Post Budget Sector Analysis

Budget Proposal

• Hike in corpus of Rural Infrastructure Development Fund-XIII from Rs 100 bn to Rs 120 bn - Yes
• Government’s equity support of Rs 164 bn and loans of Rs 30 bn to central public sector enterprises - No
• Facilitation of setting up of merchant power plants by private developers - No
• Private sector participation in transmission projects - Yes
• Hike in budgetary support for APDRP from Rs 6.5 bn to Rs 8 bn - Yes
• Increase in allocation for Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) from Rs 30 bn to Rs 40 bn - Yes
• Full custom duty exemption on coking coal, from 5% rate currently - No
• Tax on dividend distributed by companies to be hiked from 12.5% to 15% - No
• Tax on dividend distributed by money market and liquid mutual funds to be hiked to 25% - 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
• Government’s equity and debt support to central public sector enterprises to aid funding for national electrification programme
• Setting up of merchant power plants by private developers to aid the power generation sector
• Private sector participation in transmission projects likely to lead to higher spending and faster creation of transmission infrastructure
• Hike in budgetary support for APDRP from Rs 6.5 bn to Rs 8 bn to aid reduction in losses in the transmission and distribution segments through way of incentives
• Custom duty exemption on coking coal to lead to around 5 paise reduction in tariff for the end user of electricity
• Higher education cess and dividend distribution tax to impact net profits and retained earnings
• As for increase in tax on dividend distributed by money market and liquid mutual funds, this is likely to impact the large debt investments made by power sector companies

Sector Outlook

While the finance minister has talked of setting up of ultra mega power projects and greater thrust on rural electrification, we find nothing new in these announcements, as these have already been made earlier. However, despite this enhanced focus, we remain concerned about the pace of actual implementation of the planned projects, in all the segments of power generation, transmission and distribution. The full exemption on import duty on coking coal will lead to a marginal reduction in electricity tariffs. However, we believe that the increase in tax on dividend distributed by money market and liquid mutual funds is likely to impact the large debt investments made by power sector companies. Overall, we remain cautiously optimistic on the sector's progress in the years to come. Long term fuel linkages and investment in transmission and distribution are our key areas of consideration with respect to the sector's growth prospects.

Company Impact

• Boost to rural electrification to benefit generators like NTPC, Tata Power, Reliance Energy and consequently power generation equipment and service providers like BHEL and Siemens
• Aid to setting up of merchant power plants to benefit private developers like Tata Power and Reliance Energy
• Private sector participation in transmission projects and hike in budgetary support for APDRP to lead to increased benefits for companies like ABB and Siemens