Union Budget 2012-13 Review

Table of Contents
Index Union Budget 2012-13: A Pragmatic Budget Sectoral Impact Automobile Aviation Banking Capital Goods Cement FMCG Telecom Infrastructure IT Real Estate Metals Oil & Gas Pharmaceutical Power Page No. 2-5 6 7 7 8 9 10 11 11 12 13 13 14 15 16 17

March 16, 2012

Please refer to important disclosures at the end of this report

Union Budget 2012-13 Review

Union Budget 2012-2013

A Pragmatic Budget
The markets had broadly come to terms with the fact that the government is shackled by political and fiscal considerations and is not in a position to deliver major reformist budgets. In the backdrop of these modest expectations, Union Budget 2012-13 comes across as a job reasonably done. Somewhere, if after the UP elections there was some degree of concern that populism may hold sway, this budget at least dismisses those concerns by increasing tax revenue significantly and not indulging into any major populist expenditure increases. Overall, having taken the budget in its stride, from here on the market is likely to look at the progression of the monetary policy, inflation and interest rates the decline in which is, in our view, an ongoing positive for the GDP outlook and corporate earnings for FY2013. Further, due to significant overshooting of the subsidy bill, total expenditure exceeded budgeted estimates by around `61,000cr, which had to be met by higher market borrowings of `1,50,000cr, though aided in a large part by the RBI's `1,20,000cr open market operations.
Exhibit 2: coupled with higher-than-budgeted expenditure in FY2012
(` Particulars (` cr) Interest Defense Subsidies Total revenue non-plan exp. Total capital non-plan exp. Total non-plan exp. Central plan exp. Total revenue plan exp. Total capital plan exp. Total Plan exp. Total expenditure FY2012 BE 267,986 95,216 143,570 733,558 82,624 816,182 268,287 363,604 77,943 441,547 1,257,729 FY2012 RE 275,618 104,793 216,297 815,740 76,376 892,116 252,597 346,201 80,404 426,604 1,318,720 variance 7,632 9,577 72,727 82,182 (6,248) 75,934 (15,690) (17,403) 2,461 (14,943) 60,991

Looking at FY2012 revised estimates: Fiscal deficit slipped to 5.9%

The government expects to end FY2012 with a fiscal deficit of 5.9%, much higher than 4.6% estimated earlier, largely due to higher subsidies, lower divestments and lower corporate tax collections. Revised estimates for subsidy expenses highlight the significant overshooting by around `73,000cr on account of the earlier over-optimistic estimate, higher crude prices and rupee depreciation. Lower corporate earnings growth due to high inflation and interest rates led to expected corporate tax revenue falling short by around `32,000cr. Further, weaker sentiments in equity markets affected the government's divestment plan, and revenue shortfall on that front stands at around `24,500cr. Overall, government revenue mobilization (both revenue and non-debt capital receipts) fell short by around `48,000cr than the budgeted estimates.

Source: Budget documents, Angel Research

FY2013 targets fiscal deficit reduction to 5.1%; Tax revenue credibly supported
The government plans to correct the worsening fiscal situation in FY2013 by implementing several revenue augmentation measures, mainly in tax revenue, and expects to end the year with fiscal deficit at 5.1%. Tax revenue is expected to increase substantially by around `1,29,000cr over the revised estimates for FY2012, mainly aided by a widely anticipated 200bp increase in excise rates and service tax rates and widening of service tax with the introduction of negative list approach. Nominal GDP growth of ~13% is expected to aid higher corporate tax revenue by a largely similar quantum on the direct tax front. The resulting estimated increase in overall tax revenue by 50bp of GDP is the key contributor to the targeted reduction in fiscal deficit. Further, the government expects to increase other non-tax revenue and non-debt capital receipts by around `52,000cr mainly on account of `40,000cr from telecom spectrum auction and `30,000cr from divestment - again not over-ambitious targets.

Exhibit 1: Lower-than-budgeted receipts in FY2012

(` Particulars (` cr) Center's net tax rev. (due to lower corp. taxes) Total non tax revenue Total non debt cap. receipts (due to lower divestments) Total receipts other than debt receipts Debt receipts Cash balance Total receipts incl. debt receipts 844,912 392,816 20,000 1,257,729 796,740 546,644 (24,664) 1,318,720 (48,172) 153,828 (44,664) 60,991 55,020 29,751 (25,269) 664,457 125,435 642,252 124,737 (22,205) (698) FY2012BE FY2012RE Variance

Source: Budget documents, Angel Research

March 16, 2012

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Union Budget 2012-13 Review

Union Budget 2012-2013

Exhibit 3: Analysis of budgeted tax revenue receipts in FY2013 over FY2012

Particulars (` cr) (` Total income tax Taxes on income Customs Union excise duties Service tax Taxes on Union Territories Less NCCD transfer Less State's share Center's net tax revenue (as % to GDP) Total income tax Taxes on income Customs Union excise duties Service tax Taxes on Union Territories Less NCCD transfer Less State's share Center's net tax revenue 3.7 1.9 1.7 1.7 1.1 0.0 0.0 2.9 7.2 3.7 1.9 1.9 1.9 1.2 0.0 0.0 3.0 7.7 0.0 0.0 0.1 0.2 0.2 (0.0) 0.0 0.1 0.5 FY2012RE 327,680 171,879 153,000 150,696 95,000 3,409 3,998 255,414 642,252 FY2013BE 373,227 195,786 186,694 194,350 124,000 3,554 4,620 301,921 771,071 Variance 45,547 23,907 33,694 43,654 29,000 145 622 46,507 128,819

On the expenditure side, the increase in total non-plan expenditure has been capped at 8.7% over FY2012 revised estimates and is mainly on account of the essential increase in interest, defense, police, pension and other general services expenses and largely exhibits substantial restraint. On the plan expenditure side, the budget builds in a 22.1% increase from the revised estimates of FY2012 on account of the increase in central and state planned spending. This is relatively on the higher side and, in our view, leaves relatively little margin of error for the government on the non-plan front if the overall fiscal deficit and market borrowing targets are to be met.
Exhibit 6: Analysis of budgeted expenditure in FY2013 over FY2012
(` Particulars (` cr) Interest Defense Subsidies Total revenue non-plan exp. Total capital non-plan exp. Total non-plan exp. Central plan exp. Total revenue plan exp. Total capital plan exp. Total Plan exp. Total expenditure FY2012RE 275,618 104,793 216,297 815,740 76,376 892,116 252,597 346,201 80,404 426,604 1,318,720 FY2013BE 319,759 113,829 190,015 865,596 104,304 969,900 303,528 420,513 100,512 521,025 1,490,925 Variance 44,141 9,036 (26,282) 49,856 27,928 77,784 50,931 74,312 20,108 94,421 172,205

Source: Budget documents, Angel Research

Exhibit 4: Analysis of non -tax and non-debt cap. receipts in FY13 vs. FY12
(` Particulars (` cr) Interest receipts Dividend and profits External grants Other non-tax revenue Mainly spectrum auction Receipts of Union Territories Total non-tax revenue Recoveries of loans and adv. Divestment receipts non-debt Total non-debt capital receipts 49,909 1,105 124,737 14,258 15,493 29,751 91,207 1,136 164,614 11,650 30,000 41,650 41,298 31 39,877 (2,608) 14,507 11,899 FY2012RE 20,125 50,122 3,477 FY2013BE 19,231 50,153 2,887 Variance (894) 31 (590)

Source: Budget documents, Angel Research

The major item of non-plan expenditure, which is projected at much lower levels than in FY2012, is subsidy outgo. In FY2012, when average crude prices were about US$113 and Mumbai petrol and diesel prices averaged about `69 and `45, respectively, fuel subsidy amounted to `68,481cr. Crude prices are currently at US$124 and petrol and diesel prices are almost at the same levels as in FY2012, so either crude prices need to come down significantly to even below FY2011 average levels (difficult considering the current concerns in the Middle East) or the government would have to hike petrol and diesel prices. Absence of action on that front would pose a major risk to budget estimates.

Source: Budget documents, Angel Research

Exhibit 5: Analysis of debt receipts in FY2013 over FY2012

(` Particulars (` cr) Total receipts other otal than debt receipts Total expenditure Total fiscal deficit (as % of GDP) Market loans Short-term borrowings Other receipts Cash balance 796,740 1,318,720 521,980 5.9 436,414 116,084 (5,853) (24,664) 977,335 1,490,925 513,590 5.1 479,000 25,591 180,595 172,205 (8,390) 0.8 42,586 31,444 24,664 FY2012RE FY2013BE Variance

9,000 (107,084)

Source: Budget documents, Angel Research

March 16, 2012

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Union Budget 2012-13 Review

Union Budget 2012-2013

Exhibit 7: Subsidy estimates appear optimistic
(` Particulars (` cr) Fertilizer subsidy Food subsidy Petroleum subsidy Interest subsidy Other subsidies Total subsidies FY2012BE 67,199 72,823 68,481 5,791 2,002 216,297 FY2012RE 60,974 75,000 43,580 7,968 2,493 190,015 Variance (6,225) 2,177 (24,901) 2,176 491 (26,282)

Source: Budget documents, Angel Research

Exhibit 8: Significant catch-up left on domestic petrol/diesel prices

FY 2011 2012 2013# etrol/Ltr. Diesel/Ltr. Petrol/Ltr. Diesel/Ltr. (`) 57 69 71 (`) 42 45 45 Crude Brent (US $) 87 113 124 Subsidy (` cr) 38,371 68,481 43,580

subvention of 3% for prompt payments. Other measures include operationalization of Irrigation and Water Resource Finance Corporation, increasing food grain storage capacity, full exemption of basic custom duty on equipment for setting up fertilizer plants till March 31, 2015, and higher allocation to various programmes such as Accelerated Irrigation Benefit Programme (AIBP) (`14,242cr in FY2013 from around `10,950cr in FY2012), Rashtriya Krishi Vikas Yojana (RKVY) (`9,217cr in FY2013 from `7,860cr in FY2012) and Bringing Green Revolution to Eastern India (BGREI) (`1,000cr in FY2013 from 400cr in FY2012). These measures will also aid the lagging agriculture GDP growth apart from keeping food inflation under check.

Infrastructure Got the desired focus

In FY2012, the infrastructure sector was plagued by several headwinds - such as depleting order books, high interest rates and policy paralysis - resulting in execution slowdown and shrinking bottom line of most infrastructure companies. Positively, infrastructure development remained high on the agenda of the budget. The budget has introduced several measures such as lowering the rate of withholding tax on interest payments on three-year ECBs for funding infrastructure projects and encouraging public private partnerships in road construction projects by allowing ECBs for capital expenditure on the maintenance and operations of toll systems for roads and highways. It has added capital investment in irrigation, fertilizers, telecom towers and oil and gas to the list of eligible items for viability gap funding. In terms of infrastructure ordering, it targets to award 8,800km of road projects in FY2013 by NHAI vs. 7,300km in FY2012 and has increased allocation to National Highway Development Programme (NHDP) and Accelerated Irrigation Benefit Programme (AIBP) in FY2013 by 14% and 13%, respectively.

Source: Bloomberg, Angel Research. Note: FY2013# Petrol, Diesel, Crude prices reflect current prices

Channelizing different sources of funds to aid cooling of interest rates

Continuing the trend seen in the past few years of increasing the availability of funds to the economy, especially to the infrastructure and priority sectors, in this budget as well key announcements were made on that front. These include doubling the fresh issue amount of tax-free bonds to `60,000cr and reduction in withholding tax rate for three-year ECBs taken to fund infrastructure projects. The budget also continues to address medium-term capital constraints for PSU banks (`15,888cr capital infusion budgeted this year). It also seeks to allow QFIs to access corporate bond markets and has introduced special Rajiv Gandhi Equity Saving Scheme to provide tax sops for individuals having income less than `10lakhs making fresh investment directly in equities up to `50,000. The increase in customs duty on gold also aims to nudge higher savings into productive financial assets and aid in reducing the current account deficit.

Power - Process of addressing concerns continued

The power sector is another sector that has received extended attention (quite needed) from the budget this time around. There were various favorable announcements in the budget for the sector, which has been grappling with fuel shortage, elevated price of imported coal and poor financial situation of SEBs. Major announcements included waiving off basic custom duty on coal imports until FY2014 and extension of 80-IA benefits until FY2013. Waiving off basic custom duty on coal is expected to partially address the fuel availability issue and would be more beneficial for companies relying on imported coal for running
4

Continuation of steps to remove agri supply constraints

The government has continued its focus on removing supply bottlenecks in agriculture, both in production as well as in supply chain. Even though food inflation has currently declined, the government has not shown complacency and has in fact taken several appropriate measures to address structural supply constraints. On expected lines, agricultural credit target has been raised by `1,00,000cr to `5,75,000cr in FY2013 and interest subvention scheme has been continued along with additional
March 16, 2012

Please refer to important disclosures at the end of this report

Union Budget 2012-13 Review

Union Budget 2012-2013

their plants. Other positive announcements for the power sector (mostly on the financing side) include tax-free bonds of `10,000cr for financing the power sector, allowing ECBs for part financing rupee debts of the existing power projects and reduction of withholding tax on interest payments on ECBs from 20% to 5%. These measures come on the back of the recent PMO missive to Coal India to sign FSAs up to 80% of the fuel requirement of power companies - highlighting the government's commitment to undo some of the negatives for the sector. forward, markets will start looking beyond the budget, wherein the global environment has changed materially for the better in the last couple of months. With the ECB's pragmatic and comprehensive LTRO liquidity infusions of about Euro1trillion, the Euro crisis looks more or less behind us. Moreover, lower global growth has led to lower commodity prices (other than crude, which is likely to be range-bound), improving the outlook for emerging markets such as India. As a result, we are seeing healthy investment inflows and with the inflation and interest rate outlook becoming relatively benign, we remain positive on the outlook for the markets going ahead.
Exhibit 9: Sectoral Impact
Sector Agriculture Automobile Aviation Banking Capital Goods Cement FMCG Infrastructure IT Metals Oil & Gas Pharmaceutical Power Real Estate Telecom
Source: Angel Research

Conclusion
Overall, Union Budget 2012-13 looks more credible in its estimates than last year's budget. First, the increase in excise and service tax rates as well as the increase in the ambit of service tax was on expected lines and makes the budget's revenue estimates more believable. On the subsidy front, some degree of under-estimation is nothing new - overall, there may be some slippage in the deficit because of this, but provided the government delivers on its intent to increase retail oil prices, the fiscal deficit is still likely to be 40-50bp lower than that in FY2012, which is a key positive for the economy. It will allow the RBI to reduce rates faster and will be positive for GDP growth and especially for interest- sensitive sectors such as banking, infrastructure and real estate. Oil and gas was amongst the key sectors that were negatively impacted (increase of cess on crude oil for Cairn and ONGC). Overall, within its set of constraints, in our view this will go down as a reasonable, pragmatic budget, which is unlikely to have a major impact on markets in either direction. Going

Overall impact Positive Negative Neutral Positive Positive Positive Negative Positive Neutral Neutral Negative Positive Positive Neutral Neutral

March 16, 2012

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Union Budget 2012-13 Review

Sectoral Impact

March 16, 2012

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Union Budget 2012-13 Review

Automobile
Announcement
Basic excise duty raised from 10% to 12%. Excise duty on large cars increased to 24% from 22%.

Negative

Impact
Slightly negative for all OEMs, but is on expected lines. We expect the entire hike to be passed on to customers, without any material impact on volume growth outlook. This would promote the manufacture, sale and usage of such vehicles in India. This increase in allocation under Rural Development Program is positive for auto companies having a rural presence, such as M&M and Hero Honda.

Excise duty on specified parts of hybrid vehicles is being reduced from 10% to 6%. General budgetary measures: Higher subvention for farmers and higher allocation to rural credit at `5.75lakh cr (`4.60lakh cr earlier).

Top Picks
Company Ashok Leyland M&M Reco Buy Buy CMP (`) 28 677 Price Target Price (`) 32 785 (` EPS (`) FY2012E 2.2 42.6 FY2013E 2.7 47.2 P/E (x) FY2012E 12.5 15.9 FY2013E 10.1 14.3 EV/EBITDA EV/EBITDA (x) FY2012E 6.7 9.1 FY2013E 6.7 9.1

Source: Company, Angel Research; Note: * Consolidated results; Note: Price as on March 16, 2012

Aviation
Announcement
Aviation companies have been allowed to raise money (up to US$1bn) through ECBs for their working capital requirements for a period of one year. Proposal to allow FDI of up to 49% by foreign airlines is still being considered by the government.

Neutral

Impact
Companies, such as SpiceJet, with relatively healthy balance sheets and good repayment history may be benefitted from this. This has come as a disappointment for companies under severe financial stress, as they were relying on FDI to raise capital for running their operations. This move is positive for aviation companies, as it would reduce ATF cost, which accounts for 50% of the total operating cost of a company. However, this development has a low probability of benefiting aviation companies in the short term, as we believe companies do not have the required infrastructure or capital to build the infrastructure required to import ATF directly.

The government has reiterated direct import of Aviation Turbine Fuel (ATF) for Indian carriers.

March 16, 2012

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Union Budget 2012-13 Review

Banking
Announcement
Capital infusion of `15,888cr in PSU banks, RRBs and other financial institutions. The government is also considering creation of a financial holding company, which will raise resources to meet the capital requirements of public sector banks. Credit flow for farmers raised from `4,75,000cr to `5,75,000cr. Interest subvention to farmers retained and has been introduced for women SHGs to avail loans up to `3lakhs at 7%, with further interest subvention of 3% on prompt payment. Custom duty increased on standard gold imports.

Positive

Impact
Enable PSUs to grow at a healthy rate and move progressively towards meeting the more stringent tier-I CAR requirements of Basel-III.

Slightly negative, considering the lower yields and higher NPAs generally associated with agri-based lending. Could assist in reducing rural NPAs for banks.

Positive for banks as it would help channelize higher savings into financial investments, aiding the downward trajectory of interest rates. Positive for the financial sector, especially the micro finance institutions sector, which has been in turmoil ever since the Andhra Pradesh government set stringent norms on lending and interest collection within the state.

Micro Finance Institutions (Development and Regulation) Bill 2012, Pension Fund Regulatory and Development Authority Bill 2011, Banking Laws (Amendment) Bill 2011 and Insurance Laws (Amendment) Bill 2008 to be moved in this session of the parliament.

In our view, the budget was broadly positive for the banking sector. Healthy capital allocation of ~`16,000cr for the recapitalization of PSU banks is expected to strengthen credit growth, while specific measures such as the increase in custom duty on gold imports is likely to channelize higher savings into financial investments, including bank deposits. Introduction of Microfinance Institutions Bill, which will supersede state government laws, will provide a big boost to the struggling micro finance industry. From the fiscal deficit point of view, the government refrained from having any populist measures, which will come as a sigh of relief for the banking sector. Commencement of easing monetary policy, apart from moderation in inflation, is also hinged on signs of credible fiscal consolidation, which we feel was by and large delivered in Union Budget 2012-13.

Top Picks
Company Axis Bank ICICI Bank Yes Bank St. Bank of India Bank of Baroda Reco Buy Buy Buy Buy Buy CMP (`) 1,214 917 367 2,228 809 Price Target Price (`) 1,671 1,193 478 2,587 951 (` EPS (`) FY2012E 101.7 54.6 28.1 172.8 117.6 FY2013E 115.4 63.9 33.2 202.8 126.0 FY2012E 11.9 16.8 13.1 12.9 6.9 P/E (x) FY2013E 10.5 14.4 11.1 11.0 6.4 P/ABV P/ABV (x) FY2012E 2.2 1.8 2.7 2.1 1.3 FY2013E 2.0 1.7 2.3 1.7 1.1

Source: Company, Angel Research; Note: Price as on March 16, 2012

March 16, 2012

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Union Budget 2012-13 Review

Capital Goods
Announcement
Power sector to issue tax-free bonds worth `10,000cr for financing projects; ECBs to part finance rupee debt of power projects; And customs duty on imported coal to be waived off. Capital investment in sectors such as fertilizers, telecom towers and oil and gas has been made eligible for viability gap funding. No announcement was made on the widely anticipated imposition of import duty on power generation equipment, which would have reduced the price differential between domestic and overseas players (especially Chinese players).

Positive

Impact
Low cost of funds and fuel for the power sector will lend a fillip to execute power projects, thus implying improved order inflow for capital goods companies.

Would help in attracting private investment in PPP projects. Steps to ease funding constraints in new project investments would help revive the asset creation cycle through order inflows, thus benefiting the sector. Negative for companies making power generation equipment, such as BHEL and BGR Energy.

Top Picks
Company Jyoti Structures Reco Buy CMP (`) 45 Price Target Price (`) 54 (` EPS (`) FY2012E 11.9 FY2013E 10.9 FY2012E 3.8 P/E (x) FY2013E 4.2 EV/EBITDA EV/EBITDA (x) FY2012E 3.6 FY2013E 3.0

Source: Company, Angel Research; Note: Price as on March 16, 2012

March 16, 2012

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Union Budget 2012-13 Review

Cement
Announcement
The graded excise duty structure based on retail selling price slabs, which were applicable to cement manufactured and cleared in packaged form, has been removed for mini cement plants as well as for non-mini cement plants. As per the announced duty structure, excise duty on cement cleared from mini cement plants in packaged form will be 6% along with additional charge of `120/tonne; while duty on cement cleared from other than mini cement plant will be 12% along with additional charge of `120/tonne. The duty will be charged on the retail selling price with an abatement of 30%. Basic custom duty on imported coal has been waived off until FY2014.

Positive

Impact
We expect cement manufacturers to pass on the hike in excise duty to consumers by increasing cement prices.

India's cement sector is highly dependent on imported coal. Prices of domestic as well as imported coal have increased considerably over the past one year. Thus, the waiver of basic custom duty on imported coal is positive for the sector.

Top Picks
Company JK Lakshmi Cem. Reco Buy CMP (`) 63 Price Target Price (`) 79 P/E (x) FY2012E 5.5 FY2013E 4.6 EV/EBITDA EV/EBITDA (x) FY2012E 3.8 FY2013E 2.6 ($ EV/tonne ($) FY2012E 34 FY2013E 28

Source: Company, Angel Research; Note: Price as on March 16, 2012

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Union Budget 2012-13 Review

FMCG
Announcement
Hike in excise duty on cigarettes (more than 65mm in length) by adding an ad valorem component of 10% to existing specific rates. The ad valorem duty would be 50% of the retail sale price declared on the pack.

Negative

Impact
We had also anticipated some hike in the excise duty on cigarettes, as it was not changed in Union Budget 2011-12. We expect manufacturers to pass on this hike to consumers. Thus, we expect the impact to be Neutral for ITC, VST Industries, Godfrey Phillips. Reduction in the allocation to NREGA is negative for the FMCG sector, as it could reduce the disposable income in the hands of rural households. Negative for all FMCG players. Reduction in basic customs duty on titanium dioxide, a raw material used to manufactured paint, is positive for paint makers such as Asian Paints, Kansai Nerolac, Berger Paints and Akzo India.

Allocation to NREGA at `33,000cr, down from `40,000cr in Union Budget 2011-12.

Reduction in basic customs duty on titanium dioxide from 10% to 7.5%.

Further, there has not been any concrete announcement regarding the rollout of GST, which is a disappointment for the FMCG sector.

Telecom
Announcement
The budget indicated that the government expects to raise `40,000cr through 2G spectrum auction.

Neutral

Impact
This is slightly higher than what was expected and is likely to put financial burden on all telecom companies, who are already in a dire need of funding post the 3G and BWA auctions. However, most of this impact has already been priced in the stock prices.

Exemption of basic customs duty on accessories of mobile handsets has now been extended to parts, components and sub-parts of parts and components required for manufacturing memory cards for mobile phones. Increased focus on social schemes such as NREGA

This is marginally positive for the sector as mobile handset growth will likely get a thrust, which, in turn, will help real subscriber growth.

This will indirectly assist telecom companies, as the increase in rural disposable income could result in more demand for mobile services.

March 16, 2012

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Union Budget 2012-13 Review

Infrastructure
Announcement
Issuance of tax-free bonds for financing infrastructure projects has been doubled to `60,000cr in FY2012-13 from `30,000cr in FY2011-12. NHAI, IRFC, IIFCL and the power sector will issue bonds worth `10,000cr each, whereas HUDCO, National Housing Bank, SIDBI and the ports sector would issue bonds worth `5,000cr. Target to award 8,800km of road projects in FY2012-13 set for NHAI (against target of 7,300km in FY2011-12). Further, allocation to National Highway Development Programme (NHDP) increased by 14% yoy to `25,360cr. To encourage public private partnerships in road construction projects, Union Budget has proposed to allow ECB for capital expenditure on the maintenance and operations of toll systems for roads and highways, given they are part of the original project. Rate of withholding tax on interest payments on external commercial borrowings is proposed to be reduced from 20% to 5% for three years for infrastructure sectors like power, road and bridges, housing and ports. Allocation for Accelerated Irrigation Benefit Programme (AIBP) in FY2012-13 is being stepped up by 13% to `14,242cr. Various infrastructure sectors such as irrigation and oil and gas have been made eligible for viability gap funding.

Positive

Impact
Positive for all E&C players as it would boost infrastructure development in railway, ports, housing and highways by facilitating fund raising for various government bodies that award infrastructure projects.

Positive for all road developers (IRB, ITNL and Ashoka Buildcon) as increased target of project awarding and higher allocation would provide more opportunities on the order inflow front for road players. Positive for all road developers (IRB, ITNL and Ashoka Buildcon).

Would help reduce the borrowing cost of funds and, hence, would help fuel infrastructure projects with low-cost funds.

Positive for E&C companies such as IVRCL, NCC, Madhucon Projects and Patel Engineering, as it would create more opportunities in the irrigation segment. Would help in attracting private investment in PPP projects. Positive for all E&C players present in the irrigation space.

To ease access of credit to infrastructure projects, India Infrastructure Finance Company Limited (IIFCL) has put in place a structure for credit enhancement and takeout finance. A consortium for direct lending and grant of in-principle approval to developers before the submission of bids for PPP projects has also been created.

Top Picks
Company L&T Reco Buy CMP (`) 1,320 Price Target Price (`) 1,607 (` EPS (`) FY2012E 63.5 FY2013E 70.7 FY2012E 20.8 P/E (x) FY2013E 18.7 EV/EBITDA EV/EBITDA (x) FY2012E 13.7 FY2013E 12.4

Source: Company, Angel Research; Note: Price as on March 16, 2012

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Union Budget 2012-13 Review

IT
Announcement
Plan allocation for general education has been increased by 17.6% to `49,240cr for FY2012-13 from `41,860cr for FY2011-12. Under Sarva Shiksha Abhiyan, `25,555cr has been allocated, which is 21.7% higher than that allocated in FY2011-12.

Neutral

Impact
Higher allocation to the education sector would boost business opportunities for education companies.

This would provide growth opportunities in terms of ICT and PPP in the K-12 and vocational segments to players focusing on formal and vocational education, such as Educomp, Everonn, Core Projects and NIIT Ltd.

Various IT initiatives have been extended for the efficient administration of various government departments. UID Aadhar to get adequate funds for enrolment of 40cr people, in addition to the 20cr people already enrolled.

Creation of strong opportunities for Indian software companies in the e-Governance space in the domestic market going forward.

Top Picks
Company MindTree Mahindra Satyam Reco Buy Buy CMP (`) 451 70 Price Target Price (`) 519 87 (` EPS (`) FY2012E 51.7 8.5 FY2013E 50.2 8.0 FY2012E 8.7 8.2 P/E (x) FY2013E 9.0 8.6 EV/EBITDA EV/EBITDA (x) FY2012E 5.1 6.0 FY2013E 4.1 4.6

Source: Company, Angel Research; Note: Price as on March 16, 2012

Real Estate
Announcement
Allowed to raise money through ECBs and reduce withholding tax on interest payments on ECBs from 20% to 5% for three years for affordable housing. Extension of 1% interest subvention on housing loans on loan amount up to `15lakhs, where the cost of the house does not exceed `25lakhs.

Neutral

Impact
This should benefit developers who plan to raise money through ECBs for the construction of affordable houses, as it would lower the borrowing cost. This would continue to benefit developers having low-cost affordable housing projects.

Measures announced in this budget were more in favor of boosting affordable housing projects in Tier II and III cities by extending interest subvention and allowing to raise money through ECBs. Since most of the listed companies do not have any exposure to the affordable housing segment, the budget is Neutral for the real estate sector.

Top Picks
Company Anant Raj Reco Buy CMP (`) 59 Price Target Price (`) 78 (` EPS (`) FY2012E 5.4 FY2013E 8.4 FY2012E 11.0 P/E (x) FY2013E 7.0 EV/EBITDA EV/EBITDA (x) FY2012E 11.4 FY2013E 8.3

Source: Company, Angel Research; Note: Price as on March 16, 2012

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Union Budget 2012-13 Review

Metals
Announcement
Increase in excise duty from the current level of 10% to 12%. Full exemption from import duty on thermal coal (5% currently) up to FY2014 and decrease in countervailing duty from 5% to 1%. Decrease in basic customs duty on machinery from 7.5% currently to 2.5% for setting up iron ore beneficiation and pellet plants. Increase in customs duty on non-alloy flat-rolled steel from 5.0% to 7.5%. Decrease in import duty on machinery used for prospecting in mining from 10.0/7.5% to 2.5%; Abolition of customs duty for coal mining projects.

Neutral

Impact
This would be slightly negative for steel, sponge, non-ferrous metal producers. This would be positive for coal importers, such as Nalco, Hindalco, Sterlite Industries and JSW Steel.

This would be slightly positive for steel makers setting up pellet and beneficiation plants.

This would be slightly positive for flat steel producers, such as Bhushan Steel, SAIL, JSW Steel and Tata Steel. Positive for mining companies and steel companies undertaking mining projects.

Union Budget 2012-13 was a mixed bag for the metals and mining sector. While the increase in excise duty would be marginally negative for metal producers, exemption from import duty on coal would be slightly positive for thermal coal importers, including non-ferrous metal producers, JSW Steel and some sponge iron producers. Moreover, the increase in customs duty on non-alloy flat-rolled steel from 5.0% to 7.5% would be slightly positive for flat steel producers.

Top Picks
Company NMDC Tata Steel Hind. Zinc Reco Buy Buy Buy CMP (`) 158 454 130 Price Target Price (`) 202 558 149 (` EPS (`) FY2012E 18.0 40.8 13.0 FY2013E 18.6 50.9 15.2 FY2012E 8.8 11.1 10.0 P/E (x) FY2013E 8.5 8.9 8.5 EV/EBITDA EV/EBITDA (x) FY2012E 4.5 7.3 6.3 FY2013E 4.1 5.5 4.6

Source: Company, Angel Research; Note: Price as on March 16, 2012

March 16, 2012

Please refer to important disclosures at the end of this report

14

Union Budget 2012-13 Review

Oil & Gas

Announcement
Increase in cess from the current level of `2,500/tonne to `4,500/tonne.

Negative

Impact
This would be negative for Indian crude oil producers (mainly Cairn India and ONGC) as cess is deducted from the realized crude price. Would be insufficient if crude oil stays at current levels (above US$115/bbl) or retail prices are not revised upwards. Under recoveries are expected to amount to ~`130,000cr in FY2013. It could also mean higher subsidy burden for upstream oil companies (ONGC and Oil India). This would be marginally positive for city gas distributors such as Gujarat Gas.

`43,737cr of petroleum subsidies have been provided for FY2013.

Customs duty on LNG import has been abolished from the current level of 5%.

Union Budget 2012-13 is negative for the oil and gas sector. The budget pegged the government's share of petroleum subsidy at only `43,737cr for FY2013, which would be insufficient if Brent crude stays at current levels (above US$115/bbl) or diesel and LPG cylinder prices are not revised upwards. The government's share of subsidy for FY2012 is expected to be `68,533cr, which is in-line with our expectation of `65,000cr, although it is significantly above the government's target of `23,696cr. The budget proposes to increase cess for oil producers from `2,500/tonne to `4,500/tonne, which will be negative for Cairn India and ONGC. In light of this event, we lower Cairn India's FY2013 EPS estimate by 10.7% to `46.3. Thus, our target price stands reduced to `332 (previous target price `367). We recommend Neutral on the stock. For ONGC, we lower our FY2013 EPS estimate by 10.3% to `30.2 and lower our target price to `316 (previous target price `324). However, we note that any increase in prices of diesel and LPG will lower its share of subsidy burden and as such it will be positive for ONGC. We maintain our Buy view on the stock.

Top Picks
Company Reliance Industries ONGC GAIL Reco Buy Buy Buy CMP (`) 773 273 367 Price Target Price (`) 923 316 440 (` EPS (`) FY2012E 64.2 30.2 31.1 FY2013E 64.7 30.2 35.4 FY2012E 12.0 9.1 11.8 P/E (x) FY2013E 11.9 9.0 10.3 EV/EBITDA EV/EBITDA (x) FY2012E 6.7 3.9 6.1 FY2013E 6.8 3.6 5.3

Source: Company, Angel Research; Note: Price as on March 16, 2012

March 16, 2012

Please refer to important disclosures at the end of this report

15

Union Budget 2012-13 Review

Pharmaceutical
Announcement
Proposal to extend weighted deduction of 200% for R&D expenditure in an in-house facility for a further period of five years beyond March 31, 2012. Allocation for NRHM proposed to be increased from `18,115cr in FY2011-12 to `20,822cr in FY2012-13. Proposal to continue to allow repatriation of dividends from foreign subsidiaries of Indian companies at a lower tax rate of 15% up to March 2013. Introduced MAT on partnership firm.

Positive

Impact
Positive for all Indian pharmaceutical companies.

Positive for all pharmaceutical companies.

Positive for all pharmaceutical companies, mainly Indian companies, as they generate the highest revenue from export markets. Would negatively impact Cadila Healthcare and Sun Pharmaceuticals. Since we have already factored in higher tax provision for FY2013, we are not changing our FY2013 estimates for both the companies.

Union Budget 2012-13, as expected, is positive for the pharmaceutical sector. As expected, R&D sops would continue to be positive for the sector as a whole. The government has again increased budgetary allocation for healthcare spending, which would be an overall positive for the sector. Indian pharmaceutical companies have been investing on the R&D front to tap opportunities in the domestic and global markets. To encourage the same, the weighted deduction on R&D expenditure to 200% (in-house research) was extended for a further period of five years.

Top Picks
Company Lupin Cadila Healthcare Aurobindo Pharma Reco Buy Buy Buy CMP (`) 504 712 113 Price Target Price (`) 593 866 166 (` EPS (`) FY2012E 22.3 33.5 11.8 FY2013E 29.7 43.3 13.8 FY2012E 22.5 20.1 9.6 P/E (x) FY2013E 17.0 15.6 8.2 EV/EBITDA EV/EBITDA (x) FY2012E 18.8 16.4 7.3 FY2013E 14.1 13.3 6.5

Source: Company, Angel Research; Note: Price as on March 16, 2012

March 16, 2012

Please refer to important disclosures at the end of this report

16

Union Budget 2012-13 Review

Power
Announcement
Waiver of basic custom duty on coal

Positive

Impact
Waiver of basic custom duty on coal is a substantial positive for many private sector power generators, such as Adani Power and JSW Energy, who rely on imported coal for running their plants. As per Section 80-IA exemptions, power plants are eligible for a tax holiday of 10 years from the year of commissioning of the plants. The exemption under this section was applicable to power plants commencing operations before FY2012 and has now been extended until FY2013. However, companies have to pay tax under MAT provisions. Extension of 80-IA benefits would have a positive impact on private sector power generation companies. Some of the companies, which would majorly benefit include Adani Power and Tata Power.

Extension of tax exemption under 80-IA for power generation companies until FY2013.

Some other positive announcements for the power sector include tax-free bonds worth `10,000cr for financing the power sector, allowing ECBs to part finance rupee debts of existing power projects and reduction of withholding tax on interest payments on ECBs from 20% to 5%. In all, the budget is expected to have a positive impact on the power sector.

Top Picks
Company NTPC GIPCL Reco Buy Buy CMP (`) 173 69 Price Target Price (`) 199 93 (` EPS (`) FY2012E 11.6 8.5 FY2013E 12.7 10.5 FY2012E 14.9 8.1 P/E (x) FY2013E 13.6 6.6 EV/EBITDA EV/EBITDA (x) FY2012E 11.0 4.7 FY2013E 10.4 3.9

Source: Company, Angel Research; Note: Price as on March 16, 2012

March 16, 2012

Please refer to important disclosures at the end of this report

17

Disclaimer
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Ratings (Returns) :

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

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Research Team Fundamental: Sarabjit Kour Nangra Vaibhav Agrawal Bhavesh Chauhan Sharan Lillaney V Srinivasan Yaresh Kothari Nitin Arora Ankita Somani Varun Varma Saurabh Taparia Technicals: Shardul Kulkarni Sameet Chavan Sacchitanand Uttekar Derivatives: Siddarth Bhamre Institutional Sales Team: Mayuresh Joshi Hiten Sampat Meenakshi Chavan Gaurang Tisani Akshay Shah Production Team: Simran Kaur Dilip Patel Research Editor Production simran.kaur@angelbroking.com dilipm.patel@angelbroking.com VP - Institutional Sales Sr. A.V.P- Institution sales Dealer Dealer Sr. Executive mayuresh.joshi@angelbroking.com hiten.sampat@angelbroking.com meenakshis.chavan@angelbroking.com gaurangp.tisani@angelbroking.com akshayr.shah@angelbroking.com Head - Derivatives siddarth.bhamre@angelbroking.com Sr. Technical Analyst Technical Analyst Technical Analyst shardul.kulkarni@angelbroking.com sameet.chavan@angelbroking.com sacchitanand.uttekar@angelbroking.com VP-Research, Pharmaceutical VP-Research, Banking Metals & Mining Mid-cap Research Associate (Cement, Power) Research Associate (Automobile) Research Associate (Infra, Real Estate) Research Associate (IT, Telecom) Research Associate (Banking) Research Associate (Cement, Power) sarabjit@angelbroking.com vaibhav.agrawal@angelbroking.com bhaveshu.chauhan@angelbroking.com sharanb.lillaney@angelbroking.com v.srinivasan@angelbroking.com yareshb.kothari@angelbroking.com nitin.arora@angelbroking.com ankita.somani@angelbroking.com varun.varma@angelbroking.com Sourabh.taparia@angelbroking.com

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