Post Budget Sector Analysis

Budget Proposal

• Hike in corpus of Rural Infrastructure Development Fund-XIII and Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) - Yes
• Private sector participation in transmission projects and hike in budgetary support for APDRP - Yes
• Reduction in customs duty on imports of medical equipments from 12.5% to 7.5% - No
• Increase in allocation to defense to Rs 960 bn, including Rs 420 bn for capital expenditure - No
• Concessions under section 80IA for infrastructure facilities extended to cross country natural gas distribution network, including gas pipeline and storage facilities integrated to the network - No
• Customs duty on sprinklers and drip irrigation systems for agricultural & horticultural purposes is reduced from 7.5% to 5% - No
• Concessional customs duty of 5% on specified plantation machinery extended by two years to April 2009 - No
• Customs duty on food processing machinery and parts reduced from 7.5% to 5% - No
• Dividend distribution tax to be hiked from 12.5% to 15% - No
• Additional education cess of 1% to fund secondary and higher education - No

Sector Impact

• Increase in corpus of RIDF-XIII and higher allocation for RGGVY to aid addition to power capacities for rural areas.
• Private sector participation in transmission projects likely to lead to higher spending and faster creation of transmission infrastructure, thus benefiting transmission equipment companies
• Higher education cess and dividend distribution tax to impact net profits and retained earnings, though the impact will be marginal
• Lower customs duty on sprinklers and drip irrigation systems to benefit agricultural productivity
• Higher education cess and dividend distribution tax to impact net profits and retained earnings, though the impact will be marginal

Sector Outlook

We maintain our positive outlook on engineering companies post the budget announcements. Hike in allocation for rural infrastructure development, boost to power generation and transmission segments and increase in defence capital expenditure are some of the positives to have come out of from the proposals. From a policy perspective, there has been a growing consensus that a private-public partnership is required to remove difficulties concerning the development of infrastructure in the country. The realisation finally seems to be setting in, as seen from the slew of investment measures announced in this budget. Apart from power, the potential for the sector lies in the oil and gas industry, where high global demand has led to increased action in exploration and production activities.

Company Impact

• Boost to rural electrification and focus on private sector participation in transmission to benefit equipment makers like BHEL, Siemens, ABB, Alstom and Areva T&D
• Increased allocation to defense to aid private sector players like L&T, Tata Power and Astra Micro
• Lower customs duty on sprinklers and drip irrigation systems to impact domestic manufacturers like Jain Irrigation