National Budget2016

A Sectorial Analysis

12-Aug-16 2

Macro View

▲ +2.8%

▲ +1.3%

▲ +4.5%

▲ +1.6%

▲ +3.7%

▲ +5.4%

▲ +6.9%

▲ +3.8%

▲ +7%

▲ +3.9%21%

9%

10%

12%10%

6%

4%

7%

4%

3%14%

COND

CONS

IND

FINT&L

PROP

COMM

GOV

HLTH

UT

OTH

Trade12%

Manftg9%

Manftg5%

Agri3%

Constn4%

Logistics6%

Banking7%Ins

3%2%

Diversified nature of the Mauritian economy The national budget was mostly made up of themes we’ve seen before.

The new measures were mainly enhancements to regulatory framework of the financial sector as well as the creation of new segments which included tax holidays

The property sector received a fresh boost with a reduction in restriction with regards to foreigners.

Major infrastructure projects include a Metro line, and revamping of the utilitiesnetwork

We also received the expected taxincreases on sugar, alcohol and cigarettes but none on VAT, Income or Corporate taxation.

12-Aug-16 3

Key Ratios

Forecast

-3.2

-1.8

-3.5 -3.2 -3.5

-3.8

-2.5 -2.2

-3.2 -3.5 -3.3

-2.4

GDP

Gro

wth

[%]

Budg

et D

efic

it [%

]

-13.5

-7.2 -6.2 -5.6

-4.8

-8.8

-11.1 -11.6

-9.1 -9.6

-4.5 -4.8

Curr

ent A

/C D

efic

it [%

]

4.1

3.5 3.4 3.7 3.5

4.2 4.0 4.0 3.8

5.3

4.1 4.6

GDP Growth which has hovered in the mid-3% range has been stagnant over the last five years. With focus on re-igniting growth, government forecasts GDP to cross the 4% mark in coming years boosted by budgetary measures which as past experience suggests might be optimistic.

The current account deficit has been revised to include transactions of GBLs since 2011 such that the deficit has fallen to under 5% where we expect it to continue to hover. The re-orientation of Global Business will be key in containing the deficit to under 5%.

The budget deficit has exceeded 3% – except for a brief dip to 2% in 2012 – in recent years and is expected to continue to do so. Government expects to also bring down its debt levels to 50% in coming years.

The Bourse has been highly effervescent since an unexpected MPC trimmed the Repo Rate trim to a record low 4%. In fact, we have not seen the market this bullish ahead of a National Budget during which period investors typically retreat into “wait-and-see” mode.

With regards to the market, GBL2s who were previously barred from investing on the SEM are now permitted to do so which could enhance liquidity.

In an unexpected move, listed companies will be required to have at least one female board member to “bridge the gender gap”. As we shared earlier this week, women are under-represented on boards.

FSC is poised to host a digital “KYC database” which may simplify the conduct business and regulate certain private placementswhich may increase time-to-market for some issuances

The creation of a derivatives and commodities exchange has also been announced.

12-Aug-16 4

Capital MarketsAL

EX 2

0SE

MDE

XAL

CAPE

X 12

750

825

900

975

1,050

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1,750

1,900

2,050

2,200

The financial sector is one of the main pillars of the Mauritian economy whose growth has hovered ~5%. Following the renegotiation of the DTA with India this industry is in need of new avenues for the development of Mauritius as an IFC.

The creation of several new segments to be licensed by the FSC have been offered tax holidays ranging from 5-8Yrs and extends to the legal profession with a view to develop legal advisory & arbitration. Should these attract new players, it can only bode well for the sector.

There were several regulatory measures announced which appear to have on-boarded learnings from the aftermath of the BAI Group which includes greater authority by the Bank of Mauritius in liaising with holdings of banks as well as a mandatory rotation of audit firms rather than partners.

12-Aug-16 5

Financial SectorFi

nanc

ials

Bank

ing

5.7 5.7

5.5 5.5

5.3

5.4 11.7

11.9

11.7

11.9

12.0

11.9

2011 2012 2013 2014 2015 2016E

6.3 6.3

5.6 5.5

5.4 5.5

6.8

6.9

6.6

6.7 6.8 6.8

2011 2012 2013 2014 2015 2016E

GDP Growth [%] Share of GDP [%]

12-Aug-16 6

Financial SectorSub-Sector LCP Δ YTD Measures Comments

MCB Bank 209.00 0.4% Enhanced BoM supervisory powersDeposit Insurance SchemeAsset Mgmt Co to Capture bad loansSME Financing scheme rate cut

Unclear whether the SME rate cut or cost of deposit Insurance will affect NII MarginsChanges to BoM's power seemingly follows the nTanreport to ensure smoother ops in event of another bank collapse

SBM Bank 0.70 -1.4% ABCB Bank 18.00 2.9% CIM NBFI 7.24 -9.0%

Re-Introduction of LEMs Unclear whether LEMs will affect NII MarginsFINC NBFI 19.60 8.3% MEI Insurance 83.75 -6.9%

Alleviation of restrictions on foreign property ownershipImproved thresholds for 1st time buyers Property insurance segment could receive a small boostMUA Insurance 63.00 0.0%

SWAN Insurance 299.50 -28.7% SWANL Insurance 1,050.00 5.0% CMBI Div Financial 0.10 0.0%

The tourism sector has emerged from a prolonged rough spell boosted by improved connectivity. The recovery for industry operators has nonetheless been uneven.

Budgetary measures for the sector were mainly focused on improving the “heritage and history” of the Mauritian destination. Creation of an events calendar, rehabilitation of landmarks, beaches, as well as the upgrading of museums and the aquarium are all aimed at a more “rounded” offering.

The streamlining of licenses for industry operators should enhance the ease of doing business.

Having been hit hard in the last budget, the gambling industry was expected to be spared but it was not.

A 2% levy has been imposed on the net income of bookmakers and casinos excluding the operator of the National Lottery. Also, per race-day duty for bookmakers operating outside the racecourse has almost doubled.

12-Aug-16 7

Travel & LeisureTo

uris

mTo

uris

t Arr

ival

s & R

ecei

pts

3.2

0.7

1.9

6.3

7.2 6.6

8.1 8.0

6.8

7.1

7.5 7.5

2011 2012 2013 2014 2015 2016EGDP Growth [%] Share of GDP [%]

996

1,035

1,087

1,134

1,186

1,233

965 965

993

1,039

1,152

1,240

4344

41

44

50

55

2011 2012 2013 2014 2015 2016E

World [M] Share of GDP [%]Mtius [k]

12-Aug-16 8

Travel & LeisureSub-Sector LCP Δ YTD Measures Comments

NMHL Resort Hotel 21.55 23.9% Creation of a cultural events calendarRehabilitation of beaches and Heritage sitesCreation of "world-class" attractions (museums/aquarium)Ehancing visibility in new marketsRe-introducing casinos in hotelsExtension of benefits during renovations

Development of pretroleum port

Promoting the local heritage is in our opinion an integral part of enhancing the Mauritian offering to more than just "Sun, Sea & Sand"

We believe the "Hotel-Casino" targets a specific clientele and will not be universally implemented.

The environmental risk associated with heavy fuels can lastingly undermine Tourism in the event of a disaster

LUX Resort Hotel 59.00 -0.8% SUN Resort Hotel 33.90 -0.6% CHSL Luxury Hotel 32.00 -8.3% HTLS Luxury Hotel 31.50 1.6% SCT Resort Hotel 5.00 -16.7% MOLI Resort Hotel 41.80 0.0% TPL Biz Hotel 5.60 -2.8% MK Airline 13.00 18.2% 40% rebate on Air Cargo to EU Unclear if the ~4% topline drop will be borne by the

taxpayer

LOTO Lottery 4.24 20.5% 2% levy on net stakes2x increase in off-course fee per outlet per raceday

LOTO exempted from 2% levy hence neutralASL hurt by levy but may benefit if off-course betting slowsASL Betting 63.00 80.0%

12-Aug-16 9

MultiSector ConglomeratesSub-Sector LCP Δ YTD Measures Comments

ALTEO Sugar/Energy/Property 30.00 -2.4%

Alleviation of restrictions on property dev. especially for non-residents & 1st time buyersIntroduction of a 15% duty on imported sugar2x rise in contribution to MSS per L of alcoholUpgrading of the electric grid

Expanded customer base bodes well for respective property developmentsDuty on sugar will hurt sugar margins for refiners importing raw sugar especially OMNIMargins for distilleries (mainly TERRA and MEDL) converting molasses to alcohol is expected to shrinkUpgraded grid might offer opportunities to expand e-prod from renewables

TERRA Sugar/Energy/Property 30.50 7.0%

OMNI Sugar/Energy/Property 66.50 -5.0%

MEDL Sugar/Property 57.75 -5.3%

HML Diversified 77.00 -17.2% Removal of duties on selected equipment/devicesIncentives to develop seafood sector (tax hols + training + breakwaters)Upgrading port infrastructure Alleviation of restrictions on property dev.

Cheaper equipment is expected to boost margins fro IBL and HMLIBL's seafood processing can benefit from increased supplyROGE and IBL logistics/freight segment would benefit from swifter turnaround in Port-LouisROGE's real estate segment expected to gain boost from property incentives

IBL Diversified 30.00 36.6%

ROGE Property/Hosp 29.75 8.2%

GAMMA BldgMat/Gaming 24.00 -7.7% See property sector measures Demand for bldg materials poised to increase + LOTO

unaffected by gaming levy

EUDC Distiller/Hosp 15.00 -3.8% 2x rise in contribution to MSS per L of alcohol Margins on alcohol production expected to shrink

UTIN Fin Svcs/Hosp 11.30 -16.9% See financial sector measures Potential for expansion into the new segments announced in budget

Mauritius, once coined a “monocrop” economy has seen the share of Agriculture drop significantly since the 1960s to ~ 3% of GDP. This year’s budget continues to focus on self-sufficiency and going organic.

The Budget announces support for sugar/tea farmers, dairy farmers and bee-keepers among others to stimulate these segments. But also introduced a levy on pesticides with the intent to curb their usage. We expect the increased cost to be passed on to the consumer.

A 15% duty on imported sugar and extension of the “sugar tax” on dairy products and juices has been announced. Unsurprisingly, duties on alcoholic beverages were also increased. Overall we expect slim changes, if any, on consumption of these items.

Seafood exports has exceeded sugar in recent years and the budget announced measures at boosting capacity of the seafood hub which include the training of “seafarers”, tax holidays for fishing companies setting base locally, and “breakwaters” to accommodate 120 boats.

12-Aug-16 10

Consumer StaplesAg

ricul

ture

Seaf

ood

-1.6

6.4

-2.8

9.8

6.6

0.3

1.0

1.1

1.0

1.0 1.0

1.0

2011 2012 2013 2014 2015 2016E

3.5

1.10.5

3.7

-0.3

4.54.2 4.2

3.8

3.7

3.5

3.9

2011 2012 2013 2014 2015 2016E

GDP Growth [%] Share of GDP [%]

12-Aug-16 11

Consumer StaplesSub-Sector LCP Δ YTD Measures Comments

MOR Edible oils 26.00 4.0% INNO Food & Dairy 39.70 -6.6%

"Sugar tax" extended to dairy products & juices15% duty introduced on imported sugarIncreased taxes on alcoholic beverages

Both production costs and selling prices are expected to rise; however, we expect small changes, if any on consumption of these products

PBL Beverages 400.00 4.4% PHIN Beverages 233.00 -0.9% QBL Beverages 7.26 10.0% UNSE Sugar 30.00 -21.1% Incentives for Bio-farming including 15% levy on

pesticides/ripenersAlbeit small part of their operations, the vegetable/fruit production may benefit or require adaptationCSE Sugar 110.00 10.0%

LFL Animal Feed 26.50 2.1%

Offset up to 45% of investment against taxes over 3 years Could stimulate investment to enhance production methods

LMLC Flour 205.00 31.0% MIL Margarine 923.00 0.0% SAIL Household 19.50 -2.5% MCOS Household 51.00 -6.8% GOLI Nutritionals 0.03 0.0% CMPL Retail 9.80 -45.0%

12-Aug-16 12

Consumer DiscretionaryM

anuf

actu

ring

Text

ile

3.0

-1.1

2.6

4.2

-2.8

0.2

4.9

4.7 4.7

4.6

4.6

4.7

2011 2012 2013 2014 2015 2016E

0.7

2.1

4.7

1.8

0.0

1.3

15.7

15.5

15.8

15.4

14.8

15.4

2011 2012 2013 2014 2015 2016E

GDP Growth [%] Share of GDP [%]

Manufacturing is one of the largest segments of the local economy for which Vision 2030 targets a 20-25% share of GDP. At current growth rates, the target will be difficult to achieve and required support to expand at reasonable cost.

The Budget has announced an extension of tax credit against investments as well as a announced the lowering of the interest rate to 6% for SMEs which should help incentiviseinvestment and/or enhance cash flow.

The Budget also mentions foreign investors wishing to develop motorcycle manufacturing, development of a gold-hub, and pharmaceutical village. Should these developmentsmaterialise, the Vision 2030 target could be achievable.

The National Airline is also set to offer a 40% rebate on air-freight to Europe which would enhance the competiveness of Mauritian products.

12-Aug-16 13

Consumer DiscretionarySub-Sector LCP Δ YTD Measures Comments

CTL Textiles 40.05 1.4% Offset up to 45% of investment against taxes over 3 years40% rebate on air freight to Europe Expected to enhance competiveness and cash flow

VEM Oil & Gas 103.00 3.0% Development of petroleum port in Albion VEM infrastructure is in Mer Rouge and may have to invest to partake

ENLC Auto + EoE 15.00 -18.3% Slashing of excise duty on hybrid/electric cars2nd hand vehicle discount factor trimmed from 25% to 5%.Elimination of duty on spare partsPolice to renew fleet

More expensive 2nd hand imports is expected to boost new car salesCheaper spare-parts is expected to result in improved garage marginsABC should be able to offset loss of 2nd hand biz with new carShould ABC or ENLC win the police's tender, either would experience a bumper year

ABC Automobile 85.50 0.6%

RHT Transport 25.90 -5.8%

Elimination of duty on spare parts

RHT and UBS companies are expected to experience improvement in margins in-line with cheaper maintenance

ACC and MSIL should also record improved margins

UBS Transport 37.35 15.6% ACC Spare-parts 153.00 0.0% MSIL Tyre 31.60 0.2%

Following 5 consecutive years of contraction, the construction sector has been estimated to grow in 2016. As expected, the Budget offered fresh boosts for Real Estate.

Government announced further infrastructuredevelopment focusing on roads (A1-M1bridge & Phoenix flyover), drainage, community enhancements, more social housing, as well as the kick-starting of construction of three Smart Cities including Heritage City at the cost of 2.7bn.

The surprise announcement was that of the development of a Metro line to enhance transportation.

Government provided additional support to foreigners, locals, and promoters through a series of measures by eliminating certain restrictions on developments aimed at foreigners, and extending tax breaks for locals.

12-Aug-16 14

PropertyRe

al E

stat

eCo

nstr

uctio

n

7.1 6.9

6.1

5.3

4.4

3.8

5.9

5.7 5.7 5.7

5.7

5.7

2011 2012 2013 2014 2015 2016E

-2.0

-3.0

-8.2 -8.5

-4.9

1.66.5

6.2

5.5

4.8 4.4

5.5

2011 2012 2013 2014 2015 2016E

GDP Growth [%] Share of GDP [%]

12-Aug-16 15

PropertySub-Sector LCP Δ YTD Measures Comments

ASCE Mall 12.20 -3.6% CAUD Mall 1.16 -4.1% CIMO Mall 444.25 5.0% BLFE Prop Dev 2.29 -37.9% Enhanced tax breaks for 1st time buyers & property

developersRestrictions for non-residents purchasing property (residential & business) alleviated

Property developers' potential customer base has been substantially expanding therein boosting rationale for further developments

NOVUS Biz Park 8.00 0.0% UTDL Misc 60.75 -19.0% APL Hotel 10.00 -2.0% COVI Hotel 6.00 -8.8%

12-Aug-16 16

MaterialsSub-Sector LCP Δ YTD Measures Comments

UBP Bldg Materials 84.50 12.3% A plethora of infrastructure devs (Metro, Real Estate, roads & amenities)Alleviation of restrictions on property dev. especially for non-residents

Expected to boost sales volumes

MCFI Fertilizer 16.00 -17.1%

Offset up to 45% of investment expenditure against taxes over 3 years

Could stimulate investment to enhance production methods

CHEM Chemicals 16.95 -10.8% BYCH Chemicals 4.18 -38.0% GAZ Gases 70.00 -15.7% PIM Plastics 64.25 -4.5% PCCL Tissue Paper 50.00 0.0%

The Technology cluster has gained prominence as a pillar to the local economy with the budget yet again declaring government’s intent of going digital.

The Budget has announced that several public sector services would move online to enhance the overall ease of doing business as well as complete coverage of the island with optical fibre by Dec-17.

In our opinion, digital literacy in the current era is a requirement and the budget announced a enhanced teaching at primary (tablets for Grade 1 &2), secondary (new modules) and tertiary (new faculty) levels.

In terms of logistics, the budget reiterated Government’s intent to modernise port infrastructure, development of a petroleum port, as well as reduction on African export requirement for Freeport operators.

12-Aug-16 17

Technology & LogisticsIC

TLo

gist

ics

9.4

8.9

6.9 6.6

7.0 6.6

5.7

5.6

5.6 5.6

5.6 5.6

2011 2012 2013 2014 2015 2016E

3.7

2.6

2.4

2.8

3.4

3.7 6.2

6.1 6.0

6.1

6.2

6.1

2011 2012 2013 2014 2015 2016E

GDP Growth [%] Share of GDP [%]

12-Aug-16 18

OthersSub-Sector LCP Δ YTD Measures Comments

MFD Freeport 10.30 -0.5% Req. of 80% of exports to Africa lowered to 50%Transtion from Freeport to "Freezone" Potential for expansion of logistics support services

FORT Engineering 148.00 5.9%

MASC Healthcare 2.55 10.9%

BTEL ISP 6.36 -25.2% MT to have 100% optical fibre coverage by Dec-17CEB to diversify to being an ISP through its network

Faces very tough competition from MT, however did CEB refer to BTEL's network which piggy backs on the Grid?

12-Aug-16 19

Investment HoldingSub-Sector LCP Δ YTD Measures Comments

CIEL Diversified 6.10 -7.6% Please see comments for SUN, CTL, ALTEO, MASC and Financials

MDIT Investment 4.20 -12.3% POLI Investment 6.10 -5.8% NITL Investment 35.00 -12.3% PAD Diversified 87.50 -6.0% Please see comments for CAUD, MEDL, EUDC, and MFD

BMHL Investment 25.50 3.7% Please see comments for CHSL, HTLS, CSE, IBL and Financials

ENLL Diversified 47.00 2.2% Please see comments for ROGE, ASCE, NMHL and Property

ENL(P) Diversified 25.00 -7.4% Please see comments for ENLL, ENLC, ROGE, ASCE and NMHL

BEEP Investment 16.25 15.6% See Property incentives FAST should register increasing demand for bldg materials

ASTO Investment 1.00 0.0% DALE Investment 2.54 0.1%

12-Aug-16 20

Disclaimer

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AuthorsBhavik DesaiHead of ResearchAXYS Stockbroking

Prerna CheekhooreeResearch AnalystAXYS Stockbroking

Alexis CorsonInvestment AnalystAXYS Stockbroking

AXYS Stockbroking Ltd6th Floor, Dias Pier BldgLe Caudan Waterfront, CaudanPort-Louis, Mauritius

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(230) 405 4000(230) 213 3478research@axys-group.com