Escolar Documentos
Profissional Documentos
Cultura Documentos
2006-07
2007-08
2008-09
2009-10
Jul-09
Jul-10
Jan-09
Jan-10
Jan-11
Oct-08
Oct-09
Oct-10
Apr-08
Apr-09
Apr-10
growth, inflation and fiscal discipline are concerned. While the market's
concern on excise duty rise was addressed (no increase) the concern on
fiscal deficit will likely be resolved during the year, we opine.
Source: Economic Survey 2010-11
q Thus, we do not expect any major impact on the markets in the near term.
Over the medium - to - long term, we expect the valuations and global
economic scenario to dictate market movements. We opine that, valuations,
based on FY12E consensus earnings, leave scope for gains over this period.
Sectoral impact
Budget Impact Sectors
Positive Agriculture/Fertilizer, Automobiles, Banking & NBFC, Construction, FMCG, Logistics, Retail
Neutral Capital Goods & Engineering, Information Technology, Media, Metals & Mining, Power, Real Estate & Telecom
Negative Aviation, Cement, Hotels, Oil & Gas
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Agriculture, Forestry & Fishing 5.1 4.2 5.8 -0.1 0.4 5.4
Mining & Quarrying 1.3 7.5 3.7 1.3 6.9 6.2
Manufacturing 10.1 14.3 10.3 4.2 8.8 8.8
Electricity, Gas & Water Supply 7.1 9.3 8.3 4.9 6.4 5.1
Construction 12.8 10.3 10.7 5.4 7.0 8.0
Trade, Hotels, Transport & Communication 12.1 11.7 10.7 7.6 9.7 11.0
Finance, Real Estate, Other Businesses 12.7 14.0 11.9 12.5 9.2 10.6
Community, Social & Personal Services 7.0 2.9 6.9 12.7 11.8 5.7
GDP at Factor Cost 9.5 9.6 9.3 6.8 8.0 8.6
Source: CSO
…through investments
Towards this objective, the FM has allocated significant sums towards investments
in agriculture as well as infrastructure. The plan expenditure has thus, been
increased by about 11.8% as compared to the revised estimates for FY11. This is
over and above the 30% rise in FY11 (RE).
The allocation for infrastructure has been increased to Rs.2.14trn, about 23%
higher YoY. Infrastructure allocation now forms 48.5% of total plan allocation. To
boost infrastructure development, tax free bonds of Rs.300bn are proposed to be
issued by Government undertakings during 2011-12.
Financial assistance will be made available for metro projects in Delhi, Mumbai,
Bengaluru, Kolkata and Chennai. Moreover, capital investment in fertiliser
production is now proposed to be included as an infrastructure sub-sector.
Agriculture & Allied Activities 110.1 2.7 123.1 2.3 143.6 2.9 147.4 2.5
Rural Development* 473.7 11.6 551.9 10.5 554.4 11.0 552.9 9.3
Irrigation & Flood Control 4.2 0.1 5.3 0.1 4.1 0.1 5.7 0.1
Energy 1,143.1 28.1 1,465.8 27.9 1,262.3 25.1 1,555.0 26.2
Industry and Minerals 306.9 7.5 390.2 7.4 388.5 7.7 452.1 7.6
Transport** 864.5 21.2 1,020.0 19.4 987.3 19.7 1,168.6 19.7
Communications 147.5 3.6 185.3 3.5 121.7 2.4 202.6 3.4
Science Technology & Environment 98.6 2.4 136.8 2.6 126.5 2.5 161.9 2.7
General Economic Services 40.1 1.0 75.5 1.4 148.8 3.0 158.0 2.7
Social Services*** 867.9 21.3 1,275.7 24.3 1,271.6 25.3 1,448.2 24.4
General Services 12.4 0.3 15.4 0.3 13.8 0.3 72.3 1.2
Grand Total 4,069.1 100.0 5,244.8 100.0 5,022.5 100.0 5,924.6 100.0
* Includes provision for rural housing but excludes provision for rural roads
** Includes provision for rural roads
*** Excludes provision for Rural Housing
RE: Revised Estimate
BE: Budget Estimate
Union Budget 2011-12 Please see the disclaimer on the last page For Private Circulation 3
February 28, 2011 Kotak Securities - Private Client Research
4500 15%
3000 24%
3000 10%
2000 16%
1500 5%
1000 8% 0 0%
0 0% -1500 -5%
FY11RE
FY11BE
FY12BE
FY11RE
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11BE
FY12BE
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
Source: Economic Survey 2010-11, Budget FY2011-12 Source: Economic Survey 2010-11, Budget FY2011-12
Union Budget 2011-12 Please see the disclaimer on the last page For Private Circulation 4
February 28, 2011 Kotak Securities - Private Client Research
Bharat Nirman (Pradhan Mantri Gram Sadak Yojna (PMGSY), Accelerated Rs. 580 bn
Irrigation Benefit Programme, Rajiv Gandhi Grameen Vidyutikaran Yojna,
Indira Awas Yojna, National Rural Drinking Water Programme and Rural
telephony)
MGNREGA Rs. 400 bn
Rashtriya Swasthya Bima Yojana Rs. 267 bn
Sarva Shiksha Abhiyan Rs. 210 bn
Pradhan Mantri Gram Sadak Yojna Rs. 200 bn
National Program for Mid Day meals in school Rs. 103 bn
National Rural Health Mission Rs. 178 bn
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DIRECT TAXES
Corporate tax
n No change in corporate tax rate; MAT rate increased by 50bps; sur-
charge reduced
There have been no changes in the corporate tax rate. However, the MAT rate has
been raised from 18% to 18.5%. On the other hand, the surcharge has been
reduced from 7.5% to 5%. This will bring down the effective tax rate for non-
MAT corporates from 33.2% to 32.45%.
On the other hand, for MAT paying companies, the burden will marginally rise by
0.075bps as the increase in MAT is set-off by a reduction in surcharge.
n MAT for SEZ developers and SEZ units WEF FY12 - a negative
The budget has imposed MAT for SEZ developers and for units operating in SEZs.
Companies have to pay MAT on the Book profits as against the profits derived
under the Income Tax Act, if the taxable income is less than 30% of the book
profits.
This will have an impact on the cash flows of these companies. These companies
will now have to pay MAT WEF FY12 despite they being eligible for tax breaks.
This will have an impact on their cash flows but not on reported profits as they will
be able to claim deferred tax benefits. Thus, we believe that, this will be largely a
cash-flow impact.
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Direct taxes
4500 30%
3000 20%
1500 10%
0 0%
FY11RE
FY11BE
FY12BE
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
Source: Economic Survey 2010-11, Annual Budget FY2011-12
INDIRECT TAXES
The budget has kept the headline rates of excise duty, customs duty and service
tax unchanged, in line with our expectations. Markets were expecting an increase
in excise duties by 200bps to 12%. Rate of tax on services has been retained at
10% to pave the way forward for GST. Peak customs duty rate has been left at
10%. However, some rationalization has been done to unify three rates namely,
2%, 2.5% and 3% at the middle level of 2.5%.
Certain services, hitherto untaxed, brought within the purview of the service tax
levy. Proposals relating to Indirect Taxes are estimated to result in a net revenue
gain of Rs.113bn for the year. Taking into account the direct taxes, the net
revenue loss is estimated to be Rs.2bn for the year. Major proposals are listed later.
Indirect taxes
2000 20%
1000 10%
0 0%
-1000 -10%
FY11RE
FY11BE
FY12BE
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
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Excise duty
Item Pre Budget Post Budget
Union Budget 2011-12 Please see the disclaimer on the last page For Private Circulation 12
February 28, 2011 Kotak Securities - Private Client Research
Tax Revenue
Corporation Tax 2447.3 3013.3 2963.8 -1.6 3599.9 21.5
Income Tax 1323.2 1280.7 1490.7 16.4 1720.3 15.4
Union Excise Duty 1036.2 1320.0 1377.8 4.4 1641.2 19.1
Customs 833.2 1150.0 1318.0 14.6 1517.0 15.1
Service Tax 584.2 680.0 694.0 2.1 820.0 18.2
Wealth Tax 5.1 6.0 5.6 -7.6 6.4 14.0
Taxes of UTs 16.1 16.5 19.1 15.7 19.7 3.3
Gross Tax Revenue 6245.3 7466.5 7868.9 5.4 9324.4 18.5
Less: States' share 1648.3 2090.0 2193.0 4.9 2634.6 20.1
Less: NCCD transferred to the NCCF 31.6 35.6 39.0 9.6 45.3 16.0
Net Tax Revenue 4565.4 5340.9 5636.9 5.5 6644.6 17.9
EXPENDITURE
Revenue Expenditure
Interest Payments 2130.9 2486.6 2407.6 -3.2 2679.9 11.3
Defence Services 906.7 873.4 907.5 3.9 952.2 4.9
Subsidies 1413.5 1162.2 1641.5 41.2 1435.7 -12.5
Grants to State and U.T. Governments 459.5 460.0 526.1 14.4 663.1 26.1
Pensions 561.5 428.4 532.6 24.3 545.2 2.4
Other Revenue Expenditure 1107.2 1025.3 1252.2 22.1 1059.5 -15.4
Total Revenue Expenditure 6579.3 6436.0 7267.5 12.9 7335.6 0.9
Capital Expenditure
Defence Services 511.1 600.0 608.3 1.4 692.0 13.8
Other Non-plan Capital Outlay 109.5 310.5 277.0 -10.8 132.1 -52.3
Others 11.1 10.1 62.7 523.0 2.1 -96.6
Total Capital Expenditure 631.7 920.6 948.0 3.0 826.2 -12.8
Plan Expenditure on Rev & Cap a/c 3033.9 3730.9 3950.2 5.9 4415.5 11.8
Non-plan Expenditure on Rev & Cap a/c 7211.0 7356.6 8215.5 11.7 8161.8 -0.7
Total Expenditure 10244.9 11087.5 12165.8 9.7 12577.3 3.4
Source: Annual Budget FY2011-12; NCCF: National Calamity Contingency Fund; * stands for the receipts net of repayments
Union Budget 2011-12 Please see the disclaimer on the last page For Private Circulation 13
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SECTOR SUMMARY
Sector Summary
Sector Budget Impact Preferred Picks
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February 28, 2011 Kotak Securities - Private Client Research
n Enhancing the storage and cold chains to boost the agriculture supply
chain in the country; expediting the processes of setting up of Mega food
parks
Impact: Strengthening the food supply chain has been among the key focus
areas of the government. It aims at expediting the process of setting up 15
mega food parks in addition to the proposed 15 in 2011-12. This is likely to
improve linkage between agriculture and industries and reinforce meaningful
investment in the sector. Government has also proposed for the introduction
of various viability gap funding schemes to boost public private partnership
in the sector.
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February 28, 2011 Kotak Securities - Private Client Research
will make the task of the auto players a bit easier who are already facing margin
6 pressure due to rising commodity prices.
do not see any major positive impact of the above mentioned measures in
the short to medium term as this segment has hardly any presence in the Indian
Source: SIAM
automobile industry.
Union Budget 2011-12 Please see the disclaimer on the last page For Private Circulation 17
February 28, 2011 Kotak Securities - Private Client Research
Preferred picks
Bajaj Auto 89.7 97.6 89.7 97.6 1269 1464
TVS Motors 4.1 5.2 4.1 5.2 51 70
Others
Escorts 13.9 17.1 13.9 17.1 113 204
Maruti Suzuki 78.4 93.7 78.4 93.7 1208 1406
Hero Honda 99.7 112.6 99.7 112.6 1465 1576
Union Budget 2011-12 Please see the disclaimer on the last page For Private Circulation 18
February 28, 2011 Kotak Securities - Private Client Research
Jul-10
Jan-09
Jan-10
Oct-09
Oct-10
Apr-09
Apr-10
Source - IOC
Union Budget 2011-12 Please see the disclaimer on the last page For Private Circulation 19
February 28, 2011 Kotak Securities - Private Client Research
Jan-08
Jan-09
Jan-10
Jan-11
enable them to maintain the minimum tier-I capital at 8.0%. The proposed
recapitalization includes Rs.127 bn loans taken from World Bank and Rs.60
bn (plus another Rs.15 bn) allocated through budget.
Source: RBI
This would help PSU banks in maintaining the minimum tier-I capital at 8%
and increase government stake in some of the banks to 58%. This is likely
to aid them in growing their loan book without facing capital constraint.
Inflation (%) n FII limit in Infrastructure bonds with residual maturity of 5 years to be
raised to $25 bn ($5 bn earlier) taking the overall limit to $40 bn ($20 bn
16 earlier) in corporate bonds.
Impact: This hike in FII limits will help increase the investment in infrastructure
12
sector and lead to development of the corporate bond markets in the country.
8 In turn, it would also encourage capital inflows to meet the high current account
deficit in our economy.
4
FIIs would also be allowed to invest in unlisted bonds with a minimum lock-
in period of 3 years, during which they can trade amongst themselves. We
0
believe this would ease fund flow to the special purpose vehicles of infrastructure
-4 companies.
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Oct-08
Oct-09
Oct-10
Apr-09
Apr-10
Union Budget 2011-12 Please see the disclaimer on the last page For Private Circulation 20
February 28, 2011 Kotak Securities - Private Client Research
n Raising the target of credit flow to the farmers from Rs.3.75 tn to Rs.4.75
tn.
Impact: By raising the growth target of ~27% for agriculture loans which comes
under priority sector loans (PSL) category is slightly negative for PSU banks
who would be forced to lend more than the system growth.
n To allow tax free bonds of Rs.300 bn to be issued by various government
undertakings in FY12.
Impact: This includes tax free bonds of worth Rs.100 bn by Indian Railway
Finance Corporation, Rs.100 bn by NHAI, Rs.50 bn by HUDCO and Rs.50 bn
by Ports. This is likely to boost infrastructure developments in railways, ports,
housing and highways development. This is positive for Infrastructure financing
NBFCs.
n Creation of “India Microfinance Equity Fund” of Rs.1.0bn with SIDBI to
support MFI in their growth targets.
Impact: Creation of a dedicated fund for providing equity to smaller MFIs would
help them in achieving scale and efficiency in their operations. Although it
is a small amount, it recognizes the importance of MFIs in achieving the goal
of financial inclusion.
n To permit SEBI registered MFs to accept subscriptions of foreign investors
who meet the KYC norms.
Impact: The proposed entry of FII investment into the MFs space will allow
strong fund flows in the coming year. This is likely to be positive for domestic
Financial Institutions having asset management business.
Preferred picks
ICICI Bank 458.7 501.3 458.7 501.3 971 1364
HDFC Bank 517.0 597.7 517.0 597.7 2052 2052
Axis Bank 451.8 537.0 451.8 537.0 1219 1750
BoB 462.1 590.9 462.1 590.9 871 1241
IDFC 75.8 83.3 75.8 83.3 145 180
LIC Hsg Finance 85.2 100.5 85.2 100.5 188 240
SBI 989.4 1,157.0 989.4 1,157.0 2630 3475
Union Bank 181.2 236.4 181.2 236.4 314 400
PNB 574.4 721.5 574.4 721.5 1062 1450
Others
J&K Bank 715.7 843.7 715.7 843.7 755 1100
Allahabad Bank 165.7 199.7 165.7 199.7 198 260
HDFC Ltd 119.5 133.1 119.5 133.1 629 720
STFC 204.7 247.6 204.7 247.6 746 885
Indian Bank 165.1 214.3 165.1 214.3 204 320
Andhra Bank 101.2 122.9 101.2 122.9 136 175
Indian Overseas Bank 98.2 115.6 98.2 115.6 133 140
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February 28, 2011 Kotak Securities - Private Client Research
Q3 FY09
Q1 FY10
Q3 FY10
Q1 FY11
Q3 FY11
project
Impact: Positive. Excise duty on Greenfield investment in ultra-mega power
project is eligible for customs as well as excise duty under the mega-power
Source: Company policy. However, brownfield expansion of existing mega-power project has
to pay 2.5% customs duty (no CVD) in case of imported equipments and full
excise duty in case of domestic suppliers of main plant equipment. This creates
a disability for the domestic suppliers who are required to pay Central Excise
Capital goods index (%)
duty on supplies to such projects. To provide a level playing field to domestic
80 manufacturers (BHEL, L&T, BGR, JSW-Toshiba and Thermax), the FM has
proposed to exempt excise duty for ultra-mega power project brownfield
60 expansion. The benefit however is only symbolic as none of the ongoing ultra-
mega power projects have announced their brownfield expansion plans.
40
20
-20
Jun-10
Dec-10
Oct-10
Aug-10
Apr-10
Source: MOSPI
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February 28, 2011 Kotak Securities - Private Client Research
Preferred picks
ABB 3 17.7 3 17.7 698 530
L&T 73.1 87.8 73.1 87.8 1681 2030
Greaves Cotton 4.7 7.3 4.7 7.3 88 110
Thermax 34.1 41 34.1 41 664 784
Havells India 21.3 28.9 21.3 28.9 350 450
Bharat Electronics 96.8 121.6 96.8 121.6 1662 1886
Diamond Power & Infrastructure 30.6 36.2 30.6 36.2 162 319
Others
AIA Engineering 19.7 24.6 19.7 24.6 335 370
Areva T&D 8.7 10.6 8.7 10.6 295 320
BHEL 119.5 141.8 119.5 141.8 2218 2632
Blue Star 17.7 23.2 17.7 23.2 395 448
Crompton Greaves 14.4 16.2 14.4 16.2 272 322
Cummins India 30.7 38.1 30.7 38.1 645 837
Everest Kanto Cylinder 5.5 6.6 5.5 6.6 81 111
Gujarat Apollo Industries 16.9 21.6 16.9 21.6 147 237
Hindustan Dorr-Oliver 8.6 10.3 8.6 10.3 84 145
Kalpataru power transmission 12.6 15.4 12.6 15.4 135 262
Siemens India 24.5 29.6 24.5 29.6 727 825
Suzlon Energy 0 3.8 0 3.8 48 51
Time Technoplast 5.6 6.9 5.6 6.9 48 85
TIL 61.7 77.3 61.7 77.3 555 850
Voltamp Ltd 52 62 52 62 629 873
Voltas Ltd 10.6 12.7 10.6 12.7 188 231
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February 28, 2011 Kotak Securities - Private Client Research
225 100% 8%
150 90%
6%
75 80%
4%
FY11E
FY12E
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
0 70%
2006 2007 2008 2009 2010 2011E 2012E
Source: Kotak Securities - Private Client Research, CMA Source: Kotak Securities - Private Client Research, Cris Infac
Preferred picks
Grasim 226.4 238.7 226.4 238.7 2,255 2,530
Shree Cements 76.1 118.2 76.1 118.2 1,729 1,948
Others
ACC 59.6 64.8 59.6 64.8 969 870
Ultratech Cements 39.5 62.6 39.5 62.6 931 951
India Cements 1.8 6.3 1.8 6.3 85 85
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February 28, 2011 Kotak Securities - Private Client Research
Trend in oder inflow (Rs mn) Order book to FY12E sales (x)
OB (Rs bn - LHS)
60000 Q4FY10 Q1FY11 Sales FY12E (Rs bn - LHS)
315 4.5
OB/Sales (x - RHS)
Q2FY11 Q3FY11
45000
210 3.0
30000
105 1.5
15000
0 0.0
NCC
IRB Infra
BGR Energy
IVRCL
Patel Eng
MPL
Punj Lloyd
Simplex
industries
Infraprojects
Pratibha
0
Unity
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February 28, 2011 Kotak Securities - Private Client Research
n MAT on SEZ's
Impact: Negative. Sunset clause has now been proposed for availability of
exemption from MAT in case of SEZ developers and units in SEZs. Thus, with
effect from FY12, SEZ developers or units operating in SEZs will have to pay
MAT. Along with this, exemption of dividend distribution tax is also proposed
to be discontinued from 1st June, 2011. This would be negative for companies
developing SEZs.
Preferred picks
IRB Infra 12.6 15.0 12.6 15.0 184 291
IVRCL Infra 6.8 8.0 6.8 8.0 69 132
Pratibha Industries 6.5 8.9 6.5 8.9 54 81
Unity Infraprojects 12.0 12.9 12.0 12.9 58 109
Others
BGR energy systems 42.4 50.3 42.4 50.3 408 703
JP Associates 3.9 5.2 3.9 5.2 77 130
NCC 7.4 8.5 7.4 8.5 101 148
Simplex Infra 27.2 40.5 27.2 40.5 326 413
Madhucon Projects 8.5 9.0 8.5 9.0 95 140
Patel Engineering 12.8 19.5 12.8 19.5 142 254
J Kumar Infra 25.2 26.6 25.2 26.6 141 210
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February 28, 2011 Kotak Securities - Private Client Research
2004
2005
2006
2007
2008
2009
year’s budget. The lack of any changes is a positive for cigarette manufacturers,
as they would ensure higher volume growth and stability in FY12 profitability.
Source: Dabur India Presentation Excise duties on most items have remained unchanged, which augurs well for
the demand scenario in the sector.
n Certain items, which were thus far enjoying excise rates of 4%, have
been raised to 5%.
Source: CII Report Impact: Minor Negative for large FMCG companies. Affected items include
miscellaneous consumer products such as sauces, ready-to-eat items, coffee,
and education stationary. However, given low dependence of most majors on
these items, we believe the negative impact shall be minor.
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30 640 n MAT for SEZ developers and units operating in SEZs WEF FY12
Impact: Companies operating in SEZs will now have to pay MAT WEF FY12.
15 570
This will be incrementally negative for these companies from a cash-flow
0 500 perspective. EPS estimates may not be impacted as companies can avail of
FY09 FY10 FY11E deferred tax credit. However, there will be an impact on cash flows of all
companies which is a marginal negative.
Source : Nasscom
n Reduction in surcharge
Growth in number of employees Impact:This provision will have a marginally positive impact for non-MAT
companies.
3,000
2,500 The provisions of the Union Budget have a largely neutral impact on the sector,
in our opinion. Changes in surcharge will impact marginally the EPS estimates
Thousands
2,000
for companies. MAT will have an impact in FY12 but marginal. The STPI sunset
1,500
clause not being extended beyond FY11 will result in status quo for companies.
1,000 The focus on opening up avenues for IT companies in government projects,
500 promoting higher technical education, so as to meet potential demand for
employees from this sector, are positive over the longer term.
-
FY11E
FY06
FY07
FY08
FY09
FY10
We remain optimistic on the longer term prospects of the industry. The Global
Delivery Model has gained significant acceptance among existing and potential
clients. We believe that, the outsourcing and off-shoring story will gather further
Source : Nasscom
steam in the future and this will see an increased flow of longer term and
larger contracts to Indian vendors. Also, focused smaller companies with
expertise on select verticals will be able to move up the value chain and attract
Rupee / US$ larger clients, thereby, improving their longer term prospects.
51 Stock prices of most IT companies have out-performed the markets in the recent
past, in line with the improvement in demand environment. We expect the
49 sentiment towards the sector to remain positive and the sector to provide decent
returns over the medium term, subject to near term volatility. At current levels,
47 we prefer larger names like Infosys and TCS; we also retain our positive bias
for select mid-caps like KPIT Cummins and NIIT Technologies.
45
43
Oct-09
Oct-10
Feb-10
Feb-11
Jun-09
Jun-10
Dec-09
Dec-10
Aug-09
Aug-10
Apr-09
Apr-10
Source : Bloomberg
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February 28, 2011 Kotak Securities - Private Client Research
Preferred picks
Infosys 121.8 149.3 121.8 149.3 2,997 3,620
TCS 44.1 51.7 44.1 51.7 1,110 1,255
KPIT Cummins 11.5 14.4 11.5 14.4 146 196
NIIT Technologies 31.2 34.8 31.2 34.8 199 311
Others
Wipro 21.8 24.5 21.8 24.5 438 512
Mahindra Satyam 3.0 4.2 3.0 4.2 62 68
HCL Tech 21.9 30.1 21.9 30.1 442 547
Mphasis * 52.0 44.8 52.0 44.8 432 509
Patni ** 42 40.4 42 40.4 449 478
Infotech 12.8 16.3 12.8 16.3 159 197
NIIT Limited 5.1 7.0 5.1 7.0 49 74
Oracle 116.9 115 116.9 115 2,048 2,510
Geometric 9.1 10.4 9.1 10.4 66 87
Subex 8.8 10.2 8.8 10.2 53 91
Zensar 30.2 34.8 30.2 34.8 158 210
R Systems 13.1 11.2 13.1 11.2 130 121
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February 28, 2011 Kotak Securities - Private Client Research
2011E
2012E
2013E
2009
7.5%, which is largely a neutral event for all companies covered under MAT.
n Full exemption on customs duty on jumbo film rolls of 400 feet and
1000 feet:
Impact: The announcement shall have an impact on companies involved in
the production of films, and is likely to benefit companies like UTV Software
and Eros International. However, the impact of the same is likely to be small,
given low expense exposure to these items.
Source: Pwc Report on Indian Media & Entertainment industry Source: Kotak Securities - Private Client Research
Lack of any other announcement makes the budget a neutral event for media sec-
tor. The government has sounded positive on taking measures to contain inflation
in the long-term, which, along with emphasis on rural sector growth, is a positive
for media companies. We had expected a hint of reforms in radio FM, and
changes relating to digitization, in the budget sound-bytes. Absence of the same is
a minor disappointment, and announcements on these are likely delayed, not de-
nied.
Union Budget 2011-12 Please see the disclaimer on the last page For Private Circulation 32
February 28, 2011 Kotak Securities - Private Client Research
Preferred picks
ENIL 10.3 12.1 10.3 12.1 211 264
HT Media 7.8 11.0 7.8 11.0 132 224
Sun TV Network 19.0 24.3 19.0 24.3 403 666
Others
DB Corp 13.3 14.6 13.3 14.6 235 312
IBN18 -0.4 2.3 -0.4 2.3 91 115
Jagran Prakashan 6.7 8.2 6.7 8.2 111 153
UTV Software 40.9 41.9 40.9 41.9 508 463
Zee Entertainment 5.9 5.9 5.9 5.9 119 117
Union Budget 2011-12 Please see the disclaimer on the last page For Private Circulation 33
February 28, 2011 Kotak Securities - Private Client Research
Steel (Neutral)
n Sustained infrastructure thrust to stimulate steel demand
Impact: Budgetary support for steel intensive infrastructure sector increased
by 23% to Rs.2140bn. Positive for steel companies as higher outlay for road,
railways, power, urban and rural infrastructure development to lead to higher
steel consumption.
China iron ore import price (CIF $/t) China Steel Export Prices (USD)
700
150
625
100
550
50 475
Feb-10
Feb-11
May-10
Nov-09
Nov-10
May-10
Nov-09
Feb-10
Nov-10
Feb-11
Aug-10
Aug-10
Union Budget 2011-12 Please see the disclaimer on the last page For Private Circulation 34
February 28, 2011 Kotak Securities - Private Client Research
Preferred picks
Sesa Goa 46.6 61.8 44.8 53.7 261 340
Union Budget 2011-12 Please see the disclaimer on the last page For Private Circulation 35
February 28, 2011 Kotak Securities - Private Client Research
Feb-09
Feb-10
Feb-11
Aug-08
Aug-09
Aug-10
Impact: The government provides subsidies on fuel such as Kerosene and LPG.
However, a significant proportion of the subsidized fuel does not reach the
Source: Bloomberg targeted beneficiaries and hence there is a large scale diversion of subsidized
kerosene oil. In order to arrest this misuse, the government is now planning
towards direct transfer of cash subsidy to people living below poverty line in
a phased manner.
Naphtha ($/bbls)
160 A task force headed by Shri Nandan Nilekani has been set-up to work out the
modalities for the proposed system of direct transfer of subsidy for kerosene
120 and LPG. The interim report of the task force is expected by June 2011. The
government expects the system will be in place by March 2012. We believe
80 this is a major positive for the all OMCs in the long run, if implemented as
budgeted.
40
n Disinvestment in PSUs
0 Impact: In FY11, government will raise ~Rs.221.4 bn as against a target of
Rs. 400 Bn from disinvestment, as the government has postponed the FPO
Feb-08
Feb-09
Feb-10
Feb-11
Aug-08
Aug-09
Aug-10
12 For FY11, till now the government has given a subsidy of Rs. 210 Bn to the
OMCs for the losses incurred on retail fuel sale and made a further provision
9 of ~Rs.173.86 Bn for FY11.
6
n MAT increased to 18.5% from 18%
3 Impact: The government at one hand has increased the MAT rate from 18%
to 18.5% but on the other hand has reduced the surcharge from 7.5% to
0 5.0%. So, we believe this is neutral for Cairn and RIL who are currently liable
Feb-08
Feb-09
Feb-10
Feb-11
Aug-08
Aug-09
Aug-10
to MAT.
Source: Bloomberg
Union Budget 2011-12 Please see the disclaimer on the last page For Private Circulation 36
February 28, 2011 Kotak Securities - Private Client Research
Illustration
(Rs) Pre-Budget Post-Budget
Preferred picks
Cairn 33.9 49.9 33.9 49.9 340 378
IGL 19.2 24.1 19.2 24.1 290 365
Others
GSPL 8.5 8.4 8.5 8.4 90 102
Petro net LNG 7.8 9.3 7.8 9.3 110 122
Union Budget 2011-12 Please see the disclaimer on the last page For Private Circulation 37
February 28, 2011 Kotak Securities - Private Client Research
Union Budget 2011-12 Please see the disclaimer on the last page For Private Circulation 38
February 28, 2011 Kotak Securities - Private Client Research
Preferred picks
NTPC 10.6 11.7 10.6 11.7 170 220
6 110
4
100
2
0 90
Feb-10
Jun-10
Oct-10
Dec-10
Aug-10
Apr-10
Dec-10
Jun-10
Oct-10
Aug-10
Apr-10
Union Budget 2011-12 Please see the disclaimer on the last page For Private Circulation 39
February 28, 2011 Kotak Securities - Private Client Research
n MAT on SEZ's
Impact: Negative. Sunset clause has now been proposed for availability of
exemption from MAT in case of SEZ developers and units in SEZs. Thus, from
1st April, 2012, SEZ developers or units operating in SEZs will have to pay MAT.
This would be negative for players developing SEZs.
Urban housing shortage (mn units) Rural housing shortage (mn units)
25 75 Immediate shortage
Immediate shortage
Total shortage Total shortage
20 60
15 45
10 30
5 15
0 0
2001 2005 2008 2010 2014 2001 2005 2008 2010 2014
Union Budget 2011-12 Please see the disclaimer on the last page For Private Circulation 40
February 28, 2011 Kotak Securities - Private Client Research
75% 100
75
50%
25% 50
0% 25
US
Malaysia
Indonesia
Thailand
China
India
Taiwan
0
1990 1995 2000 2005 2010 2015
Union Budget 2011-12 Please see the disclaimer on the last page For Private Circulation 41
February 28, 2011 Kotak Securities - Private Client Research
Union Budget 2011-12 Please see the disclaimer on the last page For Private Circulation 42
February 28, 2011 Kotak Securities - Private Client Research
Research Team
Dipen Shah Saurabh Agrawal Ruchir Khare Jayesh Kumar
IT, Media Metals, Mining Capital Goods, Engineering Economy
dipen.shah@kotak.com agrawal.saurabh@kotak.com ruchir.khare@kotak.com kumar.jayesh@kotak.com
+91 22 6621 6301 +91 22 6621 6309 +91 22 6621 6448 +91 22 6652 9172
Sanjeev Zarbade Saday Sinha Ritwik Rai Shrikant Chouhan
Capital Goods, Engineering Banking, NBFC, Economy FMCG, Media Technical analyst
sanjeev.zarbade@kotak.com saday.sinha@kotak.com ritwik.rai@kotak.com shrikant.chouhan@kotak.com
+91 22 6621 6305 +91 22 6621 6312 +91 22 6621 6310 +91 22 6621 6360
Teena Virmani Arun Agarwal Sumit Pokharna K. Kathirvelu
Construction, Cement, Mid Cap Automobiles Oil and Gas Production
teena.virmani@kotak.com arun.agarwal@kotak.com sumit.pokharna@kotak.com k.kathirvelu@kotak.com
+91 22 6621 6302 +91 22 6621 6143 +91 22 6621 6313 +91 22 6621 6311
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