013-14

could raise petroleum subsidies above budgeted

levels. The additional allocation of Rs 10,000

crore for food subsidies under the budget may

not be sufficient if there is an all-India

implementation of the Food Security Bill in

2013-14.

Switching expenditures from revenue to capital account

Figure 10: Ratio of capital to revenue expenditures

0.11

0.13

0.20

0.16

0.00

0.05

0.10

0.15

0.20

0.25

2004-05to 2007-

08

2008-09 2009-10 2010-11 2011-12 2012-13RE

2013-14BE

Actual Cap Exp/ Rev Exp Budgeted Cap Exp/Rev Exp

Note: A - Actuals, RE Revised Estimate, BE- Budget

Estimate

F CRISIL Forecast

Source: CSO, Budget Documents, CRISIL Research

x The quality of government expenditure as

measured by the ratio of capital to revenue

expenditure has suffered in the recent years, and

is still well below the pre-crisis levels. During

2012-13, while revenue expenditure was almost

at budgeted levels, the government reduced

capital expenditure by 18 per cent from its

budgeted levels in order to contain the rising

fiscal deficit.

x The budget corrects for this partially by raising

growth in capital expenditures to 36.6 per cent

from only 5.8 per cent in 2012-13. However, it is

critical that the government does not slash capital

expenditure during the year if revenues fall short

of budgeted levels.

x The government has increased allocation

towards health and family welfare, higher

education and school education & literacy in

2013-14 budget. A continuation of suchinvestments is necessary for sustainable growth.


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CRISIL Bud etAnal sis

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Industr


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14


Overall sectoral impactIn the sector level analysis we have not incorporated proposals that are not sector specific such as increase in surcharge on corporatetax, proposals on dividend distribution tax and investment allowance.

Industry Effect

Airport infrastructure Neutral

Budget 2013-14 offers further concessions to Indian aircraft maintenance providers

The Indian aircraft manufacture, repair and overhaul (MRO) industry is in its nascency. The domestic MRO service

providers usually have a revenue sharing arrangement with airport developers. In order to give a fillip to the industry, a

full exemption from customs duty and countervailing duty for aircraft spares, tyres and testing equipment was proposed

for Indian MRO service providers in the last budget. In Union Budget 2013-14, further concessions for aircraft

maintenance facilities have been proposed. The move is expected to help Indian MROs to become viable and also aid

carriers to reduce aircraft maintenance costs.

Auto components & tyres Neutral

No impact on auto components and tyres

With no change in basic customs duty & excise duty, we do not expect any significant impact on the auto components

and tyres industries. Doubling of SIDBIs re-financing capabilities will benefit a large number of Tier II and III vendors.

Duty concessions on parts of electric & hybrid vehicles have been extended but its impact will be insignficant, given the

low population of these vehicles in India. Royalty payments to foreign companies will now be taxed at a higher rate, but

will be subject to direct tax avoidance treaties that are already in place. The overall impact of these measures will be ltd.

Automobiles Neutral

Marginally negative for utility vehicles; neutral for other segments

With excise duty being hiked to 30 per cent from 27 per cent, demand for non-taxi sports utility vehicles with engine

capacity above 1500 cc (and more than 4,000 mm long; ground clearance of over 170 mm), will be marginally impacted.

Demand for luxury cars (priced over $40,000 and/or engine capacity exceeding 3000 cc for petrol cars and 2500 cc for

diesel cars) will be hit, with basic customs duty being hiked to 100 per cent from 75 per cent. An increase in basic custom

duty to 75 per cent from 60 per cent will impact sales of motorcycles with engine capacity of 800 cc or more. However,

these high-end vehicles constitute a miniscule portion of the overall sales for the industry. The purchase of 10,000 buses

under the JNNURM and a reduction in excise duty on truck chassis to 13 per cent will benefit commercial vehicle sales.

Banking Positive

Recapitalisation of PSBs and boost to housing finance

The Union Budget proposes to provide Rs 140 billion as capital support to all public sector banks (PSBs) in 2013-14. The

government also stated its intent to help PSBs comply with Basel III regulations.For 2013-14, banks have been directed

to lend Rs 7,000 billion to the agri sector an increase of 21.7 per cent over the target for 2012-13. Farmers who avail of

farm loans from PSBs and repay in a timely manner get loans at subsidised rates. They will now be able to access this

credit facility from private banks as well. We believe this move will help private banks increase lending to this segment.

The clear focus on giving a boost to the housing market is also positive for financiers. An additional tax deduction of Rs

100,000 on interest paid towards home loans up to Rs 25 lakh availed in 2013-14 for first home buyers (over and above

the existing Rs 1,50,000 deduction) has been introduced for 2013-14, to give a boost to the affordable housing segment.

This additional deduction can be claimed over a period of 2 years. In addition, an amount of Rs 20 billion has been

allocated towards a proposed Urban Housing Fund to be set up by the NHB.Continued


19/106

continued

Industry

Cement

Hike in freight costs to offset the ben

The Union Budget 2013-14 has propos

to prop up cement demand. However,

companies, due to the proposed hike i

component linked revision of freight rate

Construction

Measures to boost investments in ro

Issue of tax-free bonds raised by gover

14 up to a total limit of Rs 500 billion.

ports and power.

In the roads sector, the budget propos

help in reducing delays and fast-trackin

Yojana (PMGSY) II has been announce

Allocation towards the JNNURM progra

2013-14 over the previous year. This

addition, allocation to the Ministry of

driving investment, particularly in water

Fertilisers

Fertiliser subsidy for 2013-14 to rema

In 2013-14, the governments fertiliser s

the demand for complex fertilisers is

fertilisers is likely to be reduced, as in

indigenous urea for 2013-14 implies t

Further, unavailability of incremental d

feedstock to import gas at relatively hig

Overall se

efits arising from the boost to housing and infrast

d many schemes to boost infrastructure and housing

this upside is likely to be offset by the increase i

n railway freight. The Railway Budget 2013-14 has

s.

ds, urban infrastructure

nment agencies for infrastructure sectors has once a

his will provide additional funds to various infrastruct

s to set up an independent regulatory authority. In t

g the implementation of road projects. Further, the Pr

, which could boost investments in rural roads.

mme (Jawahar Lal Nehru National Urban Renewal Mi

ill boost spending on ongoing and upcoming urba

rinking Water and Sanitation has been increased b

upply and sanitation.

in unchanged y-o-y

ubsidy is expected to stay constant at last years level

likely to improve. This is because nutrient-based s

ernational prices soften. The increase in budgeted

at the government is not expected to hike retail ur

mestic natural gas will force plants converting from

er spot prices.

15

toral impact

Effect

Neutral

ucture

egments. This is expected

n freight costs for cement

roposed a fuel adjustment

Positive

ain been allowed in 2013-

ure sectors such as roads,

e medium term, this could

adhan Mantri Gram Sadak

sion) has been doubled in

infrastructure projects. In

y 17 per cent in 2013-14,

Neutral

l of Rs 659 billion, although

ubsidy (NBS) on complex

ubsidy of Rs 10 billion on

ea prices during the year.

high-cost naphtha/fuel oil

continued


20/106

16


Overall sectoral impactcontinued

Industry Effect

Hotels Neutral

Neutral impact on hotel industry

Impact of the Budget on the premium segment hotel industry is neutral. As of July 2012, only air-conditioned restaurants

that served liquor were levied a service tax at 12.36 per cent, with an abatement of 60 per cent (net service tax of 4.95

per cent). In the Union Budget of 2013-14, it has been proposed to include all air-conditioned restaurants, including those

which do not serve liquor, under the service tax net. This proposal is not expected to impact demand as the service tax

will be passed on to consumers.

Household appliances Neutral

No impact on household appliances industry

The Budget had no specific proposal pertaining to the household appliances industry. A tax credit of Rs 2,000 for a

person with income upto Rs 5 lakh per annum, introduced in the Union Budget 2013-14, will result in higher disposable

income in the hands of people in the lowest tax bracket. But, this is unlikely to translate into any meaningful impact on

the industry.

Housing Positive

Measures to tackle housing shortageFirst-time home buyers taking a loan of up to Rs 25 lakh in 2013-14 can avail of an additional interest deduction of Rs 1

lakh in the first year, over and above the existing Rs 1.5 lakh benefit. This is likely to boost new home sales.

Allocation towards Rural Housing Fund has been increased by 50 per cent to Rs 6,000 crore for 2013-14. A Rs 2,000-

crore Urban Housing Fund by the National Housing Bank is also being proposed. These steps will boost fund availability

and address the overall housing shortage.

However, service tax abatement for premium apartments (with a carpet area of 2,000 sq ft or above and/or valued at Rs

1 crore or more) has been reduced to 70 per cent from 75 per cent. While this would result in an increase of 0.6 per cent

in the effective service tax rate, the impact on demand is expected to be negligible.

Information technology Neutral

No significant impact on the IT sector

The Budget does not have any specific proposals for the IT sector. Focus on education and skill development is a

structurally long-term positive for the sector. The increase in surcharge from 5 per cent to 10 per cent for companies with

taxable income higher than Rs 100 million will increase the effective MAT levied to 21 per cent, from the current 20 per

cent. The additional surcharge will be applicable only for the financial year 2013-14.

continued


21/106

continued

Industry

Media & entertainment

Budget to not impact sector significa

The Budget impact on the media & e

boxes (STBs) to 10 per cent from 5 per

multi-system operators in the short term

on to subscribers. At a sector level, this

its intent to auction 839 FM stations in

than 0.1 million with private FM radio se

Non-ferrous metals

Negligible impact

The 10 per cent export duty levied on

negligible as India exports less than

production) were exported.

Excise duty of 4 per cent has been levi

duty levied on silver obtained from co

accounts for a mere 5-10 per cent of

expected to be negligible.

Oil and gas

Change in exploration policy to be m

The proposed change in the exploratio

contracts is marginally positive for ups

ascertaining of costs related to explor

authority. This policy will be applicable

the long term. Furthermore, clearance

declared a review of the current natural

exploration investments. Additionally, a

improve domestic natural gas productio

Paper

Increase in education spending to he

The government has proposed a 19

demand for Creamwove paper, which i

stationery. Creamwove paper accounts

Overall se

ntly

tertainment sector would be neutral. The increase i

cent would increase subscriber acquisition costs of di

, as most STBs are still imported and the entire cost i

is not expected to have a significant impact. Meanw

294 more cities in 2013-14, thereby covering all citie

rvices.

bauxite will help improve its domestic availability. H

per cent of its production. In 2011, 0.4 mn tonnes

d on silver obtained from smelting zinc or lead, to bri

per ores and concentrates. As the sale of by-produ

a zinc manufacturers revenues, the impact of the

rginally positive

n policy to revenue sharing from profit sharing for ex

tream companies, as this is expected to remove a

tion and development, and will avoid delays in ap

for the blocks that will be awarded henceforth, and t

will be provided to awarded but stalled NELP blo

gas pricing policy, which is positive for the sector, as

shale gas policy is expected to be announced in 20

only over the long term.

lp sustain demand for Writing & Printing paper

er cent increase in spending on education in 2013

primarily used in the manufacture of textbooks, note

for 17 per cent of paper and paperboard demand.

17

toral impact

Effect

Neutral

n customs duty on set-top

rect-to-home operators and

crease may not be passed

ile, the government stated

with a population of more

Neutral

owever, the impact will be

of bauxite (2 per cent of

ing the rate on par with the

cts such as silver typically

increase in excise duty is

Positive

ploration and development

y ambiguity related to the

rovals from the regulatory

e benefits will accrue over

cks. The government also

it is expected to incentivise

3-14. However, this would

Neutral

-14. This will help sustain

books and other education

continued


22/106

18



Industry Effect

Petrochemicals Neutral

No impact on the industry

The overall impact on the domestic petrochemicals industry is neutral as no major changes have been announced and

excise duty and customs duties remain unchanged. Companies that have expansion plans or invest above Rs 1 billion

over the next two financial years may benefit from the introduction of 15 per cent investment allowance for plant and

machinery.

Pharmaceuticals Neutral

No dosage prescribed

The overall impact on the Indian pharmaceuticals industry is neutral with no changes announced in the excise or

customs duties on formulations or bulk drugs.

Ports Neutral

Announcement of new ports in a period of overcapacity

The proposal to develop a new major port each in Sagar, West Bengal, and in Andhra Pradesh will add 100 million

tonnes of capacity. Further, a new outer harbour in the V.O. Chidambaranar port in Tamil Nadu through PPP will add

another 42 million tonnes of capacity. Both these measures will lead to an increase in port capacities in a phased manner

over a period of 5-6 years. There are limited benefits for private players as traffic at ports continue to register moderate

growth and overall capacity utilisation rates are expected to decline. Allocation of funds in the form of tax-free

infrastructure bonds and low-cost infrastructure debt funds is expected to marginally benefit the sector by facilitating

availability of funds for port projects.

Power Positive

Sunset clause extension and incentives for renewable energy to benefit power sector

Extension of the sunset clause by one year, to avail the 10-year tax holiday, would benefit 18-20 GW of capacities

expected to be commissioned in 2013-14. Funding availability for the sector will improve with issuance of tax-free bonds

of Rs 500 billion and credit enhancement through IIFCL. Additionally, the proposal to adopt a PPP framework for coalproduction will improve domestic coal supply in the long term.

Customs duty on imported coal, which was previously exempt, has been increased to 2 per cent, while CVD has been

increased by 1 per cent. Further, as per the Railway Budget 2013-14, freight rates have been hiked by 5.8 per cent.

Consequently, generation costs would increase by 2-3 paise per unit for domestic coal-based power projects. However,

for imported coal-based power projects, generation costs are expected to increase by 5-6 paise per unit.

Investments in wind energy, which nearly halved in 2012-13 due to withdrawal of benefits, are expected to increase

significantly due to reinstatement of generation-based incentive (GBI), with an outlay of Rs 8 billion. Further, capacity

additions in solar power are expected to increase, with interest subvention for a period of five years by IREDA, through

the National Clean Energy Fund.

continued


23/106

continued

Industry

Roads & highways

Budget addresses funding concerns

The government has allowed the issue

total limit of Rs 50,000 crore. This is e

(NHAI) for executing national highway p

Another positive for the roads sector is

this could help in reducing delays and f

After the substantial completion of th

introduced, which will provide a boost

contractors.

Steel

Neutral impact for the steel industry

There are no major announcements f

proposed schemes providing a boost t

steel in the long run.

Sugar

No impact on industry

There is no impact of the Budget on the

Overall se

and delays

of tax-free bonds to fund infrastructure sectors onc

xpected to provide additional funds to the National

rojects. We believe that it will allow NHAI to award co

the proposal to set up an independent regulatory aut

stracking the implementation of road projects.

Pradhan Mantri Gram Sadak Yojana (PMGSY), t

to rural road development. This is expected to b

r the steel industry. Hence, the overall impact on

the infrastructure and housing segments are likely t

domestic sugar industry.

19

toral impact

Effect

Positive

again in 2013-14 up to a

ighways Authority of India

tracts on EPC basis.

hority. In the medium term,

e PMGSY II has been

nefit the small local road

Neutral

the sector is neutral. The

give a fillip to demand for

Neutral

continued


24/106

20



Industry Effect

Telecom Neutral

Neutral impact on the sector

The Budget would have a neutral impact on the telecom sector. The excise duty on mobile phones, with retail price

greater than Rs 2,000, has been hiked to 6 per cent, from 1 per cent. This will not significantly impact domestic

manufacturers since most of their phones sold are basic feature phones priced below this level. A large proportion of

high-end smartphones are imported.

Textiles Positive

TUFS extension, removal of excise duty on readymade garments beneficial

The Budget is positive for the sector as the Technology Upgradation Fund Scheme (TUFS) has been extended and the

excise duty on readymade garments has been abolished. TUFS, which is essential to attract investments into the sector,

has been extended for the 12th Five-Year Plan, with an investment target of Rs 1,510 billion as compared to Rs 1,506

billion under the 11th Five-Year Plan. For 2013-14, budgetary allocation under the TUFS has been increased to Rs 24

billion from Rs 22 billion in 2012-13. Additionally, the excise duty of 3.6 per cent (12 per cent of 30 per cent of the

maximum retail price) on readymade garments, which was mandatory last year, has been removed. Garment

manufacturers are expected to see an improvement in margins despite partially passing on the benefit to end-users.


25/106

Company

ACC Ltd.

Adani Power Ltd.

Aditya Birla Nuvo Ltd.

Alok Industries Ltd.

Ambuja Cements Ltd.

Amtek Auto Ltd.

Andhra Pradesh Paper Mills Ltd

Arvind Mills Ltd.

Ashok Leyland Ltd.

Bajaj Auto Ltd.

Bajaj Hindustan Ltd.

Balaji Telefilms Ltd .

Ballarpur Industries Ltd.

Balrampur Chini Mills Ltd.

Bannari Amman Sugars Ltd.

Bharat Forge Ltd.

Bharti Airtel Ltd.

Bhushan Steel Ltd.

Bosch Ltd.Cairn India Ltd.

Chambal Fertilisers & Chemicals Ltd.

Chemplast Sanmar Ltd.

Cipla Ltd.

Coromandel Fertilisers Ltd.

Dish TV India Ltd.

DLF Ltd.

Dr Reddy's Laboratories Ltd.

EID Parry Ltd.

EIH Ltd.

Entertainment Network India Ltd.

Essar Steel Ltd .

Exide Industries Ltd.

Finolex Industries Ltd.

Firstsource Solutions Ltd.

Overall comImpact Industry

Q Cement

Q Power

K Textiles

K Textiles

Q Cement

Q Auto Components & Tyres

Q Paper

K Textiles

K Automobiles

Q Automobiles

Q Sugar

Q Media & Entertainment

Q Paper

Q Sugar

Q Sugar


Q Telecom

K Steel

QAuto Components & Tyres

K Oil & Gas

Q Fertiliser

Q Petrochemicals

Q Pharmaceuticals

Q Fertiliser

L Media & Entertainment

Q Housing

Q Pharmaceuticals

Q Sugar

Q Hotels

K Media & Entertainment

K Steel


Q Petrochemicals

Q Information technology

Continued

21

pany impact


26/106

22


Overall company impactcontinued

Company Impact Industry

Gammon India Ltd. K Roads/Construction

Glenmark Pharmaceuticals Ltd. Q Pharmaceuticals

GMR Infrastructure Ltd. Q Airports

Gokaldas Exports Ltd. K Textiles

Grasim Industries Ltd. K Textiles

Gujarat Pipavav Ltd. Q Ports

Gujarat State Fertilisers Company Ltd. Q Fertiliser

GVK Power and Infrastructure Ltd. Q Airports

Hathway Cable & Datacom Ltd. L Media & Entertainment

HCL Technologies Ltd. Q Information technology

HDFC Bank Ltd. Q Banking

Housing Development and Infrastructure Ltd. Q Housing

Hero Motocorp Ltd. Q Automobiles

Hindalco Industries Ltd. Q Non-Ferrous Metals

Hindustan Construction Co Ltd. K Roads/Construction

Hindustan Copper Ltd. Q Non-Ferrous Metals

Hindustan Organic Chemicals Ltd. Q Commodity Chemicals

Hindustan Zinc Ltd. Q Non-Ferrous Metals

Hotel Leelaventure Ltd. Q Hotels

HT Media Ltd. K Media & Entertainment

ICICI Bank Ltd. Q Banking

Idea Cellular Ltd. Q Telecom

IG Petrochemicals Ltd. Q Commodity Chemicals

India Cements Ltd. Q Cement

Indian Hotels Company Ltd. Q Hotels

Indo Rama Synthetics (India) Ltd. Q Textiles

Infosys Ltd.Q

Information technologyIRB Infrastructure Developers Ltd. K Roads/Construction

IL&FS Transportation Networks (India) Ltd K Roads/Construction

IVRCL Infrastructures & Projects Ltd. K Roads/Construction

JBF Industries Ltd. Q Textiles

JK Paper Ltd. Q Paper

JSW Energy Ltd. Q Power

JSW Steel Ltd. K Steel

Larsen & Toubro Ltd. K Roads/Construction

Mahindra & Mahindra Ltd. Q Automobiles

continued


27/106

continued

Company

Maruti Suzuki Ltd.

MIRC Electronics Ltd.

Mahanagar Telephone Nigam Ltd.

Mundra Airport and SEZ Ltd.

Nagarjuna International Ltd.

National Aluminium Company Ltd.

National Fertilisers Ltd.

National Thermal Power Corporation Ltd.

Oil and Natural Gas Corporation Ltd.

Oil India Ltd.

Orient Green Power Ltd.

Oriental Hotels Ltd.

Parsvnath Developers Ltd.

Phillips Carbon Black Ltd.

Punjab National Bank Ltd.

PVR Ltd.

Ranbaxy Laboratories Ltd.

Rashtriya Chemicals and Fertilisers Ltd.

Raymond Ltd.

Reliance Communications Ltd.

Reliance Industries Ltd.

Reliance Power Ltd.

Seshasayee Paper and Boards Ltd.

Shree Cement Ltd.

Shree Renuka Sugars Ltd.

Sobha Developers Ltd.

Sona Koyo Steering Systems Ltd.State Bank of India Ltd.

Steel Authority of India Ltd

Sterlite Industries (India) Ltd

Sun Pharmaceutical Industries Ltd

Sun TV Ltd

Sundaram Fasteners Ltd.

Overall com

Impact Industry

Q Automobiles

Q Household appliances

Q Telecom

Q Ports

Q Fertiliser

Q Non-Ferrous Metals

Q Fertiliser

K Power

K Oil & Gas

K Oil & Gas

K Power

Q Hotels

Q Housing

Q Commodity Chemicals

K Banking


Q Pharmaceuticals

Q Fertiliser

K Textiles

Q Telecom

K Oil & Gas

K Power

Q Paper

Q Cement

Q Sugar

Q Housing

QAuto Components & Tyres

K Banking

Q Steel

Q Non-Ferrous Metals

Q Pharmaceuticals



continued

23

pany impact


28/106

24


Overall company impactcontinued

Company Impact Industry

Supreme Petrochem Ltd. Q Petrochemicals

Suzlon Energy Ltd. K Power

Taj GVK Hotels & Resorts Ltd. Q Hotels

Tamil Nadu Newsprint and Papers Ltd. Q Paper

Tamil Nadu Petroproducts Ltd. Q Commodity Chemicals

Tata Communications Ltd. Q Telecom

Tata Motors Ltd. Q Automobiles

Tata Power Company Ltd. Q Power

Tata Steel Ltd. Q Steel

Tata Consultancy Services Ltd. Q Information technology

Thirumalai Chemicals Ltd. Q Commodity Chemicals

UltraTech Cement Ltd. Q Cement

Unitech Ltd. Q Housing

Vardhaman Textiles Ltd. K Textiles

Videocon Industries Ltd. Q Household appliances

Welspun India Ltd. K Textiles

Whirlpool of India Ltd. Q Household appliances

Wipro Ltd. Q Information technology

Zee Entertainment Enterprises Ltd. Q Media & Entertainment

Zuari Industries Ltd. Q Fertiliser


29/106

25

AirportInfrastructure

Indian airports: Negative passenger and freight traffic growth

India`s domestic air passenger traffic is estimated to have declined by about 6 per cent y-o-yduring April-November

2012. This is in sharp contrast to the almost double-digit growth recorded in domestic traffic since the advent of low

cost carriers five years ago. Kingfisher Airlines exit due to financial turmoil and subsequent consolidation in the

industry has led to lower competiton and a steep increase in ticket prices in 2012-13. Higher ticket prices in turn

impacted demand growth, aggravated by the slowdown in the economy. We expect domestic passenger traffic to

grow at a muted 3-5 per cent y-o-y in 2013-14.

India's international passenger traffic however, grew by a mere 2.8 per cent y-o-y during April-November 2012 as

Indian carriers are still in a position to add capacities unlike international carriers who have more or less exhausted

seat quotas available to them under bilateral treaties. We expect international passenger traffic in India to grow at a

muted 3-4 per cent y-o-y in 2013-14.

Due to the slowdown in the global and domestic economies, domestic and international freight traffic fell by 4.7 per

cent and 1.6 per cent y-o-y, respectively during April-November 2012. Freight traffic is expected to grow marginally

during 2013-14.

In 2012-13, CRISIL Research estimates investments of Rs 50-60 billion to flow into the sector, majority of which

would be accounted for by the completion of the Mumbai and Bengaluru international airports. CRISIL Research

expects investments of Rs 290-310 billion to materialise between 2012-13 and 2016-17.

The Airports Economic Regulatory Authority recently mitigated the uncertainty on regulatory issues, approving

methodology for determining aeronautical tariffs and its measure of allowing a significant hike in the aeronautical

tariff charged by DIAL and MIAL. With these, the financials of these airports are expected to improve.


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26


AirportInfrastructure

Aircraft maintenance to get concessions

Company Impact Impact factors

GMR Infrastructure Ltd Q A

GVK Infrastructure Ltd Q A

Note:

1) GMR Infrastructure Ltds subsidiary companies, Delhi International Airport Ltd (DIAL) and

GMR Hyderabad International Airport Limited (GHIAL), operate airports in Delhi and

Hyderabad, respectively. Revenues from the airports business contributed

52 per cent of its consolidated income in 2011-12.

2) GVK Power and Infrastructure Ltd has its subsidiary companies,Mumbai International Airport Ltd (MIAL) and Bengaluru International Airport

Ltd (BIAL), operating in Mumbai and Bengaluru, respectively.

Revenues from the airport business contributed 86 per cent of its

consolidated income in 2011-12.

3) The above impact applies to the airports business of these two companies.Source: CRISIL Research

Impact factors

A. The Indian aircraft manufacture, repair and overhaul (MRO) industry is at a nascent stage. More than 90 per cent of

the estimated $700 million that Indian carriers annually spend on MRO is spent outside the country (South East

Asia, Middle East or Europe). Therefore, in order to give a fi llip to the industry, in the last budget, a full exemption

from customs duty and countervailing duty for aircraft spares, tyres and testing equipment was proposed for the

Indian MRO service providers. In the Union Budget 2013-14, further concessions for aircraft maintenance facilities

have been proposed. They are:

x At present, basic customs duty exemption is available to parts and testing equipments for maintenance, repair

and overhaul of aircrafts. This exemption is now being further extended to include more parts.

x Time period for consumption/installation of parts and testing equipments imported for MRO of aircrafts by units

engaged in such activities is being extended from 3 months to 1 year.

x The move is expected to help carriers reduce aircraft maintenance costs and help MRO units in India (GMR

Infrastructure Ltd, which runs a facility in Hyderabad, and Air India Ltd, which has such units in Mumbai and

Delhi) become viable.


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27

Auto components & tyres

Auto components: Modest recovery in growth; margin pressure to abate in 2013-14

Auto component production is estimated to grow by 5-7 per cent y-o-y in 2012-13 vis--vis a 14 per cent growth in

2011-12 due to slowing vehicle production growth across segments, particularly medium and heavy commercial

vehicles (30 per cent of overall demand), and slower exports.

In 2013-14, auto component production is expected to improve in line with OEM prospects, particularly within the CV

segment. OEM demand is expected to grow by 9-11 per cent during the year. Growth in replacement production will

remain stable at 6-8 per cent. Growth in exports would remain capped at 7-9 per cent owing to uncertainties over EU

destination markets (30-35 per cent of exports) even as prospects for the US market (20-25 per cent of exports)

seem healthy.

While basic raw material costs (accounting for 60-65 per cent of total raw material cost) have remained flat y-o-y

during April-December 2012, lower utilisation levels and higher conversion costs of labour and power have kept

operating margins under pressure. Operating margins are estimated to fall by 120-170 bps y-o-y to 12.3-12.8 per

cent for 2012-13. While input prices are expected to remain flat in 2013-14 along with an improvement in utilisation

levels, margin improvement is likely to be constrained at under 50 bps given the continued weak pricing environment

during the first half of 2013-14.

Industry RoCE is estimated to decline by 400-500 bps in 2012-13 owing to pressure on operating margins. RoCE is

expected to remain at current levels of 13-14 per cent in 2013-14, even as margins improve slightly with

commissioning of incremental capacities.

Tyres: Operating margins to remain flat in 2013-14

The tyre industrys revenues are estimated to grow by 9-11 per cent y-o-y in 2012-13, led by an increase in tyre

prices during 2011-12. Domestic demand is expected to grow by 0-3 per cent due to lower freight availability and

tepid growth in vehicle sales. In 2013-14, we forecast revenues to grow by 6-8 per cent in line with a growth in sales.

Operating margins are estimated to improve by 200 bps in 2012-13 due to easing input cost and growth in

realisations. Margins are likely to stay flat in 2013-14, as input prices continue to remain stable.

Prices of natural rubber (35-40 per cent of the raw material cost) are projected to decline by 12-15 per cent in 2012-

13 after growing by 80 per cent between 2009-10 and 2011-12. We expect natural rubber prices to remain flat or

decline marginally in 2013-14.

In 2012-13, industry RoCE is estimated to improve by 300-400 bps, led by improvement in profitability and lower

capital investments. In 2013-14, we expect RoCE to improve marginally due to lower capital investments.


32/106

28



Auto parts: Tariffs(per cent) Customs Excise

2012-13 2013-14 2012-13 2013-14

Engine and engine parts

7.7 7.7 12.4 12.4

Drive transmission, steering, suspension, braking

parts,silencer, exhaust pipes and radiators

10.3 10.3 12.4 12.4

Electrical parts1

7.7 7.7 12.4 12.4

Raw materials for auto components 7.7 7.7 12.4 12.41Customs duty for air conditioner machine parts is at 10.3%

Notes

1) Raw materials for auto components include galvanised plate (GP)/galvanised coil (GC) steel, hot rolled (HR)

steel, aluminium, copper and lead.

2) Duty-free imports from Thailand are allowed for engine parts, helical springs, ball bearings, lighting

equipment and gear boxes under the Free Trade Agreement.

Source: CRISIL Research

Tyres: Tariffs, prices and landed costs

Tariffs (per cent) Prices (Feb 2013) Landed costs (Rs/tonne)

Customs Excise Domestic International Pre- Post-

2012-13 2013-14 2012-13 2013-14 (Rs/tonne) ($/tonne) budget budget

New tyres 10.3 10.3 10.3 10.3 - - - -

Used/retreaded tyresTruck and bus 10.3 10.3 10.3 10.3 - - - -

Car cross ply/

Radials

10.3 10.3 10.3 10.3 - - - -

Raw materials for tyres

Natural rubber 20.0 20.0 (Note 1) (Note 1) 156,974 3,246 223,760 223,760

SBR (1502) 10.3 10.3 10.3 10.3 n.a. 2,300 136,363 136,363

PBR (1220) 10.3 10.3 10.3 10.3 155,000 2,550 153,732 153,732

NTC fabric 10.3 10.3 10.3 10.3 n.a. n.a. n.a. n.a.

Carbon black

(N330)

5.2 5.2 10.3 10.3 n.a. n.a. n.a. n.a.

NTC: Nylon tyre cord; PBR: Polybutadiene rubber; SBR: Styrene butadiene rubber

n.a.: Not available

Notes

1) For natural rubber, there is a cess of Rs 2 per kg in lieu of excise duty with effect from September 1, 2011.

2) Customs duty on natural rubber will be charged at 20% or Rs 20 per kg, whichever is lower, from April 2011.

3) China and South Korea enjoy a preferential customs duty of 8.6% on tyres under the Asia-Pacific

Trade Agreement.

4) New tyres include the following categories: Truck and bus, light truck, car (cross ply and radial), tractor front,

tractor rear, tractor trailor, moped, scooter and motorcycle.

5) An additional countervailing duty of 4% is levied on raw materials except for NTCF

6) Prices and landed cost are average rates for February 2013.



33/106

29


Budget 2013 to have neutral impact on auto component and tyre manufacturers

Auto components: Company impact


Bharat Forge Ltd Q -

Bosch Ltd Q A

Amtek Auto Ltd Q -

Sona Koyo Steering Systems Ltd Q A

Sundaram Fasteners Ltd Q -

Exide Industries Ltd Q A


Impact factors

A. Tax on royalty payments to foreign companies has been increased. But this is unlikely to have a significant impact

as Indian auto component and tyre manufacturers generally pay under 2 per cent royalty to companies based in

countries with favourable treatment under Double Tax Avoidance Agreements.

B. SIDBIs re-financing capabilities have been doubled to Rs 100 billion per annum. This will help SMEs which make up

the majority of auto component manufacturers.


34/106

30


Automobiles

Demand growth to recover, margins to be improve slightly in 2013-14

Lower freight availability and a rise in fuel cost impacted transporters profitability in 2012-13. We therefore expect

MHCV truck sales to decline by about 25 per cent in 2012-13. LCV sales growth is also likely to be limited to 15-17

per cent (over a 30 per cent growth in 2011-12), as private consumption growth slows the most in a decade. Overall,

we expect CV sales to marginally decline in 2012-13.

Slower growth in incomes, fuel price hikes and high interest rates continued to impact car sales in 2012-13. We

therefore expect growth in car sales to remain flat during the year despite a tepid growth of 2 per cent recorded in

2011-12. However, utility vehicle (UV) sales are likely to continue growing by 38-40 per cent, led by new model

launches and increased preference for diesel vehicles. Overall, passenger vehicle sales are estimated to grow by 8-

10 per cent in 2012-13.

Growth in two-wheeler sales is expected to moderate to 3-5 per cent in 2012-13, following two years of healthy

growth. Slower growth in farm incomes and higher fuel prices have impacted motorcycle sales during the fiscal.

However, scooter sales are estimated to grow by 15-17 per cent, aided by new model launches and expansion of

capacity by leading manufacturers which addressed pent up demand.

In 2013-14, with GDP growth expected to be higher, concerns over income growth are also likely to ease. Moreover,

an expected decline of 8-10 per cent in in petrol prices will drive a recovery in small car sales, which in turn will aid a

9-11 per cent growth in passenger vehicle sales. Higher rural incomes owing to normal monsoons will also drive up

two-wheeler sales by 9-11 per cent. However, MHCV sales growth is expected to lag GDP growth and remain weak

at 5-7 per cent (despite a low base), until transporters utilisation levels improve. LCV sales will however continue to

grow by 14-16 per cent.

Operating margins of automobile manufacturers are estimated to decline sharply in 2012-13 due to lower capacity

utilisation and firm input cost. However, in 2013-14, margins are likely to slightly improve as prices of raw materials

like steel decline and sales volumes recover.


35/106

31

Automobiles

Automobiles: Tariffs(per cent) Customs Excise

2012-13 2013-14 2012-13 2013-14

New cars1

-Completely knocked down units (CKD)#

10.3 10.3 - -

-Semi-knocked down units (SKD) 61.8 61.8 - -

-Completely built units (CBU) 61.8 61.8^^ - -

-Specified small cars2

- - 12.4 12.4

-Other than specified small cars3

- - 24.7* 24.7*

Utility vehicles 61.8 61.8 24.7 24.7**

Two-wheelers^

61.8 61.8 12.4 12.4

Trucks (LCVs and MHCVs) 10.3 10.3 12.4@ 12.4@

Buses (LCVs and MHCVs) 10.3 10.3 12.4@

12.4@

Tractors 10.3 10.3 - -

Steel items 7.7 7.7 12.4 12.4

Pig iron 5.2 5.2 12.4 12.4

Engine and engine parts

- Four-wheelers 7.7 7.7 12.4 12.4

- Two-wheelers 7.7 7.7 12.4 12.4

Drive transmission, steering, suspension, braking

parts,silencer, exhaust pipes and radiators

- Four-wheelers 10.3 10.3 12.4 12.4

- Two-wheelers 10.3 10.3 12.4 12.4

Electrical parts4 7.7 7.7 12.4 12.4

LCV: Light commercial vehicles; MHCV: Medium and heavy commercial vehicles

1All Hybrid cars and cars based on fuel cell or Hydrogen cell technologies enjoy

concessional excise duty of 4 per cent

2Specified small cars include cars with length not exceeding 4,000 mm and engine

capacity not exceeding 1,200 cc for petrol cars and 1,500 cc for diesel cars.

3Others will include cars with length exceeding 4,000 mm and

engine capacity not exceeding 1,200 cc for petrol cars and 1,500 cc for diesel cars.

4

Customs duty for air conditioner machine parts is at 10.3 per cent

@Tax of 13.4 per cent or 25.8 per cent is applicable on transactions where only commercial vehicles

chassis is sold

* Additional duty of 3 per cent will be charged on cars and utility vehicles exceeding

length of 4000 mm and which are of 1500 cc and above

**Duty for utility vehicles with engine capacity exceeding 1500 cc length exceeding 4000 mm and

having ground clearance of 170 mm is 30.9 per cent

# CKD for vehicles with pre assembled engine and transmission parts is 30 per cent

^Customs duty on motorcycles with engine capacity of 800 cc or more

has been increased from 61.8 per cent to 77.3 per cent

^^Customs duty on CBUs priced (CIF) over $40,000, with engine capacity exceeding3000cc for petrol-run vehicles, 2500 cc for diesel-run vehicles, is 103 per cent



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Automobiles

Budget marginally negative for utility vehicles; neutral for other segments


Maruti Suzuki Ltd Q -

Tata Motors Ltd Q A, B, C, D

Ashok Leyland Ltd K B,D

Bajaj Auto Ltd Q E

Hero Motocorp Ltd Q E

Mahindra & Mahindra Ltd Q B, E

Note: Company list is classified as per sector classification


Impact factors

A. Demand for high-end imported luxury cars (with CIF value exceeding $40,000 and an engine capacity of over 3000

cc for petrol-run vehicles and 2500 cc for diesel-run vehicles) will be impacted as the basic customs duty has been

raised to 100 per cent from 75 per cent. Similarly, sales of motorcycles (with an engine capacity of 800 cc or more)

will be impacted by an increase in the basic customs duty to 75 per cent from 60 per cent. However, these high-end

vehicles constitute a miniscule portion of the industrys overall sales.

B. The excise duty on cars, two-wheelers and commercial vehicles remains unchanged at 12 per cent. Demand for

non-taxi sports utility vehicles (defined as a motor vehicle of length exceeding 4,000 mm and having a ground

clearance of 170 mm and above) with an engine capacity above 1500 cc, will be marginally affected by the increase

in excise duty to 30 per cent from 27 per cent. Sales of such vehicles, which account for 10-12 per cent of total

domestic passenger vehicle sales, grew by about 16 per cent during April 2012 to January 2013. A reduction in

excise duty on truck chassis to 13 per cent from 15 per cent will marginally benefit commercial vehicle sales.

C. Surcharge of 10 per cent on annual incomes exceeding Rs 1 crore could marginally impact demand for luxury

vehicles. Currently, these vehicles account for less than 3-4 per cent of industry sales.

D. An increase in allocation under JNNURM will aid purchase of 10,000 buses and will benefit bus manufacturers.

E. Extension of interest rate subvention to farmers, focus on rural development schemes like the Mahatma Gandhi

National Rural Employment Gurantee Act (MGNREGA), Pradhan Mantri Gram Sadak Yojana (PMGSY) and Indira

Awaas Yojana (IAY), coupled with a 22 per cent increase in agri-credit al location to Rs 7,000 billion is expected to

have a marginally positive impact on sales of tractors and two-wheelers.


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Banking

Banking sector to witness marginal improvement in credit offtake in 2013-14

Sluggish growth in the economy, shelving of capital expenditure plans by companies, and risk aversion by banks led

to the overall deceleration in credit growth in 2012-13. Aggregate bank credit had grown by 16.4 per cent y-o-y as on

February 08, 2013, compared with 17.1 per cent as on March 23, 2012.

With GDP growth forecast to increase to 6.4 per cent from an estimated 5.0 per cent in 2012-13 and softening

interest rates, we expect 2013-14 to be marginally better for the banking industry as compared to 2012-13.

Aggregate bank credit is expected to grow by 17-18 per cent y-o-y, driven by improvement in agriculture growth,

consumption-led recovery in the economy and pre-election welfare spending by the government.

Deposits grew at a tepid pace of 13.3 per cent y-o-y as of February 08, 2013, owing to contraction of demand

deposits as well as slower growth of savings bank deposits. In 2013-14 as well, mobilising deposits will remain a

challenge for banks. While inflation is expected to moderate, term deposit rates are also likely to decline with the

reduction in policy rates. We expect bank deposits to grow by 14-15 per cent y-o-y in 2013-14.

Net interest margins will come under pressure in 2012-13 and are expected to decline by 10-15 bps due to

competitive pressure on yields and high cost of deposits.

Aggregate GNPAs of all public sector banks (PSBs) rose to 3.9 per cent as of December 2012 from 3.0 per cent as

of December 2011. During the same period, private banks GNPA improved by ~18 bps to 1.9 per cent. CRISIL

Research estimates the banking sectors GNPA will remain between 3.4-3.6 per cent by March 2014. GNPA is likely

to peak in the first half of 2013-14 and ease off thereafter as corporate cashflows start to improve owing to demandgrowth and moderating commodity prices. The rise in GNPAs will also be restricted by the improvement in loan

recovery ratio, sale of assets to asset reconstruction companies and debt restructuring to be undertaken by banks.


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Banking

Recapitalisation of PSBs and boost to housing finance


State Bank of India Ltd K A, B, C, D, E

Punjab National Bank Ltd K A, B, C, D, E

ICICI Bank Ltd Q B, C, D, E

HDFC Bank Ltd Q B, C, D, E


Impact factors

A. Capital support to PSBs

x The Budget proposed to provide Rs 140 billion as capital support to all PSBs in 2013-14. The government also

intends to help PSBs comply with Basel III regulations. Capital support will be critical for PSBs to continue to

pursue growth opportunities.

B. Home loans

x The clear focus on giving a boost to the housing market is also positive for financiers. An additional tax

deduction of Rs 100,000 on interest paid towards home loans upto Rs 25 lakh availed in 2013-14 by first-time

home buyers (over and above the existing Rs 150,000 deduction) has been introduced to give a boost to the

affordable housing segment. This additional deduction can be claimed over a period of 2 years.

x In addition, an amount of Rs 20 billion has been allocated towards a proposed Urban Housing Fund to be set up

by the National Housing Bank (NHB). Such a fund is likely to assist the NHB in providing refinance and will

mitigate the shortage of houses in urban areas.

C. Farm credit

x For 2013-14, banks have been directed to lend Rs 7,000 billion to the agriculture sector, 21.7 per cent higher

than the target for 2012-13.

x Farmers who avail of farm loans from PSBs and repay in a timely manner, get loans at subsidised rates. They

will now be able to access this credit facility from private banks as well, thereby helping private banks increase

lending to this segment.

D. Improving insurance penetration

x Banks have also been permitted to sell insurance products of multiple companies to increase insurance

penetration. The move will supplement the fee income for such banks.

x Additionally, banking correspondents have also been allowed to sell micro-insurance products.


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Banking

E. Post offices to contribute towards financial inclusion

x With an investment of Rs 49 billion (of which Rs 5.3 billion has be allocated in 2013-14) to modernise the postal

network, post offices will become part of the core banking solution and offer realtime banking services.

x Post offices are envisaged to contribute to financial inclusion in India.

F. Infrastructure Debt Funds (IDFs)

x In order to mobilise funds for an estimated Rs 55 trillion worth of investments in the infrastructure sector during

the Twelfth Five-Year Plan, the Union Budget encourages setting up of more IDFs. Currently, there are four

IDFs registered with SEBI.

x The IDFs will offer take-out finance, credit enhancements and other innovative means to provide long-term low-cost debt for infrastructure projects.

G. Inflation-indexed bonds

x In order to increase household financial savings so that they can be used productively to boost the economy,

the Budget proposes to introduce instruments that will protect savings from inflation, like inflation-indexed bonds

or inflation-indexed national security certificates.


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Cement

Growth in cement demand to improve in 2013-14

CRISIL Research foresees growth in cement demand to be muted at around 5 per cent on a year-on-year (y-o-y)

basis in 2012-13 and reach around 236 million tonnes, due to subdued uptake in construction activity across realty

and infrastructure segments. However, with a revival in housing and infrastructure spending by the government in

2013-14, cement demand is expected to gain traction and grow at around 7 per cent y-o-y during the year.

CRISIL Research expects industry operating rates to bottom out at around 71 per cent in 2012-13 due to muted

growth in cement demand and overcapacity in the industry. However, from 2013-14 onwards, we foresee a gradual

revival in the cement operating rates due to improvement in demand and cement industry approaching the end of its

investment cycle.

CRISIL Research expects average cement price across India to rise sharply by around 15 per cent in 2012-13,

largely led by the steep price rise in the eastern region due to supply constraints on account of unavailability of

railway wagons. Going forward, with the industry poised for a revival, cement prices are estimated to rise by a

moderate 4-5 per cent in 2013-14.

CRISIL Research believes that in 2012-13, the sharp rise in cement prices will more-than-offset the pressure

exerted by rising input costs, especially freight. Freight costs are likely to rise due to a hike in freight rates as well as

an increase in lead distances.Consequently, industry operating margin is estimated to improve by 300 bps to 23-24

per cent during the year. However, in 2013-14, as escalation in input costs is likely to more-than-offset increase in

realisatons, we estimate industry operating margin to marginally decline by 100 bps.

Cement: Tariffs

(Per cent) Customs Excise Abatement rate

2012-13 2013-14 2012-13 2013-14 2012-13 2013-14

Portland cement 0 0 12.4 +Rs120/tonne 12.4 +Rs120/tonne 0 0

White cement 10.3 10.3 12.4 12.4 30 30

Cement clinker 10.3 10.3 12.4 12.4 0 0

Limestone 5.2 5.2 0 0 0 0

Gypsum 2.6 2.6 0 0 0 0

Pet coke 0 0 15.1 15.1 0 0



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Cement

Hike in freight costs to offset benefits arising from boost to housing and infrastructure


ACC Ltd Q A,B

Ambuja Cements Ltd Q A,B

India Cements Ltd Q A,B

Shree Cement Ltd Q A,B

UltraTech Cement Ltd Q A,B


Impact factors

A. The Union Budget has proposed many schemes to boost the infrastructure (especially roads) and housing

segments. This is expected to aid cement demand.

B. However, this upside is likely to be offset by the increase in freight costs for cement companies, due to the proposed

hike in railway freight. The Railway Budget 2013-14 has proposed fuel adjustment component linked revision for

freight rates.


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Construction

Slow revenue growth; declining profitability

The order book position of major construction companies has declined during the April-December 2012 period due

to weak order inflows. Slowdown in awarding projects in sectors such as roads, power and irrigation has been the

key reason for lower order inflows. Revenue growth has also been subdued due to the delays in execution, financial

stress of companies and the weak macroeconomic environment. Further, profitability has declined with the rising

share of low-margin segments in the overall business, and sustained pressure on contract pricing - especially in

road projects.

The financial flexibility of most construction companies is currently stressed owing to increased leverage and

reduced ability to repay borrowings. Increase in long-term debt can be primarily attributed to the loans taken for BOT

projects, while the short-term loans have increased considerably due to higher working capital requirement of these

companies.

In the near term, we foresee single-digit revenue growth with expected execution delays, particularly in power and

irrigation. Profitability is expected to decline on account of the muted revenue growth and competitive pressures.

However, the decline will be offset, to some extent, by the softening of material prices.

Over the long term (next 5 years), CRISIL Research expects growth to pick up gradually and estimates the total

construction opportunity to be around Rs 19.2 trillion between 2012-13 and 2016-17. Over 85 per cent of the total

opportunity is likely to come from infrastructure spending, specifically the roads, irrigation and urban infrastructure

sectors. In the industrial segment, the opportunity is expected to be low on account of sluggish expansion plans in

the large contributors such as oil and gas, metals and automobiles.

Roads will account for the lion's share of construction opportunity over the next 5 years. The Central government's

programmes including the National Highway Development Programme (NHDP), Pradhan Mantri Gram Sadak

Yojana (PMGSY), and road development programmes of the various state governments will support growth in road

investments.


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Construction

Measures to boost investments in roads, urban infrastructure


Larsen & Toubro Ltd K A,B,C

Hindustan Construction Co Ltd K A,B,C

IVRCL Infrastructures & Projects Ltd K A,B,C

IRB Infrastructure Developers Ltd K A,B

Gammon India Ltd K A,B,C


Impact factors

A. Government agencies (including NHAI and HUDCO) have once again been permitted to issue tax-free infrastructure

bonds in 2013-14 totalling up to Rs 500 billion. This will provide additional funds to various infrastructure sectors

such as roads, ports and power.

B. In the roads sector, the budget proposes to set up an independent regulatory authority. In the medium term, this

could help faster implementation of road projects. After the substantial completion of the Pradhan Mantri Gram

Sadak Yojana (PMGSY), the PMGSY II has been introduced to support rural road development. This is expected

to benefit the small local road contractors.

C. Allocation towards the JNNURM programme (Jawahar Lal Nehru National Urban Renewal Mission) has been

doubled in 2013-14 from the previous year. This will boost spending on ongoing and upcoming urban infrastructure

projects. In addition, allocation to the Ministry of Drinking Water and Sanitation has been increased by 17 per cent in

2013-14, driving investment, particularly in water supply and sanitation.


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Fertilisers

Higher international prices and inadequate monsoon impacts non-urea fertiliser consumption

Domestic fertiliser demand is estimated to fall by 12 per cent y-o-y to 52.9 million tonnes (in product terms) in 2012-

13, because of a steep rise in non-urea fertiliser prices and delayed monsoons. While demand for urea is likely to

increase by 1 per cent to 29.9 million tonnes, sales of non-urea fertilisers are expected to decline by 24 per cent.

In 2012-13, anticipating a decline in international fertiliser prices, the government cut subsidy rates on non-urea

fertilisers by 10-12 per cent for N and K nutrients, and by 32 per cent for the P nutrient. While international fertiliser

prices declined, a weakening rupee offset the benefits of same. Consequently, fetiliser manufacturers were forced to

increase non-urea fertiliser prices (by an average of 25-30 per cent y-o-y), which affected demand.

Besides high prices, delayed monsoons impacted Kharif sowing, thereby further impacting fertiliser consumption.

The decline in demand has been more severe in southern and western regions as compared to North and East, due

to inadequate monsoons and water shortage.

In 2013-14, overall fertiliser demand is expected to improve, assuming normal monsoons and an expected decline in

retail prices of non-urea fertilisers (by Rs 1,300-1,500 per tonne) owing to a decline in international prices. While

demand for non-urea fertilisers is expected to rise by 12 per cent to 25.9 million tonnes, demand for urea is expected

to grow by 4.1 per cent to 31.1 million tonnes.

More urea plants will be set up, aided by a favourable investment policy approved by the government in December

2012. These capacity additions are likely to reduce dependence on imports over the long term.


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Fertilisers

Fertilisers: Tariffs, prices and landed costsLanded costs

Tariffs (per cent) Prices (Jan 2013) (Rs/tonne)

Customs Excise Domestic

International

Pre- Post-

2012-13 2013-14 2012-13 2013-14 (Rs/tonne)

($/tonne)

budget budget

Urea 5.2 5.2 12.4 12.4 5,360

421 25,595 25,595

DAP 5.0 5.0 12.4 12.4 24,000

470 30,538 30,538

MOP 5.0 5.0 12.4 12.4 17,000

453 28,394 28,394

Ammonia 5.2 5.2 12.4 12.4 n.a.

585 41,653 41,653

Phosphoric acid 5.2 5.2 - - NT

813 47,333 47,333

Sulphur 2.1 2.1 - - n.a. 166 9,386 9,386

Rock phosphate 5.2 5.2 - - NT 140 9,321 9,321

Naphtha - - - - 59,520 971 54,534 54,534

Fuel oil - - - - 39,400 643 36,300 36,300

Contracted LNG2 5.0 5.0 - - - - 24,268 24,268

DAP: Di-ammonium phosphate; LNG: Liquified natural gas

MOP: Muriate of potash; NT: Not traded; n.a.: Not available