Post Budget Analysis 2015

POST-BUDGET
ANALYSIS
Budget2015
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PRIVATE CLIENT RESEARCH
UNION BUDGET ANALYSIS
FEBRUARY 28, 2015
UNION-BUDGET ANALYSIS UNION BUDGET ANALYSIS: FY2015-16

Research Team
+91 22 6621 6301 Credible & Responsive
While being devoid of big bang announcements, Union Budget 2015-16
focuses on all the relevant issues. Additional spends of Rs.700bn in
GDP growth (%) infrastructure from the Government, creating enabling climate for
private sector investments and enabling reforms to bring long term
money into the system (presumably to be used in infrastructure) are the
highlights. Reforms on black money, social security, predictability in
taxation, ease of doing business, among others, are noteworthy. The
3.9% FD is tolerable especially in view of the acceptance of the
14thFinance Commission impact and is achievable. We expect RBI to cut
interest rates by 50-75bps over FY16. Markets will stay buoyant, if
execution matches intent.
The FM has targeted real growth of 8.1% for FY16. The Central plan
expenditure is targeted to rise by 37% to Rs.2.6trn, which is encouraging.
Revenue and capital expenditure are projected to rise by similar margins.
Infrastructure and manufacturing, which can create several jobs, have
received significant attention. Infrastructure Funds, Tax free bonds, revamped
PPP model and further clarifications on REITs / InVITs should help. We expect
Source: CSO
these initiatives to boost growth rates, going ahead.
We opine that, the budget has set 'achievable' revenue targets for FY16. A
Inflation (%) 16% growth in tax revenues looks within reach, based on a real GDP growth
of 8.1% and nominal GDP growth of 11.5%. Increase in Service tax rates
12 and higher surcharge on super-rich should enable this growth, we opine.
9
Growth in indirect taxes should be also supported by higher excise duty on
diesel/petrol, imposed in the latter part of FY15. Divestment target of
6 Rs.695bn (strategic sale of Rs.285bn and divestment of Rs.410bn) should also
not face major headwinds.
3
Subsidies are budgeted at 1.7% of GDP v/s 2.1% in FY15RE. The saving in
0 revenue expenditure (only 3% growth YoY in FY16BE) is sought to be
gainfully deployed towards capital expenditure (26% growth YoY in FY16BE).
-3 We believe the Government will not need to carry forward any fuel subsidy
burden to the next fiscal. Thus, we think that, the FD target of 3.9% of GDP
is achievable. We feel the 3.9% FD is tolerable as it is a result of higher
spends towards capacity creation to aid long term growth.
Source: Economic Survey 2015-16
The FM has tried to attract more funds from the private sector as well as
through foreign investors. Various initiatives have been announced to
increase ease of doing business and remove uncertainties on the taxation of
foreign capital like postponement of GAAR, extension of reduced
withholding tax, modified permanent establishment norms, etc.
Sectoral impact
Budget Impact Sectors
Positive Banking & NBFC, Capital Goods & Engineering, Cement, Construction, Logistics and Real Estate
Neutral Auto & Auto Ancillary, Aviation, FMCG, IT, Media, Metals & Mining, Oil & Gas, Paints, Pharmaceuticals,
Power, Shipping
Source: Kotak Securities - Private Client Research
Disclaimer: We do not have any information other than information available to general public with regard to budget proposals. The industry
expectations are based on information got from sources like respective industry associations, FICCI, CII, companies, media and other public sources. This
report contains budget expectations of our experts and its impact on specific sectors and companies, which may or may not come true.
Registered Office: Kotak Securities Limited, 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051.
February 28, 2015 Kotak Securities - Private Client Research
One of the corner-stones of the budget has been the various reforms which have
been announced. Initiatives on black money, social security, predictive taxation,
subsidy rationalisation, infrastructure funding, ease of doing business,
cooperative federalism, among others, should go a long way in improving the
financial savings rate and funding long term investment needs of the
Government.
Inclusive growth and inflation control have also found significant focus in the
budget and these should allow a more balance growth of the country in the
long term.
On the taxation front, corporate tax rates will be brought down to 25% from the
current 30% over 5 years, whereas exemptions are sought to be done away
with in tandem. This brings in more predictability and should attract corporate
investments. However, surcharge has been increased for companies from 10%
to 12%.
In indirect taxes, surcharge and cess on excise duty have been subsumed in the
basic duty, which now stands at 12.5%. Service tax rate has been increased to
14%, to bring it in line with the proposed GST rate. Excise duty of cigarettes has
been increased by 15% - 25%. Excise / customs duties on few items have been
tinkered with to promote 'Make in India'. Individual tax payers will benefit due
to higher deduction on contribution towards Pension Funds as well as due to
higher medical insurance deduction and increased travel allowance.
Overall, we believe that, the budget has the heart in the right place in trying to
provide a significant thrust on growth through investment-related initiatives
(increase in plan expenditure, adjusted for shift of schemes in light of 14th
Finance Commission recommendations). There is a shift from demand pull
growth (which resulted in high and sticky inflation) to supply push growth. More
private sector investments will be encouraged only by reform initiatives taken
outside the budget, though.
The budget is silent on some important issues like labour reforms, FDI in more
sectors, etc. We expect to get more clarity on these over the course of the
fiscal.
From the stock market perspective, the corporate tax rate reduction over FY17-
FY20 is a mild positive. The tax burden will increase slightly in FY16, though.
GAAR has been postponed for two years likely with grand-fathering, which
should improve sentiments. With the major event out of the way, the markets
will likely focus on issues like RBI action and global economy. Off-budget action
on budget initiatives will sustain the confidence of the markets over the medium
term. Government's ability to pass significant legislations in ongoing parliament
session would bode well for sustained market performance. We expect RBI to
reduce rates by 50-75bps in FY16. We believe that, a bottoms-up approach will
be the best approach over this time-frame.
Union Budget 2015-16 Please see the disclaimer on the last page For Private Circulation 2
While being devoid of big bang announcements.

The budget has adopted an incremental approach, rather than a big bang approach
towards various issues. Thus, there are no major announcements in term of invest-
ments, subsidy rationalisation, deficit reduction plan, etc.
the budget has focused on all the relevant issues

The budget has proposed a near 37% increase in the central plan expenditure, both
on the revenue and capital fronts. This should help support growth at a time when
private sector is faced with high level of debts and low capacity utilization levels.
Secondly, realizing the importance of the private sector as well as foreign funding
over the long term, the budget has proposed various enabling provisions to improve
ease of doing business, remove taxation ambiguities / concerns, attracting long term
money, among others.
Various initiatives have been announced to improve the savings rate in the economy
and bring in long-term money to support the economic growth. Reforms on black
money, social security, predictive taxation, subsidy distribution, infrastructure fund-
ing, ease of doing business, cooperative federalism, among others, should go a long
way in improving the financial savings rate and funding long term goals of the Gov-
ernment.
With a view to make the growth inclusive, various steps have been incorporated.
On inflation, the Government will now work with the RBI and a monetary policy
framework will be formalized for long term inflation targeting. Higher allocation for
farm credit and focused programs to improve productivity, should help in reducing
inflation on a structural basis.
The FM has targeted a FD of 3.9% for FY16. This is largely due to the higher ex-
penditure as well as lower fiscal space post incorporating the recommendations of
the 14th Finance Commission. We think this is tolerable especially in the backdrop
of a push to growth. We also believe it is achievable.
Thus, we take a constructive view of the budget which should go a long way in
improving the growth prospects of the economy, while giving the benefits of the
same to a larger cross-section of the society.
Real GDP Growth

(%) 2012-13 2013-14 2014-15
Agriculture & Allied activities 1.2 3.7 1.1

Industry 2.3 4.5 5.9
Mining & quarrying -0.2 5.4 2.3
Manufacturing 6.2 5.3 6.8
Electricity, gas & water supply 4.0 4.8 9.6
Construction -4.3 2.5 4.5
Services 8.0 9.1 10.6
Trade, Hotels, Transport, Communication 9.6 11.1 8.4
Finance, Real Estate, Other Businesses 8.8 7.9 13.7
Community, Social & Personal Services 4.7 7.9 9.0
Total 4.9 6.6 7.5
Source: Economic Survey FY15; Base year: 2011-12
A. Investments in infrastructure and manufacturing get

significant attention
With the private sector laden with high debt and low capacity utilization levels, it is
up to the Government to pump up the investment cycle. The FM has, indeed, put a
lot of emphasis on the same. He has budgeted for a central plan expenditure in-
crease of 37% YoY, both on the capital and revenue fronts. Allocations have been
made to various areas like Ports, industrial corridors, Roads/Highways, Rurbanisation
of India, Renewable Energy, Housing, Mining, Manufacturing, etc.
Railways and roads see huge increase in allocations

The gross budgetary support (GBS) for roads and railways has been increased by
Rs.140bn and Rs.100bn, respectively, over FY15RE.
Central Plan outlay

Rs mns FY15RE FY16BE
Railways 643,017 983,650

Ports and Lighthouses 24,285 25,932
Shipping 130 11,361
Civil Aviation 83,002 53,610
Roads and Bridges 310,368 851,823
Inland Water Transport 770 2,067
Other Transport Services 850 5,725
Total 1,062,422 1,934,168
Source: Budget 2015-16
The Government has awarded nearly 1700 kms of road projects in the current fiscal
and has a target to award 5500 kms for the full year FY15. It has set a target of
awarding projects for 20000 kms of roads in the next two years. Construction of
about 4000 kms will be completed during FY15. However, for connecting each of
the 1,78,000 unconnected habitations by all-weather roads, would require complet-
ing 1,00,000 km of roads currently under construction plus sanctioning and building
another 1,00,000 km of road. The Government has already committed to increase
the target of road construction to 30 km / day over the next two years, as compared
to the current average of 3 km / day.
On railways, the central plan outlay is pegged at Rs.983bn for FY16 v/s Rs.643bn in
FY15RE.
NIIF and taxfree bonds proposed

Mr. Jaitley has announced the setting up of a National Investment and Infrastructure
Fund (NIIF). The Government will help to fund it to the extent of Rs.200bn. In turn,
the fund will raise debt, and in turn, invest as equity, in infrastructure finance com-
panies such as the IRFC and NHB.
Apart from these, the FM has announced initiatives to attract more funds to the
sector to support it over the longer term. He has proposed to permit tax-free infra-
structure bonds for the projects in the rail, road and irrigation sectors. We believe
that, with relatively higher returns on a post-tax basis, these bonds will find favor, as
in the past.
Attracting PPP investments

With a view to attract more private sector funds, the FM has proposed to revamp
the PPP mode of infrastructure development. The major issue involved is rebalanc-
ing of risk. He has also indicated that, the sovereign will have to bear a major part
of the risk.
We have already seen the road sector having adopted this model. A new scheme -
Hybrid Annuity has been devised and 13 projects worth Rs.144bn have already
been awarded under this scheme. The hybrid model seeks to invoke the right mix
of risk-sharing of both, EPC and BOT models.
Clarity on REITs
In respect of Real Estate Investment Trusts (REITs) and Infrastructure Investment
Trusts (INViTs), earlier the taxation on gains arising at the time of disposal of units
by sponsor was deferred and the preferential capital gains regime was not available
to the sponsor at the time of disposal of units.
Now it has been proposed that the sponsor will be given the same treatment on
offloading of units at the time of listing as would have been available to him had he
offloaded his shareholding of special purpose vehicle (SPV) at the stage of direct list-
ing or IPO. Along with this, the benefit of concessional tax regime of tax @15 % on
STCG and exemption on LTCG shall be available to the sponsor on sale of units of
REIT subject to levy of STT.
Also, earlier the rental income received at the level of SPV gets passed through by
way of interest or dividend to the REIT but the rental income directly received by the
REIT was taxable at REIT level and does not get pass through benefit. Now govern-
ment has proposed a pass through status to the rental income arising to REIT.
These key changes should pave the way for REIT listings in India from April 2016.
Thus, we see a significant push from the Government as far as infrastructure invest-
ments in FY16 are concerned. There is a corresponding urgency to attract more pri-
vate sector investment over the medium to long term.
B. Fiscal deficit target achievable

The FM has projected a nominal GDP growth of 3.9% for FY16, as compared to
4.1% for FY15. While the number is slightly higher than our expectations of 3.6%,
we feel this is tolerable. The deficit is relatively higher because of the sharp increase
in central plan expenditure as well as the reduced fiscal space due to the 14th Fi-
nance Commission recommendations, which have been incorporated.
We believe that, the real GDP growth target has been set at about 8.1%, assuming
inflation at 5%. We also expect nominal GDP growth of 11.5%.
Trends in deficits of Central Government

8.0
Fiscal Deficit Revenue Deficit Primary Deficit
6.0
4.0
2.0
0.0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 BE FY15 RE FY16 BE
Source: Economic Survey 2015
FFC recommendations incorporated

The FD target has been re-set to 3.9% after incorporation of the suggestions of the
FFC. Thus, the budget has transferred 42% of the divisible tax pool (gross tax col-
lections custom duty) to the states, as against 32% in the previous fiscal. The
amount of grants has been correspondingly reduced. There is 55% increase in
transfer to states from Rs. 3.4 tn to Rs. 5.2 tn. In addition, central government shall
support 31 schemes fully and another 24 schemes shall be funded with changed
sharing pattern. Accordingly, 8 centrally-sponsored schemes have been de-linked
from central support of Rs.1.1trn (in FY14) and to that extent, the plan expenditure
is lower by about Rs.1.1trn or 0.8% of GDP.
Revenue estimates
FM has budgeted for gross tax revenue to increase by 13% to Rs. 14.5 tn from Rs.
12.5tn in FY15RE. Corporate tax revenue is budgeted to increase by 10.5% v/s
8.2% achieved in FY15. Income tax revenues by 17.5% as compared to 15.3% in
FY15. Based on our expectations of 11.5% nominal growth in FY16 GDP, we opine
that, these projections are realistic.
Among indirect taxes, customs duty and excise duty revenues are expected to grow
by 10.4% and 23.9%, respectively. Service tax revenues are expected to rise
sharply by 24.8%. We believe this is largely due to increase in the service tax rate
from 12% to 14%. Effective rates of addition duty of excise (Road Cess) is raised to
Rs.6/litre for petrol and diesel from Rs.2/litre, however removal of education cess
and change in CENVAT rates would result in no increase in effective duty on petro-
leum products. Indirect taxes are expected to grow by 19.4%, primarily on account
of increased tax rates and expected economic growth.
The tax estimates look reasonable, under the assumption of increase in tax compli-
ance and economic recovery. We also opine that, there could be a short fall in tax
revenue if GDP growth remains subdued. Net tax revenue is budgeted at Rs. 9.2 tn
from Rs. 9.1 tn in FY15, increase of just 1.3% against estimate of 11.5% increase
in nominal GDP due to large transfer to states (Rs. 5.2 tn from Rs. 3.4 tn).
Disinvestment of equity in PSUs (Rs bn)
500
400
300
200
100
Source: Annual Budget 2015-16
Non-tax revenue is budgeted at Rs. 2.2 tn against Rs. 2.2 tn in FY15. Government
has budgeted aggressively for capital receipts to grow by 14.6% to Rs. 6.4 tn from
Rs. 5.5 tn in FY15. The Rs. 695 bn capital revenue is in form of profits from PSU/RBI/
divestments, against Rs. 314 bn in FY15. Although high from last years realization,
these estimates are achievable.
Expenditure estimates
Budget estimates for FY16 show a net increase of Rs. 963 bn in expenditure over
the FY15RE. Plan expenditure is budgeted to remain flat. After adjusting for ex-
penses incurred on transferred schemes in FY15, plan expenditure is budgeted to
increase by Rs.1trn, an increase of 23% YoY. We view the sharp increase in plan
allocation positively. Within this, the capital plan expenditure is expected to rise by
34%.
Non-plan expenditure is expected to rise only by about 16% as the subsidy burden
is expected to fall by 8.6% YoY to Rs. 2.4 tn in FY16 (1.7% of GDP). The Direct
Benefit Transfer (DBT) scheme will be implemented across 33 centrally-sponsored
schemes. As far as LPG is concerned, nearly 25mn households have been covered
and they are receiving about Rs.5.5bn since November 15, 2014.
The FM has budgeted Rs.300 bn as the governments share of the oil subsidy bur-
den in FY16 v/s Rs. 603 bn in FY15, a cut of 50%. The Government had carried
forward fuel subsidy of Rs.345bn from FY14 to FY15 and we believe that, the same
has been provided for in FY15. Overall, we feel that, the estimates for fuel subsidies
are realistic and do not expect any major incremental number on the same. This
also indicates that if the oil prices remain subdued, there may not be substantial
burden on OMCs.
Trend in Subsidies
(Rs bn) FY12 FY13 FY14 FY15BE FY15RE FY16BE
Food 728.2 850.0 920.0 1150.0 1226.8 1244.2

Total Fertiliser Subsidy 700.1 656.1 673.4 729.7 709.7 729.7
Indigenous (Urea) fertilisers 202.1 151.3 265.0 360.0 382.0 382.0
Imported (Urea) fertilisers 137.2 200.0 115.4 123.0 121.0 123.0
Sale of decontrolled fertiliser with concession to farmers 360.9 304.8 293.0 246.7 206.7 224.7
Petroleum Subsidy 684.8 968.8 853.8 634.3 602.7 300.0
Interest subsidies 50.5 72.7 81.4 83.1 111.5 149.0
Other 15.7 23.2 17.8 9.5 16.3 15.2
Total Subsidies (Rs.bn) 2179.4 2570.8 2546.3 2606.6 2666.9 2438.1
Gross borrowings are pegged at Rs. 5.4 tn, net market loans are estimated at
Rs.4.56 tn vs Rs. 4.46tn in FY15. Lower government borrowing bodes well for the
government bond yields. Public debt is expected to increase to Rs. 68.9tn from
Rs. 62.8tn in FY15 (10% increase in in-debt ness over FY15RE), primarily held in
domestic market and only Rs. 2 tn of government debt is external. We expect G-Sec
yield to moderate over the fiscal, along the lines of lower inflation and accommo-
dating monetary policy. Based on our expectations of growth rate for FY16, we feel
that, the deficit targets are achievable. We expect RBI to reduce rates further by 50-
75 bps in FY16.
Plan expenditure
Plan Expenditure (Rs bn - LHS) Growth (% - RHS)

7500 40%
6000 30%
4500
20%
3000
10%
1500
0 0%
-1500 -10%
Non-plan expenditure
Non-Plan Exp (Rs bn - LHS) Growth (% - RHS)

15000 25%
12000 20%
9000 15%
6000 10%
3000 5%
0 0%
Variance in Non-Plan expenditure

(Rs bn) FY14 FY15BE FY15RE FY16BE
Interest Payments and Debt Servicing 3,743 4,270 4,114 4,561

Defence Expenditure 2,035 2,290 2,224 2,467
Fertilizer Subsidy 673 730 710 730
Food Subsidy 920 1,150 1,227 1,244
Petroleum Subsidy 854 634 603 300
Other Subsidies 99 93 128 164
General Services 1,405 1,544 1,552 1,697
Social Services 256 253 256 291
Economic Services 204 220 220 226
Non-Plan Grants to States 597 691 792 1,076
Other Non-plan Expenditure 275 324 308 365
Total (Non-Plan) Expenditure 11,061 12,199 12,132 13,122
C. Reforms are a corner-stone of the budget

One of the corner-stones of the budget has been the various reforms which have
been announced. Initiatives on black money, social security, predictive taxation,
subsidy distribution, infrastructure funding, ease of doing business, cooperative fed-
eralism, among others, should go a long way in improving the financial savings rate
and funding long term goals of the Government.
Social security
The budget has laid great thrust on social security and long term savings. These
initiatives, if successful, should lead to an increase in private financial savings.
The soon-to-be-launched Atal Pension Yojana will provide a defined pension, de-
pending on the contribution, and its period. Here, to encourage people to join this
scheme, the Government will contribute 50% of the beneficiaries premium limited
to Rs.1,000 each year, for 5 years, in the new accounts opened before 31st Decem-
ber, 2015.
On taxation, the FM has proposed that, the limit on deduction on account of contri-
bution to a pension fund and the new pension scheme will be increased from
Rs.0.10mn to Rs.0.15mn. Additional deduction of Rs.50000 for contribution to the
new pension scheme u/s 80CCD has also been proposed.
The Pradhan Mantri Suraksha Bima Yojna will be launched and proposes to cover
accidental death risk of Rs.0.20mn for a premium of just Rs.12 per annum. Addi-
tionally, the Pradhan Mantri Jeevan Jyoti Bima Yojana will cover both natural and
accidental death risk of Rs.0.20mn. The premium will be Rs.330 per year for the
age group 18-50.
We believe these initiatives, while providing additional social security, will lead to
higher savings rate for India.
Gold Bond scheme / Infrastructure funds

The budget has proposed setting up an alternate financial asset in the form of a
Sovereign Gold Bond, as an alternative to purchasing metal gold. The Bonds will
carry a fixed rate of interest, and also be redeemable in cash in terms of the face
value of the gold, at the time of redemption by the holder of the Bond. Once again,
this will bring in more money to the financial system as compared to being invested
in non-income yielding assets like Gold.
As mentioned earlier, the Government has also proposed to permit tax-free infra-
structure bonds for the projects in the rail, road and irrigation sectors. We believe
that, with relatively higher returns on a post-tax basis, these bonds will find favor
and will provide a long-term source of financing for the sector.
Ease of doing business

There are various initiatives taken on this front. Some of them are as under.
The Bankruptcy law is sought to be reformed to bring about legal certainty and
speed. A comprehensive Bankruptcy Code will be introduced in fiscal 2015-16, that
will meet global standards and provide necessary judicial capacity.
Secondly, online central excise and service tax registration will be done in two
working days, whereas the time limit for taking CENVAT credit on inputs and input
services has been increased from six months to one year as a measure of business
facilitation.
In respect of transfer of share of a foreign company deriving its value, directly or
indirectly, substantially from the shares of an Indian company, if this is under a
scheme of amalgamation or demerger, there will be no capital gains tax liability.
The budget has also proposed that, the threshold limit for applicability of transfer
pricing regulations to specified domestic transactions has been increased from
Rs.50mn to Rs.200mn.
Black money
The budget has clearly focused on addressing the black money issue. The Govern-
ment will introduce a bill in the Budget session of the Parliament specifically deal
with such money stashed away abroad. Strict action is proposed to be taken against
offenders including jail terms.
On the domestic front, a new and more comprehensive Benami Transactions (Prohi-
bition) Bill is proposed to be introduced in the current session of the Parliament. This
law will enable confiscation of benami property and provide for prosecution, thus
blocking a major avenue for generation and holding of black money in the form of
benami property, especially in real estate.
The Finance Bill includes a proposal to amend the Income-tax Act to prohibit accep-
tance or payment of an advance of Rs.20,000 or more in cash for purchase of im-
movable property and has also made it mandatory to quote the PAN for any pur-
chase or sale exceeding the value of Rs.0.10mn,
We opine that, these initiatives will go a long way in curbing the black-money flows
and also bring in additional liquidity to the formal system.
JAM and GST

The FM has reiterated his preference for DBT for subsidies. The Economic Survey
had spoken about the JAM Trinity Jan Dhan, Aadhar and Mobile for plugging
leakages and restricting the subsidies to the targeted beneficiaries only. DBT has
been effective implemented for transferring the LPG subsidy and will be extended
to the Kerosene subsidies in due course.
The FM has reiterated its target of implementing GST WEF FY16 and will try to
present the Constitutional Amendment Bill during the budget session itself.
We believe that, these reforms have the potential to improve the expenditure man-
agement initiative of the Government (JAM) and also improving profitability and
ease of doing business for the corporate sector.
D. Inclusive growth remains a focus area

Equitable growth (sabka saath, sabka vikash) has been one of the important corner-
stones of BJPs election campaign. With a view to make the growth more sustain-
able, the Government has focused on inclusive growth. The budget has announced
new schemes and initiatives to ensure rural upliftment, employment creation, edu-
cation, agricultural growth and public health. Higher allocations have also been
made to the hitherto neglected states in North-East (allocation is increased from
Rs.270 bn to Rs.285 bn).
Given, a large proportion of Indias population doesnt have any kind of insurance,
FM announced Pradhan Mantri Suraksha Bima Yojana, which will cover accidental
death risk. Similarly, the government will also launch the Atal Pension Yojana,
which will provide a defined pension, depending on the contribution, and its period.
The third Social Security Scheme that the FM announced is the Pradhan Mantri
Jeevan Jyoti Bima Yojana which covers both natural and accidental death risk of
Rs.0.20mn.
Rurbanising India has been one of the objectives of the new Government. Shyama
Prasad Mukherji Rurban Mission was announced for integrated project based infra-
structure in the rural areas. The mission is aimed at providing basic infrastructure
facilities to rural areas, such as roads, drinking water, electricity and sanitation, and
could help to stem migration from the countryside to cities.
While 93% of urban households had electricity for lighting, only 55% of rural
households had access to electricity, Census 2011 data shows. In terms of availabil-
ity of water within the home, 71% of urban households had access, compared with
only 35% of rural households. While 81% of urban households had latrines, only
31% of rural households had similar access. Around 63% of rural households had
no drainage compared with 18% of urban households.
Self Employment and Talent Utilisation (SETU): Government has announced the
setting up of a Self- Employment and Talent Utilisation (SETU) mechanism. SETU
will be a Techno-Financial, Incubation and Facilitation Programme to support all
aspects of start up businesses, and other self-employment activities, particularly in
technology-driven areas. An amount of Rs.10 bn is being set up initially in NITI
Aayog for SETU.
ATAL Innovation Mission (AIM): FM stated that AIM will be an Innovation Pro-
motion Platform involving academics, entrepreneurs and researchers and draw upon
national and international experiences to foster a culture of innovation, R&D and
scientific research in India.
FM announced a Swachh Bharat Cess on all or certain taxable services at a rate of
2% from a date to be notified. Proceeds from this Cess would be utilized for
Swachh Bharat initiatives. In a related development, the Scheduled rate of Clean
Energy Cess levied on coal lignite and peat is being increased form Rs. 100 per
tonne to Rs. 300 per tonne. The effective rate of Clean Energy Cess is being in-
creased from Rs. 100 per tonne to Rs. 200 per tonne. Similarly, Excise duty on sacks
and bags of polymers of ethylene other than for industrial use is being increased
from 12% to 15%. The FM made adequate provision for the schemes for the poor
with allocation of Rs. 690 bn to the education sector including mid-day meals, Rs.
331 bn to the health sector and Rs. 795 bn for rural development activities including
MGNREGA, Rs. 224 bn for housing and urban development, Rs. 103 bn for women
and child development, Rs. 42 bn for Water Resources and Namami Gange.
The FM proposed to create a Micro Units Development Refinance Agency (MUDRA)
Bank, with a corpus of Rs. 200 bn, and credit guarantee corpus of Rs. 30 bn, which
will refinance Micro-Finance Institutions through a Pradhan Mantri Mudra Yojana.
8 Centrally Sponsored Schemes have been delinked from Support of the Centre and
24 schemes to be run with the Changed Sharing Pattern while 31 Schemes will Get
Full Support of the Centre. The plan outlay of 2015-16 reflects the compositional
shift in the allocations for various Programmes and Schemes in view of high devolu-
tion; 42% of Union Taxes, to States as per the recommendation of 14th Finance
Commission. Consequent to this substantially higher devolution, many schemes on
the State subjects are delinked from Central support. However, since some of these
schemes represent national priorities especially those targeted at poverty alleviation,
Centre has decided that it will continue to contribute to such schemes.
As per the Budget, centre has decided to support fully those schemes, which are
targeted to the benefits of socially disadvantaged group. In case of some Centrally
Sponsored Schemes, the Centre: State funding pattern will undergo a change with
States to contribute higher share. The details of Plan outlays in 2015-16 are to be
seen against this backdrop.
Central Plan Outlay by Sectors (Rs. Bn)

FY14 % of Total FY15BE % of Total FY15RE % of Total FY16BE % of Total
Agriculture & Allied Activities 177.9 2.9% 115.3 2.0% 102.0 2.4% 116.6 2.0%
Rural Development* 387.8 6.4% 30.6 0.5% 18.7 0.4% 31.1 0.5%
Irrigation & Flood Control 4.4 0.1% 18.0 0.3% 9.0 0.2% 7.7 0.1%
Energy 1,823.9 30.2% 1,662.7 28.7% 1,548.8 36.3% 1,673.4 28.9%
Industry and Minerals 334.3 5.5% 402.1 7.0% 394.0 9.2% 431.1 7.5%
Transport** 1,039.6 17.2% 1,162.0 20.1% 1,062.4 24.9% 1,934.2 33.4%
Communications 162.1 2.7% 130.1 2.2% 130.3 3.1% 120.3 2.1%
Science Technology & Environment 135.4 2.2% 187.9 3.2% 148.2 3.5% 190.2 3.3%
General Economic Services 260.6 4.3% 263.2 4.6% 173.0 4.1% 203.3 3.5%
Social Services*** 1,637.2 27.1% 794.3 13.7% 642.9 15.1% 810.2 14.0%
General Services 72.6 1.2% 79.1 1.4% 38.9 0.9% 265.6 4.6%
Grand Total 6,035.7 100.0% 4,845.3 83.8% 4,268.1 100.0% 5,783.8 100.0%
Source: Annual Budget 2015-16; * 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
E. Inflation - attacking supply side constraints in agricul-

ture
The FM has tried to address some structural issues in agriculture. These initiatives
are expected to address the supply side constraints and ease inflation in the longer
term.
Reiterating that the Governments commitment to farmers runs deep, the FM pro-
posed to fully support Agriculture Ministrys organic farming scheme
Paramparagat Krishi Vikas Yojana. Stating that the Pradhanmantri Gram Sinchai
Yojana is aimed at irrigating the field of every farmer and improving water use ef-
ficiency to provide Per Drop More Crop, the budget has proposed allocation of
Rs.53 bn to support micro-irrigation, watershed development and the Pradhan
Mantri Krishi Sinchai Yojana.
In order to support the agriculture sector with the help of effective agriculture credit
and focus on small and marginal farmers, the FM proposed to allocate Rs. 250 bn
to RIDF in NABARD, Rs. 150 bn for Long Term Rural Credit Fund; Rs. 450 bn for
Short Term Co-operative Rural Credit Refinance Fund; and Rs. 150 bn for Short
Term RRB Refinance Fund. In addition, government has set up an ambitious target
of Rs. 8.5 tn of agricultural credit. Stating the Governments commitment to sup-
porting employment through MGNREGA, FM proposed an allocation of Rs. 347 bn
for the program.
We opine that, effective implementation of the initiatives is the key to remove sup-
ply bottle-necks and bring about a structural shift in the rate of inflation. In the
backdrop of a challenging fiscal situation, effective implementation rather than high
spends, will alleviate the supply side issues effectively. The previous budgets had
allocated money towards these initiatives. However, the same was not effectively
utilized, resulting in continued wastage and high inflation.
TAX PROPOSALS
Direct Taxes
In terms of direct tax, no major changes have been proposed on personal income
tax and corporate tax front for the financial year 2015-16. There has been emphasis
on stable tax policy and fight against black money. The budget emphasized on giv-
ing tax benefits to middle class and manufacturing sector to encourage Make in
India.
The FM has kept the tax slabs for individuals unchanged while he increased the
surcharge from 10% to 12% for the individuals, HUFs, AOPs, etc with annual in-
come exceeding Rs.10mn and abolished wealth tax. This proposal is estimated to
generate net additional tax revenue of Rs.80bn.
The budget raised the exemption limits of deduction in respect of health insurance
(from INR 15000 to INR 25000), transport allowance, contribution towards pension
scheme (raised from Rs.0.10mn to Rs.0.15mn), etc which would result in additional
tax benefits for individuals.
Similarly for domestic companies, the surcharge has been increased by 2%. The
surcharge in case of domestic companies having income exceeding Rs.10mn and
upto Rs.100mn would be levied at 7% and surcharge at 12% would be levied on
domestic companies having income exceeding Rs.100mn. While for the foreign
companies and domestic companies paying MAT, there is no change in surcharge.
On Corporate tax front, the budget proposed reducing corporate tax from 30% to
25% over the next 4 years, starting FY17. However, the budget also talked about
rationalization and removal of various tax exemptions and incentives to reduce tax
disputes and improve administration. The budget also rationalized capital gains for
sponsor exiting at the time of listing of REITs and Infra Investment Trust.
The budget has given sops to FIIs by rationalizing the MAT provisions for FIIs. Thus
profits corresponding to their income from capital gains on transactions in securities
would not be subject to MAT and would be liable to tax at a lower rate. In addition
GAAR has also been deferred by 2 years and now has been proposed to be levied
from FY18. These measures would encourage FIIs investment in the stock market.
Direct tax
Direct Tax (Rs bn - LHS) Growth (% - RHS)

10000 40%
7500 30%
5000 20%
2500 10%
0 0%
Source: Economic Survey 2014-15, Annual Budget FY2015-16
Indirect Taxes
On indirect tax, the FM made few changes in headline rates for excise and service
tax while keeping basic custom duty rate unchanged. The FM raised the effective
service tax rate from 12.36% to 14% and effective excise duty from 12.36% to
12.5%. The FM talked about implementation of GST from FY17. The increase in
service tax is one of the few steps which have been taken towards the implemen-
tation of the same.
The indirect taxes proposals have addressed the Swatch Bharat Mission. In the bud-
get, the FM increased the Clean Energy Cess from INR 100 to INR 200 per tonne of
coal to finance clean environment initiatives. He also raised excise duty on polyeth-
ylene sacks and bags (other than for industrial use) from 12% to 15%. He also pro-
posed to exempt services by common affluent treatment plants from service tax. In
order to fund the Swatch Bharat mission, he enabled provision to levy Swachh
Bharat Cess at a rate of 2% or less on all or certain services based on need. The
cess would be effective from date which would be notified later.
On service tax front, the negative list has been pruned to widen the tax base. The
new services which has been brought under service tax includes amusement facili-
ties, entertainment events, job work for alcoholic liquor, construction of airports and
ports, distributor and agents of mutual funds, etc. On the other hand, certain ser-
vices have been exempted from service tax which include transport of goods for
export by road from factory to land customs station, services of pre-conditioning,
pre-cooling and ripening of fruits and vegetables, etc.
In order to discourage the consumption of tobacco and tobacco products the FM
once again raised the excise duty on cigarettes, cigars, cheroots, etc. The excise
duty on cigarettes has been increased by 25% for upto 65 mm and by 15% for
other lengths.
On custom duty front, the budget raised custom duty on Metallurgical coke from
2.5 % to 5%, iron and steel and articles of iron and steel from 10% to 15%, on
commercial vehicle from 10 % to 40%. While the budget gave sops to sectors such
as electronics and hardware, renewable energy, capital goods supporting infra sec-
tor, etc. The budget reduced basic custom duty on LCD, LED TV below 19 inches
from 10% to nil, exempted specified parts of LCD and LED panels, etc.
While direct tax proposals are expected to result in revenue loss of Rs.83bn, the
proposals. On indirect taxes are expected to yield Rs.234bn, resulting in a net gain
of Rs.Rs.151bn.
Indirect tax
Indirect Tax (Rs bn - LHS) Growth (% - RHS)
8000 60%
6000
40%
4000
20%
2000
0%
0
-2000 -20%
Source: Economic Survey 2014-15, Annual Budget FY2015-16
Capital markets marginal benefit

The budget has proposed a gradual reduction in corporate tax rate from 30% to
25% over the period FY17 to FY20. Thus, there is some visibility of a lower tax
burden for corporate India. However, this may be compensated by reduced exemp-
tions, details of which are not available.
On the other hand, the surcharge has been increased from 10% to 12% and hence,
it will lead to a higher burden in FY16 and will set off some of the benefit due to
accrue WEF FY17.
GAAR has been deferred by two years. Also, GAAR provisions would be application
prospectively, which should be a positive for the market sentiments. Distinction be-
tween FDI and FII investments are to be done away with and the same may benefit
a few stocks.
With the major event out of the way, the markets will likely focus on issues like RBI
action and global economy. Off-budget action on budget initiatives will sustain the
confidence of the markets over the medium term. We expect RBI to reduce rates by
50-75bps in FY16. We believe that, a bottoms-up approach will be the best ap-
proach over this time-frame.
BUDGET HIGHLIGHTS FY2015-16

Customs duty
Pre-budget Post-budget
Chemicals/Petrochemicals
Ulexite ore 2.50% 0%
Isoprene and Liquefied Butane 5% 2.50%
Ethylene Dichloride, VinylChloride Monomer and Styreme Monomer 2.50% 2%
Butyl Acrylate 7.50% 5%
Antraquinone 7.50% 2.50%
Fertilisers
Sulphuric Acid 7.00% 5%
Metals/Mining
Metallurgical Coke 2.50% 5%
Chapters 72 and 73 - iron and steela and article of iron and steel 10% 15%
Electronics
HDPE 7.50% 0%
Black Lignite Unit Module 10% 0%
Organic LED 10% 0%
Magnetron of upto 1 KW 5% 0%
Excise duty
Item Pre Budget Post Budget
FMGC
Ciggerettes Rs/ 1000 sticks
Ciggerettes< 65mm (RS/1000) 1150 1438
Ciggerettes 75 mm-85mm (RS/1000) 3290 3784
Ciggerettes 70 mm-75mm (RS/1000) 2250 2588
Ciggerettes< 65mm (RS/1000) 1650 1898
Cut tobacco Rs 60 per kg Rs 70 per kg
Auto
Chassis of ambulances 24% 12.5%
Electronics/Hardware
Wafers for integrated circuit 12% 6%
Inputs for LED drivers 12% 6%
Mobiles phones 1% without CENVAT credit or 1% without CENVAT credit
6% with CENVAT credit or 12.5% with CENVAT credit
Consumer Goods
Leather footwear more than Rs 1000 12% 6%
Mineral Waters 12% 18%
Polyethelene Sags & Bags 12% 18%
Oil & Gas

High speed diesel 14% + Rs 5 per litre 14% + Rs 15 per litre
Source: Union Budget Document 2015-2016
BUDGET AT A GLANCE
Central Government Finances

(Rs bn) FY2014 FY2015 BE FY2015 RE FY2016 BE
Receipts
1. Revenue receipts (2d + 3) 10,293 11,898 11,263 11,416
2. Gross tax revenue (2a + 2b ) 11,589 13,645 12,514 14,495
2a. Direct taxes 6,363 7,362 7,056 7,980
2a1. Corporation tax 3,937 4,510 4,261 4,706
2a2. Income tax 2,417 2,843 2,786 3,274
2a3. Other taxes 10 10 10 0
2b. Indirect taxes 5,226 6,283 5,458 6,515
2b1. Customs duty 1,751 2,018 1,887 2,083
2b2. Excise duty 1,795 2,071 1,855 2,298
2b3. Service tax 1,649 2,160 1,681 2,098
Taxes on UTs 31 34 34 36
2c Transfers to States and UTs 3,182 3,822 3,378 5,240

2ci Transfers to Nat Calamity fund 47 51 51 57
2d Tax revenue (Net to Centre) 8,360 9,773 9,085 9,198
3. Non-tax revenue 1,932 2,125 2,178 2,217
4. Capital receipts (4a + 4b + 4c + 4d) 5,420 6,223 5,549 6,359
4a. Recovery of loans 108 105 109 108

4b. Other receipts (Disinvestments) 258 634 314 695
4c. Borrowings and other liabilities 5,245 5,312 5,283 5,436
4d. Drawdown of Cash Balances -192 172 -157 120
5. Total receipts (1 + 4) 15,713 18,121 16,812 17,775
Expenditure
6. Non-plan expenditure (7 + 8) 11,149 12,199 12,132 13,122
7. Non-plan revenue expenditure 10,277 11,146 11,219 12,060
7a. Interest payments 3,801 4,270 4,114 4,561
7b. Subsidies 2,555 2,607 2,667 2,438
7b1. Food 920 1,150 1,227 1,244
7b2. Fertilizer 680 730 710 730
7b3. Petroleum 855 634 603 301
7b4. Others 101 93 128 164
7c. Grants to States and UTs 616 699 803 1,086
7d. Others 3,305 3,570 3,636 3,975
8. Non-plan capital exp. 872 1,053 913 1,062
9. Plan expenditure (10 + 11) 4,755 5,750 4,679 4,653
10. Plan revenue expenditure 3,719 4,535 3,669 3,300
11. Plan capital expenditure 1,037 1,215 1,011 1,353
12. Total expenditure (6 + 9) 15,904 17,949 16,812 17,775
13. Revenue expenditure (7+10) 13,995 15,681 14,888 15,360
14. Capital expenditure (8+11) 1,909 2,268 1,924 2,414
Memo Items
15. Revenue Deficit (13-1) 3,703 3,783 3,625 3,945
16. Fiscal Deficit (12-{1+4a+4b}) 5,245 5,312 5,126 5,556
17. Primary Deficit (16-7a) 1,445 1,042 1,013 995
18. Gross domestic product (GDP) 113,205 128,767 126,537 141,089
PD/GDP (%) 1.3 0.8 0.8 0.7
RD/GDP (%) 3.3 2.9 2.9 2.8
FD/GDP (%) 4.6 4.1 4.1 3.9
SECTOR SUMMARY
Sector Summary
Sector Budget
Impact Preferred Picks
Automobiles Neutral Tata Motors, Maruti Suzuki India

Aviation Neutral -
Banking & NBFC Positive Axis Bank, HDFC Bank, ICICI Bank, SBI,
IDFC, LIC Housing
Capital Goods and Engg. Positive Blue Star, Cummins India, Engineers
India, L&T, Praj Industries, Voltas
Cement Positive Grasim Industries, Shree Cement
Construction Positive IRB Infrastructure Developers,
Nagarjuna Construction
FMCG Neutral Dabur India, Marico
Information Technology Neutral Infosys Technologies, KPIT Technologies,
Tata Consultancy Services
Logistics Positive Allcargo Logistics, Adani Port,
Gujarat Pipavav Port, Container Corp
Media Neutral Dish TV India, TV18 Broadcast,
Zee Entertainment
Metals & Mining Neutral JSW Steel
Oil & Gas Neutral MRPL, Petronet LNG
Paints Neutral Kansai Nerolac Paints
Pharmaceuticals Neutral Lupin, Cadila Healthcare,
Torrent Pharmaceuticals
Power Neutral Tata Power, NTPC
Real Estate Positive Phoenix Mills
Shipping Neutral Great Eastern Shipping Company,
Shipping Corporation of India
SECTOR IMPACT ANALYSIS
BUDGET IMPACT: NEUTRAL AUTOMOBILES
BUDGET HIGHLIGHTS & IMPACT

Increase in custom duty for commercial vehicle
2 Wheeler - Sales volume (mn units)
Impact: Finance Minister has increased tariff rate on commercial vehicles from
18 10% to 40%. However, customs duty on commercial vehicles in CKD kits and
15 electrically operated vehicles including those in CKD condition will remain
unchanged at 10%.
12
9 Commercial vehicle imports form a miniscule portion of the overall sales in
India. Accordingly, we do not see any significant impact of this move on sales
6
performance of players like Ashok Leyland, Tata Motors and Eicher Motors.
3
Lowering of excise duty on chassis of vehicles used as ambulance
-
Impact: The FM announced reduction in excise duty on chassis of vehicles used
as ambulances from 24% to 12.5%.
Source: SIAM
Vehicles made by OEM's like Force Motors and Maruti Suzuki are used as
ambulances. For these companies, only a small proportion of vehicles
manufactured are used as ambulance. Thereby, if at all, these companies retain
Passenger vehicles - Sales volume (mn units) benefit of lower excise with themselves, the positive implication on earnings
3.5 will be marginal.
3.0 Reduction in excise duty on Metal Core PCB and LED driver
2.5 Impact: Excise duty on inputs used in the manufacture of Metal Core PCB and
2.0 LED driver for LED lights and fixtures and LED lamps, is reduced from 12%
1.5 to 6%. Special Additional Duty (SAD) on inputs used in the manufacture of
1.0 LED drivers and MCPCB for LED lights, fixtures and LED lamps has been reduced
0.5 from 4% to nil.
-
In the auto ancillary space, FIEM Industries manufactures LED lights/lamps.
Reduction in LED light prices will help in increasing penetration for LED luminaires
in the domestic market.
Source: SIAM
Impact on EPS (Rs)

Company Pre-Budget EPS Post-Budget EPS Current Target
CVs - Sales volume (000 units)
FY15E FY16E FY15E FY16E Price Price
1,000
Preferred picks
Maruti Suzuki 119.5 190 119.5 190 3,621 4,181
750
Tata Motors 53.6 62.4 53.6 62.4 593 661
500 Others
Hero MotoCorp 131.2 177.7 131.2 177.7 2,685 3,198
250 M&M 54.1 55.8 54.1 55.8 1,292 1,412
Ashok Leyland 0.9 2.4 0.9 2.4 70 78
-
Escorts 6.7 16.0 6.7 16.0 134 160
TVS Motors 7.5 12.1 7.5 12.1 278 300
Apollo Tyres 18.8 22.9 18.8 22.9 175 251
Source: SIAM Eicher Motors 227.6 484.6 227.6 484.6 16,256 16,853
Bajaj Auto 116 134.5 116 134.5 2,153 2,556
BUDGET IMPACT: NEUTRAL AVIATION

Service tax abatement for executive class travel reduced
Impact: Service tax abatement for executive class (business/first) air travel is
reduced from 60% to 40%. Consequently, service tax would be payable on
60% of the value of fare for business class as against 40% earlier. Service
tax payable on economy class stands unchanged at 40% of the fare.
We do not think increase in service tax will make difference to business/first
class travelers and accordingly we do not expect any negative impact on demand
from higher class passenger.
Key industry demand of reduction in sales tax on ATF remains unfulfilled making
this budget neutral for the sector.
We do not have active coverage on this sector
Domestic passenger traffic (mn passengers) ATF prices (Rs/KL)
80 90000
70
80000
60
50 70000
40
60000
30
20 50000
10
40000
-
Source - Civil Aviation Ministry, DGCA Source - IOCL
BUDGET IMPACT: POSITIVE BANKING & NBFCS

Trends in RoE (%)
Net market borrowing is estimated at Rs.4.56 tn during FY16 (BE) as
against Rs.4.53 tn during FY15 (RE).
All Banks
Impact: Government's net market borrowing during FY16 to fund the fiscal
PSU Banks
20
deficit is lower than the street expectations and hence it is not likely to put
New Pvt Sector Banks
much pressure on the G-Sec yields through crowding out of private investments.
16 This in turn will not be negative for PSU banks from MTM provisioning
12 requirements on their Investment book.
To do away with the distinction between different types of foreign
8
investments especially FII & FDI.
4 Impact: The proposal to do away with the distinction between different types
0
of foreign investments, especially between FII & FDI, and replace them with
FY12 FY13 FY14 composite caps is likely to aid select private sector banks in attracting foreign
investments. Foreign shareholding in private sector banks is capped at 74%
Source: RBI of paid-up voting equity capital and within this limit, FII stake is capped at 49%.
The liberalization of foreign investments, including fungibility between FII, FDI
and other sources would provide more headroom to banks having FII
Trends in RoA (%)
shareholding close to 49% in raising money from FIIs.
All Banks The target of credit flow to the farmers has been hiked from Rs.8.0 tn in
PSU Banks
FY15 to Rs.8.5 tn in FY16 (BE).
2.00 New Pvt Sector Banks Impact: The target assigned to PSU banks in augmenting the credit flow to
agriculture sector is slightly lower than the run-rate seen in previous several
1.50 years. In percentage terms, YoY increase in disbursement target is only 6.3%
during FY16 as against 22% / 14% seen during FY14/15. Hence, it is slightly
1.00 positive for the state owned banks which have been witnessing higher asset
impairments.
0.50
Scrapping the BIFR (Bureau for Industrial and Financial Reconstruction) and
0.00 SICA (Sick Industrial Companies Act) and replacing it with a new
FY12 FY13 FY14 bankruptcy rule.
Impact: The new comprehensive bankruptcy code meeting the global standards
Source: RBI
is likely to help banks in recovering dues if promoters default. We also believe
this would bring legal certainty and speed and hence improve the ease of doing
business environment in the country.
Trends in NIM (%) The budget has provided Rs.79.4 bn for recapitalization of state-run banks.
All Banks Impact: Rs.79.4 bn has been earmarked for recapitalization of PSU banks during
PSU Banks FY16 (Rs.113 bn proposed in FY15; revised estimates at Rs.70 bn) to augment
4.00 New Pvt Sector Banks their core equity capital and enhance their future lending capabilities. However,
this is a meager amount in comparison with the humongous capital requirements
3.00
by the PSU banks over next few years to meet BASEL III norms. Government
2.00
has been indicating that these PSU banks are likely to issue fresh equity to
public in a phased manner, without affecting the majority shareholding status
1.00 of GOI.
NBFC's with more than Rs.5.0 bn to come under SARFAESI Act.
0.00
FY12 FY13 FY14 Impact: The would allow a lender to recover non-performing assets without
court's intervention. With the inclusion of NBFCs under this act, these institutions
Source: RBI
would be able to better manage their loan assets. Although structurally this
is positive for the sector, given the limited repossession, near-term benefits
are likely to be capped.
Setting up of Micro Units Development Refinance Agency (Mudra Bank)
with a corpus of Rs.200 bn.
Impact: The new bank will refinance loans of microfinance companies at a
lower rate which would result into a lower rate for MSME borrowers and hence
increase in credit demand.
Impact on ABV (Rs)

Company Pre-Budget ABV Post-Budget ABV Current Target
Preferred picks
Axis Bank 177.8 199.3 177.8 199.3 613 615
ICICI Bank 138.9 154.6 138.9 154.6 346 390
HDFC Bank 241.0 281.8 241.0 281.8 1071 1165
SBI 122.8 133.4 122.8 133.4 302 350
IDFC 107.2 114.2 107.2 114.2 173 210
Others
Allahabad Bank 101.9 111.1 101.9 111.1 109 112
Andhra Bank 82.1 86.1 82.1 86.1 85 91
BoB 131.0 153.4 131.0 153.4 185 210
DCB 52.2 58.2 52.2 58.2 114 132
HDFC Ltd 188.2 209.9 188.2 209.9 1335 1409
Indian Bank 190.9 193.2 190.9 193.2 184 200
Indian Overseas Bank 30.0 40.2 30.0 40.2 49 40
J&K Bank 96.9 103.4 96.9 103.4 112 114
LIC Housing 166.1 192.8 166.1 192.8 479 562
M&M Finance 78.0 88.0 78.0 88.0 248 250
PNB 125.3 142.1 125.3 142.1 166 178
STFC 396.5 449.9 396.5 449.9 1219 1250
BUDGET IMPACT: POSITIVE CAPITAL GOODS & ENGINEERING

Additional depreciation on Plant and Machinery
Impact: Additional depreciation of 20% will be allowed on new plant and
machinery installed by a manufacturing unit or a unit engaged in generation
and distribution of power. In current times of weak industrial capex, this measure
is an incentive for manufacturers to undertake capex plans.
No increase in capital expenditure on Defence
Impact: Capital expenditure on defense for 2015-16 has been maintained at
previous fiscal's levels of Rs 945 bn. Impact would be neutral.
Five new Ultra Mega projects

Impact: The government has proposed to set up 5 new Ultra Mega Power
Projects, each of 4000 MW, in the Plug-and-Play mode. These projects will
have all its clearances and linkages in place. Depending upon the extent of
corporate interest in these UMPPs (recent bidding interest has not been
encouraging), sizeable orders could flow for BHEL and L&T.
Thrust on renewable energy

Impact: Target of renewable energy capacity revised to 175000 MW till 2022,
including 100000 MW Solar, 60000 MW Wind, 10000 MW Biomass and 5000
MW Hydro. Excise duty on pig iron SG grade and Ferro-silicon-magnesium for
manufacture of Cast components of wind operated electricity generators is being
fully exempted.
Thrust on LED lighting to boost energy conservation

Impact: Excise duty on inputs for use in the manufacture of LED drivers and
MCPCB for LED lights, fixtures and lamps, is being reduced from 12% to 6%.
This augers well for companies like Havells, Bajaj Electricals and Crompton
in the long term.
SAD reduced to nil

Impact: Special Additional Duty (SAD) has been reduced to nil compared to
4% earlier. This is likely to reduce the cost of raw materials for manufacturers.
Generally positive for capital goods manufacturers.
Thermax's order intake (Rs mn) Voltas's order book (Rs bn)
25,000 50
20,000 40
15,000 30
10,000 20
5,000 10
- 0
Source: Company Source: Company
Additional road cess on petrol and diesel

Impact: Increase in road cess on Petrol and Diesel has been increased by Rs
4 per liter (Earlier at Rs 2 per liter). This would be positive for Infrastructure
sector mainly the road builders as the proceeds from the same would go into
highway development.
Additional surcharge on corporates

Impact: Increase in surcharge from 10% to 12% to lead to minor increase
in corporate tax outgo. Minor negative.
Impact on EPS (Rs)

Preferred picks
Cummins India 25.1 30.1 25.1 29.8 897 1,050
Engineers India Ltd 13.4 17.8 13.4 17.6 206 260
Greaves Cotton 6.2 7.9 6.2 7.8 149 165
Praj Industries Ltd 3.1 4.4 3.1 4.4 62 75
Others
ABB Ltd * 10.8 21.5 10.8 21.3 1,400 1,194
AIA Engineering 36.5 46.3 36.5 45.9 1,135 1,180
Alstom T&D India Ltd 5.7 9.0 5.7 8.9 524 350
Bajaj Electricals Ltd (2.2) 10.7 (2.2) 10.6 215 240
Bharat Electronics 132.4 165.8 132.4 164.3 3,732 3,480
BHEL 7.8 13.5 7.8 13.4 262 270
Blue Star Ltd 8.9 14.5 8.9 14.4 316 360
Carborundum Universal Ltd 6.6 12.0 6.6 11.9 185 240
Crompton Greaves 5.6 9.0 5.6 8.9 177 200
Elgi Equipment Ltd 2.8 4.8 2.8 4.8 148 102
Havells India Ltd 7.3 10.6 7.3 10.5 270 295
Kalpataru Power Transmission 11.7 11.3 11.7 11.2 236 192
Larsen & Toubro 45.4 59.2 45.4 58.7 1,768 1,714
Siemens India # 15.0 29.6 15.0 29.3 1,337 1,100
Suzlon Energy - 27 -
Thermax 19.6 25.0 19.6 24.8 1,157 1,176
Time Technoplast Ltd 5.4 6.8 5.4 6.7 50 60
Va Tech Wabag Ltd 44.1 63.8 44.1 63.2 1,750 1,405
Voltamp Ltd 27.0 46.0 27.0 45.6 690 660
Voltas Ltd 9.6 11.5 9.6 11.4 254 287
Source: Kotak Securities - Private Client Research; * December year ending; # September year end-
ing
BUDGET IMPACT: POSITIVE CEMENT

Focus on infrastructure development and rural housing to add to cement
demand growth
Impact: Positive. Cement demand is expected to gain momentum with
continuous thrust of government on infrastructure creation. Government has
proposed higher allocations for roads and railways to boost infrastructure growth.
Along with this, continued focus on rural housing, urban development and micro
irrigation is likely to translate into higher demand growth for the cement sector.
Additional investment allowance in AP for new investments
Impact: Positive. Government has announced additional investment allowance
(@ 15%) and additional depreciation (@35%) to new manufacturing units set
up during the period 01-04-2015 to 31-03-2020 in notified backward areas of
Andhra Pradesh and Telangana. This would be positive for south based cement
companies.
Increase in excise duty and coal cess
Impact: Marginally Negative. Excise duty has been hiked to 12.5% from
12.36% and clean energy cess has also been hiked to Rs 200 per metric tonne
of coal from Rs 100 per metric tonne of coal. We expect companies to pass
on the incremental impact of excise duty to the end users.
Higher effective corporate tax rate
Impact: Marginally Negative. Impact of higher surcharge in the budget may
have a modest negative impact on earnings. Longer-term, proposed declines
in corporate tax shall be a positive for companies paying full tax.
Impact on EPS (Rs)

Preferred picks
Grasim 205.4 276.4 205.4 276.4 3,753 4,206
Shree Cements 176.4 343.3 176.4 343.3 10,529 11,424
Others
ACC 72.4 77.2 72.4 77.2 1,678 1,476
Ultratech Cements 82 108 82 108 3,136 3,171
India Cements 1.1 2.5 1.1 2.5 100 115
Cement prices trend (Rs/50 kg bag) Trend in capacity utilizations

350 Effective capacity (MT - LHS)
North South
Total dispatches (MT -LHS)
320 West East 400 120%
Capacity utilization (% - RHS)
290
300 90%
260
200 60%
230
200 100 30%
170 0 0%
Source: Dealer feedback Source: Kotak Securities - Private Client Research, CMA
BUDGET IMPACT: POSITIVE CONSTRUCTION

Higher allocation and road cess to fund investments in roads and railways
Impact: Positive. Outlay on roads and railways has been increased by Rs 140
bn and Rs 100 bn respectively which is likely to spur investments in both the
sectors. Sum of Rs 400 bn is also to be made available through conversion of
existing excise duty on petrol and diesel to the extent of Rs 4 per litre into Road
Cess to fund investment in roads and other infrastructure. Along with this,
government plans to complete 1 lakh km of roads under construction along
with sanctioning and building of another 1 lakh km by 2022. This is likely to
boost investments in the road sector which has lagged in last two years due
to funding constraints and lack of interest from private developers. This is expected
to be positive for road players like IRB, ITNL, NCC, Sadbhav Engineering and
Ashoka Buildcon.
Increased allocation for micro irrigation
Impact: Positive. Allocation of Rs 53 bn to micro-irrigation, watershed
development and the 'Pradhan Mantri Krishi Sinchai Yojana' is likely to be positive
for players engaged in irrigation and water supply related projects. Companies
like NCC, JKIL, Simplex Infrastructure, Pratibha industries are likely to benefit
from the same.
Setting up of National Investment and Infrastructure Fund (NIIF) and Tax
free infrastructure bonds for the projects
Impact: Positive. Government has also proposed the setting up of a National
Investment and Infrastructure Fund (NIIF) with an initial corpus of Rs.200 bn
which can be leveraged by infrastructure companies. Initial corpus of Rs 200
bn would enable the trust to raise debt and, in turn, invest as equity in
infrastructure finance companies. This is likely to ease long term funding for
the sector and projects having long project life cycle especially road BOT projects.
Along with this, tax free infrastructure bonds have also been proposed for projects
in the rail, road and irrigation sectors. This is also likely to boost investment
in these sectors.
Initiatives to improve funding for the sector
Impact: Positive. Government also plans to create a more liberal system of
raising global capital and funding the seed capital. This would also include
revisiting the PPP mode of infrastructure development in order to attract
investments from private sector. Rebalancing of risks, viability grant funding
and government bearing higher risks for toll projects are some of the proposals
being worked out for attracting the private sector towards long gestation projects.
Higher service tax for airport and port construction
Impact: Negative. Exemption to construction, erection, commissioning or
installation of original works pertaining to an airport or port is being withdrawn.
This is likely to be slight negative for companies involved in EPC projects for
airports and ports as it would result in higher taxation burden for them.
Impact on EPS (Rs)

Preferred picks
IRB Infra 16 18.7 16 18.7 257 300
NCC Ltd 1.1 2.6 1.1 2.6 79 86
Others
IL&FS Transportation Network 18.7 19.7 18.7 19.7 213 216
Simplex Infra 12.6 19.6 12.6 19.6 398 435
JP Associates - - - - 25 24
Order book Trend (Rs bn) Revenue trend (Rs mn)
250 Q1FY15 Q2FY15 Q3FY15
200
150
100
50
0
IRB Infra ILFS NCC Ltd Simplex
Infra
Source: Companies Source: Companies
BUDGET IMPACT: NEUTRAL FMCG

Changes in excise duties for cigarettes
FMCG Industry Size (Rs bn)
Impact: The budget has raised excise duties for cigarettes. Excise duties for
2200 cigarettes <65mm in length have been raised by 25%, while the duty on other
cigarettes has been raised 15%. The overall rise in ITC's weighted average
1650
excise duties would be around 16.5%. The rise is higher than our expectations,
and would lead to a negative revision in earnings, in our opinion. The same
is a negative for cigarette companies in general. We note that excise duty on
1100
tobacco (raw material) has also been raised 17%, which will have only marginal
impact, given high gross margins in cigarettes.
550
Modest Benefits to consumption on account of changes in personel incom
tax, expected softness in subsidies spends
0
Impact: Greater disposable incomes as enabled by higher slabs/ greater
exemptions to the middle class shall have a modest impact on the FMCG sector.
As expected central government outlays on subsidies and social sector have
Source: Industry Reports, Kotak Securi- risen, although modestly; these too, shall support rural consumption to a degree.
ties - Private Client Research
Positive Statements on GST rollout in FY17
Impact: The FM has made promising statements on GST implementation. GST
is a significant positive for FMCG companies on account of greater parity with
unorganized sector, as also supply chain benefits.
Excise duties on bags and sacks used in packaging has been raised from
12% to 18%
Impact: The same shall have a modest negative impact on margins, assuming
all else remains equal. However, we think that companies in the sector shall
be able to pass on such impacts to a large degree.
Rise in excise duties for select food products

Impact: The budget has raised excise duties on condensed milk and peanut
butter. These shall have a marginal negative impact on the concerned companies
(Nestle and Agrotech Foods, in the listed space).
Changes in tax rates

Impact: Impact of higher surcharge in the budget may have a modest negative
impact on earnings. Longer-term, proposed declines in corporate tax shall be
a positive for companies paying full tax, including ITC and Nestle.
Impact on EPS (Rs)

Preferred picks
Dabur India 6.1 7.9 6.1 7.9 264 286
Marico 8.9 11.1 8.9 11.1 356 389
Others
Colgate Palmolive 41.2 46.9 41.2 46.9 1,945 1,874
Godrej Consumer 27.1 35.4 27.1 35.4 1,135 1,240
Hindustan Unilever 18.2 22.7 18.2 22.7 910 940
ITC 12.3 13.8 12.3 13.3 361 334
Nestle India 122.9 142.6 122.9 142.6 7,024 6,275
Excise Duties : Cigarettes (Rs/ 000 sticks)

Rs/ 1000 sticks FY10 FY11 FY12 FY13 FY14 FY15 FY16
Filter:
75mm-85mm 1,759 1,959 1,959 2,309 2,725 3,290 3,784

70mm-75mm 1,323 1,473 1,473 1,718 2,027 2,250 2,588
<70mm 819 969 969 1,194 1,409 1,650 1,898
<65mm (Int. FY13) (Int. FY13) (Int. FY13) 669 669 1,150 1,438
<60mm 669 669 (Cl. FY13) (Cl. FY13) (Cl. FY13)
Non-Filter
60mm-70mm 1,323 1,473 1,473 (Cl. FY13) (Cl. FY13) (Cl. FY13)
<60mm 669 669 669 (Cl. FY13) (Cl. FY13) (Cl. FY13)
<65mm (Int. FY13) (Int. FY13) (Int. FY13) 669 669 1,150 1,438
Source: Budget documents; Note - Int FY13 = Introduced in FY13, CLFY13 = The slab is not applicable any more/subsumed in other slabs FY13
onward
BUDGET IMPACT: NEUTRAL INFORMATION TECHNOLOGY

Tax rates to be cut from 30% to 25% starting FY17
Indian IT Services-BPO Industry;
exports & domestic Impact: This will have a marginal impact. Several of the companies have tax
rate at around the 25% mark as tax exemptions have been diluted over a period
Exports Domestic of time. Thus, we do not expect any major impact on financials. The surcharge
100 on FY16 tax will also have a marginal impact.
Removal of Special Additional Duty on certain inputs, and components
75
Impact : This should help in reducing the manufacturing cost and hence, capex
costs for Indian IT companies should reduce
50
Digital India initiative with overall allocation of Rs.5bn
25 Impact : This shoud provide opportunities for most companies especially those
which focus on domestic market.
0 The provisions of the Union Budget have been largely neutral to
FY13 FY14 FY15 marginally positive for the sector, in our opinion.
Source : Nasscom We remain optimistic on the longer term prospects of the industry. Indian vendors
have moved up the value chain. They are focusing on newer opportunities like
cloud computing, analytics, mobility, etc. Newer pricing models will likely make
Growth in number of employees them participate more in the growth prospects of the clients while also making
3500 business more non-linear. Also, focused smaller companies with expertise on
select verticals will be able to move up the value chain and attract larger clients,
2800 thereby, improving their longer term prospects. Companies, however, need
to contend with higher competitive pressures and improve efficiencies.
2100
We expect decent returns for the stocks over the medium term, subject to near
1400 term volatility. We like TCS and Infosys among larger names. We also retain
our positive bias for select mid-caps like KPIT Cummins.
700
Impact on EPS (Rs)
0
Source : Nasscom Preferred picks

TCS 110.4 126.1 110.4 126.1 2675 2786
Infosys 109.5 123.7 109.5 123.7 2296 2399
Rupee / US$
KPIT Cummins 13.4 16.8 13.4 16.8 211 224
74.0
Others
64.0
HCL Tech 107.2 114.5 107.2 114.5 2021 1804
Cyient 32.1 39.7 32.1 39.7 551 539
54.0
Mphasis 31.8 33.9 31.8 33.9 380 370
NIIT Limited 1.6 5.7 1.6 5.7 45 48
44.0
NIIT Technologies 30.9 37 30.9 37 399 405
34.0 Oracle 150.6 159.6 150.6 159.6 3277 3527

Wipro 35 39.5 35 39.5 659 624
Zensar 59.7 69.3 59.7 69.3 723 643

Source : Bloomberg
BUDGET IMPACT: POSITIVE LOGISTICS

Cold chain companies exempted from paying service tax
Container volumes at 12 major
ports (mn TEUs) Impact: Positive. Cold chain companies hitherto were paying service tax on
pre-conditioning, pre-cooling and other value added services provided by them.
8.00
From FY16, these companies would be exempted from paying service tax which
is expected to bring down the cost of service provided by these companies making
6.00 them competitive and enable them to attract business. We estimate this exemption
to benefit Snowman Logistics and Concor
4.00
CFS operators exempted from paying service tax
2.00 Impact: Positive. CFS operators hitherto were paying service tax on services
like transportation, storage and other value added services. From FY16, these
0.00 companies would be exempted from paying service tax for all the above activities
which is expected to bring down the cost of service provided by these companies
making them competitive and enable them to attract business. We estimate
this exemption to benefit Allcargo, Adani port, Gateway Distriparks and Concor.
Corporatization of ports
Source: Kotak Securities - Private Client
Research, Indian Ports Association Impact: Neutral. Government intends to initiate steps aimed at corporatizing
India's major ports in FY16. This is estimated to bring professionalism and give
financial autonomy.to major ports and make them compete with private sector
Volumes for Adani Port and ports. We can also expect IPO of few of the major ports including JNPT, Kandla
Gujarat Pipavav Port (mn and Chennai Port. We estimate this measure to increase competition for private
tonnes) ports including Adani, Gujarat Pipavav and Essar.
Withdrawal of service tax exemption for construction, erection,
120 commissioning or installation of original works for a port
100 Impact: Positive. Port operators hitherto were not paying any service tax on
80 original works as it formed part of exemption list of service tax. The government
has now removed original works for Ports and Airports from the list of exempted
60 services which is estimated to increase the capex for port companies. This measure
40 would negatively impact Adani, Gujarat Pipavav and Essar.
20 Increase in corporate surcharge from 10% to 12%
0 Impact: Negative. We estimate this measure to increase effective tax rate
if companies from 33.9% to 34.5% which should t impact earnings in FY16
by 50 bps
Impact on EPS (Rs)

Source: Company Company Pre-Budget EPS Post-Budget EPS Current Target
Preferred picks
Allcargo Logistics 18.9 24.5 18.8 24.3 330 390
Gujarat Pipavav Port 8.6 10.1 8.6 10.1 215 260
Adani Ports and SEZ 11.2 14.7 11.2 14.7 330 380
Others
Gateway Distriparks 16.4 19.5 16.2 19.3 415 425
Bluedart 63.0 73.0 62.0 72.0 7110 3795
Concor 53.4 62.0 53.4 62.0 1545 1550
BUDGET IMPACT: NEUTRAL MEDIA

Industry size - Media & Enter-
Changes in service tax rate:
tainment (Rs bn) Impact: Higher service tax rates (14% versus 12.4% earlier) shall have a modest
negative impact on the subscriber payments in the TV broadcasting space; the
1400
impact shall also fall on higher payments made by advertisers. Net-net, we
1200 believe the impact of these on the sector shall be marginal.
1000
Positive comments on GST rollout from FY17
800 Impact: As expected, the government has made positive comments on the
600 rollout of GST from 2017. The same shall reduce the multiplicity of taxes for
400 platform providers, and shall provide a level playing field to DTH players. To
that extent, the same is a positive for DTH players.
200
0 Basic customs duty on black light unit modules used in LED/ LCD
manufacture, as well as organic LED TV modules, has been reduced from
10% to nil.
Impact: We expect the impact of these to be marginally positive for television
broadcasters and platform providers.
Source: FICCI - KPMG report
Changes in Income tax rate
Impact of higher surcharge could have a modest negative impact on earnings
of Sun TV, Zee Entertainment. However, longer-term, decline in peak corporate
tax shall be a positive.
Impact on EPS (Rs)

Preferred picks
Dish TV - 0.6 - 0.6 85 87
HMVL 18.1 22.0 18.1 22.0 229 358
TV18 Broadcast 0.8 1.4 0.8 1.4 33 38
Zee Entertainment 9.5 12.0 9.5 12.0 346 421
Others
DB Corp 18.4 22.5 18.4 22.5 393 404
ENIL 22.2 25.8 22.2 25.8 619 670
Jagran Prakashan 7.7 9.4 7.7 9.4 133 140
Sun TV Network 19.8 20.9 19.8 20.9 410 418
BUDGET IMPACT: NEUTRAL METALS & MINING

Sustained infrastructure thrust to stimulate steel demand by roof for
all by 2022 and various infrastructure activities for road, railways and
irrigation projects.
Impact: Positive for steel companies as higher outlay for housing, road, railways
and irrigation projects would help demand for steel.
The rate of Clean Energy Cess increased from Rs100/tonne to Rs200/tonne

Impact: Clean energy cess on Coal increased from Rs100/tonne to Rs200/tonne,
following with 6.3% increase in freight rate in Railway Budget. We believe
the landed cost of coal is likely to rise 4-5% for all metal producers (Aluminium
and Steel). This would lead to US$20-30/tonne increase in production cost for
Aluminium producers and Rs150/tonne for steel manufacturers.
Increase in custom duty on metallurgical coke to 5% from 2.5%
Impact: We do not see any significant impact on the company under our
coverage, as they coke oven battery and import metallurgical coal and not
coke. Increase in import duty will impact merchant coke-oven batteries and
companies like Kalyani Steel who do not have coke over battery.
SAD on melting scrap of iron & steel including stainless steel scrap for
melting, copper scrap, brass scrap and aluminium scrap is being reduced
from 4% to 2%.
Impact: Decline in SAD will neutralize impact on CENVAT credit leading to
unchanged scrap prices in domestic market. This will also marginally reduce
the working capital requirement for importers.
Impact on EPS (Rs)

Preferred picks
JSW Steel 86.7 108.1 86.7 108.1 1010 1,300
China HRC Export Price (US$/t) CRB Metals Index
540 1000
515
900
490
800
465
440 700
Source: Bloomberg Source: Bloomberg
BUDGET IMPACT: NEUTRAL OIL & GAS

Additional Duty of Excise i.e. Road Cess
Crude Oil ($/bbl)
The effective rates of the Additional Duty of Excise (commonly known as Road
145
Cess) levied on Petrol and High Speed Diesel Oil is being increased from Rs.
2 per litre to Rs.6 per litre only. Schedule Rates of the Additional Duty of Excise
125
levied on Petrol and High Speed Diesel Oil is being increased from Rs. 2 per
105
litre to Rs. 8 per litre.
85 Education Cess and Secondary and Higher Education Cess, presently applicable
to petroleum products, including petrol and High Speed Diesel, are being
65 exempted.
45 Rates of duty of excise (CENVAT) on Petrol and High Speed Diesel Oil (both
branded and unbranded) are also being revised.
Source: Bloomberg Tables below summarizes the changes in various duties applicable to petrol
and diesel:
Petroleum Subsidy
Naphtha ($/bbls)
Impact: Neutral. The FM has budgeted Rs. 300 bn (includes Rs. 220 Bn for
120 subsidy on LPG and Rs.80 Bn for Kerosene subsidy) as the government's share
of the oil subsidy burden in FY16 v/s Rs. 603 bn in FY15, a cut of 50%. The
100 Government had carried forward fuel subsidy of Rs.345bn from FY14 to FY15
and we believe that, the same has been provided for in FY15. Overall, we feel
that, the estimates for fuel subsidies are realistic and do not expect any major
80
incremental number on the same. This also indicates that if the oil prices remain
subdued, there may not be substantial burden on OMCs.
60
40 Change in excise duty

Duty rates applicable prior upto 28.02.02105 Duty rates applicable w ith effect from 01.03.2015
CENVAT SAED AED Education Total Education
Rs. / Litre Rs. / Rs. / Cess Rs. / Litre Cess
Source: Bloomberg Litre Litre (as % of
aggregate CENVAT SAED AED Total
of
duties of
excise)
Unbrande d petrol
8.95 6 2 3% 17.46 5.46 6 6 NIL 17.46

Branded petrol
10.1 6 2 3% 18.64 6.64 6 6 NIL 18.64

Unbranded Diesel
7.96 NIL 2 3% 10.26 4.26 NIL 6 NIL 10.26
Branded Die sel
14% +Rs. 5
/litre or Rs.
10.25 / litre, NIL 2 3% 12.62 6.62 NIL 6 NIL 12.62
w hichever is
low er
Source: Union Budget 2015-16; Note: ADE means Additional Duty of Excise, SADE means
Special additional Duty of Excise
Income Tax
Impact: Neutral. For domestic companies, the surcharge has been increased
by 2%. The surcharge in case of domestic companies having income exceeding
Rs.10 Mn and upto Rs.100 Mn would be levied at 7% and surcharge at 12%
would be levied on domestic companies having income exceeding Rs.100 Mn.
While for the foreign companies and domestic companies paying MAT, there
is no change in surcharge.
On Corporate tax front, the budget proposed reducing corporate tax from 30%
to 25% over the next 4 years, starting FY17. However, the budget also talked
about rationalization and removal of various tax exemptions and incentives to
reduce tax disputes and improve administration.
Impact on EPS (Rs)

Preferred picks
PLNG 10.1 12.8 10.1 12.8 179 200
Oil India Ltd 49.2 57.9 49.2 57.9 498 585
BUDGET IMPACT: NEUTRAL PAINTS

Increase in corporate surcharge from 10% to 12%
Volume growth of paint companies (%)
Impact: Negative. We estimate this measure to increase effective tax rate
GDP growth
of companies from 33.9% to 34.5% which should impact earnings in FY16.
16.5 Volume growth
14.0 Impact on EPS (Rs)
11.5 Company Pre-Budget EPS Post-Budget EPS Current Target
9.0
Preferred picks
6.5 Kansai Nerolac 65.4 80.4 65.1 80.1 2350 2800
4.0
Others
Asian Paints 16.5 19.3 16.2 19.1 820 945
Source: Company, Industry Source: Kotak Securities - Private Client Research
BUDGET IMPACT: NEUTRAL PHARMACEUTICALS

Fund allocation disappoints marginally
Impact: Funds allocated for Health and family welfare at Rs 331.5bn, slightly
lower than Rs 338.8bn in FY15 but higher than Rs 327.4bn in FY14. The
healthcare spend in India has been lower at ~4.0% of GDP (inc Centre and
State) which is lower than over 10% spend in EU, US and ~6-7% of developing
countries like Brazil and Russia.
Higher surcharge, no impact on our coverage universe, except for Lupin
Impact: The surcharge on income tax has been revised from 10% to 12%,
but companies under MAT (Minimum Alternate Tax) have been given a relief.
Hence, except for Lupin (Lupin's tax rate is ~32%), most of our coverage universe
companies will not be impacted. Even for Lupin, the impact is very marginal.
Higher depreciation rate of 35% (earlier 20%) for capex in backward areas
of Andra Pradesh and Telangana
Impact: Due to presence of many pharma companies in Andra Pradesh and
Telagana region, we expect few companies to benefit from this move. Amongst
our coverage universe, Dr Reddy's could benefit if capex are announced in the
backward region of the states. However, our interaction with the management
suggests no material impact on our estimates.
Impact on EPS (Rs)

Preferred picks
Lupin Ltd 63.3 73.9 62.8 73.4 1,775 1,775
Cadila Hc 68.8 85.4 68.8 85.4 1,964 1,964
Torrent Pharma 54.6 69.2 54.6 69.2 1,385 1,385
Others
Cipla 24.2 30.9 24.2 30.9 684 684
Dr Reddy's 156.3 174.4 156.3 174.4 3,662 3,662
Sun Pharma 35.5 39.9 35.5 39.9 1,026 1,026
Indian Pharma market split - Domestic/exports (US$ bn) Indian domestic market size over 2000 to 2013 (US$ bn)
14
100 12
Exports Domestic GR
CA
10 12%
75
41 8
50 6 AGR
9% C
4
25 45
14.7 2
13.0 0
0
2013 2020
Source: Pharmaexil, Kotak Securities - Private Client Research Source: Bloomberg
BUDGET IMPACT: NEUTRAL POWER

Increase in import duty on coal
Impact: The FM has increased clean coal cess by Rs 100 per ton. This is expected
to be a minor negative for JSW Energy as it would not be able to pass-through
the cost, as substantial part of the power generation is sold in merchant market.
Five UMPPs to be set up
Impact: The FM has proposed setting up of five UMPPs. However, given the
distressed balance sheets of the private sector utilities, there may not be significant
interest in bidding for the UMPPs. Allocation of recent UMPP bids was put off
due to lack of adequate number of bidders.
Impact on EPS (Rs)

Preferred picks
NTPC 11.1 11.1 11.1 10.9 156 157
Tata Power 1.1 2.9 1.1 2.8 87 110
Installed power capacity (MW) HBA coal price (Indonesia) USD/ton

25000
130
20000
110
15000
10000 90
5000
70
0
50
Source: CEA Source: Bloomberg
BUDGET IMPACT: POSITIVE REAL ESTATE

Clarity on REITs
Impact: Positive. In respect of Real Estate Investment Trusts (REITs) and
Infrastructure Investment Trusts (INViTs), it has been proposed that the sponsor
will be given the same treatment on offloading of units at the time of listing
as would have been available to him had he offloaded his shareholding of special
purpose vehicle (SPV) at the stage of direct listing or IPO. Along with this, the
benefit of concessional tax regime of tax @15 % on STCG and exemption on
LTCG shall be available to the sponsor on sale of units of REIT subject to levy
of STT.
Also, earlier the rental income received at the level of SPV gets passed through
by way of interest or dividend to the REIT but the rental income directly received
by the REIT was taxable at REIT level and does not get pass through benefit.
Now government has proposed a pass through status to the rental income arising
to REIT.
These key changes should pave the way for REIT listings in India from April
2016.
Higher service tax to be negative for the sector
Impact: Negative. Service tax rate has been enhanced from 12.36% to 14%.
This is likely to increase the burden on end user from 3.71% to 4.2% after
taking into account abatement of 30%. This may impact the demand slightly
since developers would pass on the increased impact of service tax.
Impact on EPS (Rs)

Preferred picks
Phoenix Mills 10.8 11.7 10.8 11.7 388 419
Ticket size split of launched units during H12014 Contribution to investment in Real Estate (2005-13)
Source: Knight Frank Research Source: Cushman & Wakefield Research
BUDGET IMPACT: NEUTRAL SHIPPING

Defence capital expenditure hiked from Rs 820 bn to Rs 950 bn
Baltic Dry Index (points)
Impact: Positive. The government in the current budget has increased the
2400 capital allocation from Rs 820 bn to Rs 950 bn (+16% YoY) for defence capital
expenditure. Around 20% of this capital expenditure is for the navy. We estimate
1900 this to be positive for shipyard companies like Pipavav and ABG. These shipyards
may receive some of these orders who are struggling to get any order from
1400 the commercial segment
900 Comprehensive policy expected shortly to promote Indian ship building

industry
400 Impact: Neutral. Government was expected to announce a new comprehensive
shipbuilding policy to give respite to shipbuilders who are currently making losses.
We estimate the new policy to have got deferred again which would cover
areas like subsidy for shipbuilders, infrastructure status for shipbuilding industry,
Source: Bloomberg interest subvention and indigenization. The new policy is expected to help the
domestic shipbuilding companies like ABG Shipyard, Bharati Shipyard and Pipavav
Defence to improve their cashflow and also make them more competitive.
Increase in corporate surcharge from 10% to 12%

Baltic dirty tanker index (points)
Impact: Negative. We estimate this measure to increase effective tax rate
1400
of companies from 33.9% to 34.5% which should impact earnings.
1100 Impact on EPS (Rs)

800
Preferred picks
Great Eastern Shipping 49.4 60.2 49.4 60.2 355 380
500 SCI 2.8 5.7 2.8 5.7 60 70
Others
ABG shipyard -86.0 -34.0 -87.0 -35.0 238 200
Source: Bloomberg Pipavav Shipyard 1.1 1.1 1.1 1.1 74 54
RATING SCALE
Definitions of ratings
BUY We expect the stock to deliver more than 12% returns over the next 9 months
ACCUMULATE We expect the stock to deliver 5% - 12% returns over the next 9 months
REDUCE We expect the stock to deliver 0% - 5% returns over the next 9 months
SELL We expect the stock to deliver negative returns over the next 9 months
NR Not Rated. Kotak Securities is not assigning any rating or price target to the stock. The report has been prepared for information purposes only.
RS Rating Suspended. Kotak Securities has suspended the investment rating and price target for this stock, either because there is not a sufficient
fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing, an investment rating or target. The previous
investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon.
NA Not Available or Not Applicable. The information is not available for display or is not applicable
NM Not Meaningful. The information is not meaningful and is therefore excluded.
NOTE Our target prices are with a 9-month perspective. Returns stated in the rating scale are our internal benchmark.
Fundamental Research Team

Dipen Shah Arun Agarwal Amit Agarwal Jayesh Kumar
IT Auto & Auto Ancillary Logistics, Transportation Economy
dipen.shah@kotak.com arun.agarwal@kotak.com agarwal.amit@kotak.com kumar.jayesh@kotak.com
+91 22 6621 6301 +91 22 6621 6143 +91 22 6621 6222 +91 22 6652 9172
Sanjeev Zarbade Ruchir Khare Meeta Shetty, CFA K. Kathirvelu
Capital Goods, Engineering Capital Goods, Engineering Pharmaceuticals Production
sanjeev.zarbade@kotak.com ruchir.khare@kotak.com meeta.shetty@kotak.com k.kathirvelu@kotak.com
+91 22 6621 6305 +91 22 6621 6448 +91 22 6621 6309 +91 22 6621 6311
Teena Virmani Ritwik Rai Jatin Damania
Construction, Cement FMCG, Media Metals & Mining
teena.virmani@kotak.com ritwik.rai@kotak.com jatin.damania@kotak.com
+91 22 6621 6302 +91 22 6621 6310 +91 22 6621 6137
Saday Sinha Sumit Pokharna Pankaj Kumar
Banking, NBFC, Economy Oil and Gas Midcap
saday.sinha@kotak.com sumit.pokharna@kotak.com pankajr.kumar@kotak.com
+91 22 6621 6312 +91 22 6621 6313 +91 22 6621 6321
Technical Research Team

Shrikant Chouhan Amol Athawale
shrikant.chouhan@kotak.com amol.athawale@kotak.com
+91 22 6621 6360 +91 20 6620 3350
Derivatives Research Team

Sahaj Agrawal Rahul Sharma Malay Gandhi Prashanth Lalu
sahaj.agrawal@kotak.com sharma.rahul@kotak.com malay.gandhi@kotak.com prashanth.lalu@kotak.com
+91 79 6607 2231 +91 22 6621 6198 +91 22 6621 6350 +91 22 6621 6110
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Post Budget Analysis 2015

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POST-BUDGET

UNION-BUDGET ANALYSIS UNION BUDGET ANALYSIS: FY2015-16

Source: Kotak Securities - Private Client Research

While being devoid of big bang announcements.

the budget has focused on all the relevant issues

Real GDP Growth

Agriculture & Allied activities 1.2 3.7 1.1

Source: Economic Survey FY15; Base year: 2011-12

A. Investments in infrastructure and manufacturing get

Railways and roads see huge increase in allocations

Central Plan outlay

Railways 643,017 983,650

Source: Budget 2015-16

NIIF and taxfree bonds proposed

Attracting PPP investments

B. Fiscal deficit target achievable

Trends in deficits of Central Government

Source: Economic Survey 2015

FFC recommendations incorporated

Disinvestment of equity in PSUs (Rs bn)

Source: Annual Budget 2015-16

Food 728.2 850.0 920.0 1150.0 1226.8 1244.2

Source: Annual Budget 2015-16

Plan Expenditure (Rs bn - LHS) Growth (% - RHS)

Source: Annual Budget 2015-16

Non-Plan Exp (Rs bn - LHS) Growth (% - RHS)

Source: Annual Budget 2015-16

Variance in Non-Plan expenditure

Interest Payments and Debt Servicing 3,743 4,270 4,114 4,561

Source: Annual Budget 2015-16

C. Reforms are a corner-stone of the budget

Gold Bond scheme / Infrastructure funds

Ease of doing business

JAM and GST

D. Inclusive growth remains a focus area

Central Plan Outlay by Sectors (Rs. Bn)

E. Inflation - attacking supply side constraints in agricul-

Direct Tax (Rs bn - LHS) Growth (% - RHS)

Source: Economic Survey 2014-15, Annual Budget FY2015-16

Source: Economic Survey 2014-15, Annual Budget FY2015-16

Capital markets marginal benefit

BUDGET HIGHLIGHTS FY2015-16

Source: Kotak Securities - Private Client Research

Oil & Gas

Source: Union Budget Document 2015-2016

Central Government Finances

2c Transfers to States and UTs 3,182 3,822 3,378 5,240

2d Tax revenue (Net to Centre) 8,360 9,773 9,085 9,198

3. Non-tax revenue 1,932 2,125 2,178 2,217

4. Capital receipts (4a + 4b + 4c + 4d) 5,420 6,223 5,549 6,359

4a. Recovery of loans 108 105 109 108

Source: Annual Budget 2015-16

Automobiles Neutral Tata Motors, Maruti Suzuki India

Source: Kotak Securities - Private Client Research

SECTOR IMPACT ANALYSIS

BUDGET IMPACT: NEUTRAL AUTOMOBILES

BUDGET HIGHLIGHTS & IMPACT

Impact on EPS (Rs)

Source: Kotak Securities - Private Client Research

BUDGET IMPACT: NEUTRAL AVIATION

BUDGET HIGHLIGHTS & IMPACT

Domestic passenger traffic (mn passengers) ATF prices (Rs/KL)

Source - Civil Aviation Ministry, DGCA Source - IOCL

BUDGET IMPACT: POSITIVE BANKING & NBFCS