Sei sulla pagina 1di 18

Institutional Equity Research February 01, 2018

UNION BUDGET
2018-2019

Research Team
rsec.research@rcap.co.in
1
Union Budget 2018-19 February 01, 2018

A Prudence Balance between Fiscal Discipline and Economic Growth


Union budget 2018 has tried to do a lot for rural and EWS population and at the same time has to be ~9000km, which is tad lower as compared to earlier guidance given by the road ministry.
tried to maintain the fiscal discipline by keeping fiscal deficit target at 3.5% and 3.3% for FY18E and
We understand higher allocation in infrastructure segment will essentially expedite infrastructure
FY19E, respectively. Notably, revised expenditures for FY18E are estimated to increase moderately
development in the country, which in turn will aid many industries i.e. metals, cement, building
by Rs10,000 crore to Rs21.57 lakh crore (net of GST Compensation of ~Rs60,0000 crore to be
materials, etc leading to higher utilisation and that should logically lead to pickup in private capital
transferred to States). However, lower than estimated non-tax revenue (mainly impacted by poor
expenditure.
dividend from RBI and absence of spectrum revenue) along with dismal tax collection post GST
implementation broadly led to hardening of fiscal deficit (at 3.5%) in the current year. However, with LTCG Tax on Equities; a Short Term Dilemma
the gradual pickup in GST collection in ensuing months along with increased direct tax collection is Govt has also decided to impose 10% tax on Long Term Capital Gains (LTCG) for equity and equity
expected to aid fiscal deficit in FY19E. Budget speech talked about total expenses from all agencies oriented investments for amount exceeding capital gains of Rs1 lakh. The tax will be applicable
at Rs14 lakh crore towards aiding rural economy / farmers’ income. This will have far reaching based on cost prices prevailing on 31st January 2018 for assets held before 31st January 2018,
impact on growth rates of country and reduction of income gaps in society. On the flip side, visible which will prevent any large scale selling in stock markets. While LTCG tax has been imposed, there
hardening of oil prices can play a major spoilsport in government’s estimated fiscal target. is no tinkering on Securities Transaction Tax, which makes India as probably only country in the
world to have both taxes at the same time. Grandfathering of cost prices for LTCG will prevent any
Focus on Mass Population
knee jerk reaction in stock prices but imposition of tax is a clear negative for equity markets as far as
Government has announced a slew of measures and initiatives to give a further flip to rural
sentiments are concerned. Imposition of tax is a negative event for equity markets but for investors
economy keeping in view of upcoming assembly elections in many states and general election in
who would like to treat equity as an asset class, it still offers best inflation adjusted post tax returns.
2019. Increase in MSP of Kharif to 1.5x of production cost, focus on developing rural road networks,
Therefore, over a period of time this tax incidence will be taken in stride and normal life will continue
enhancement of Fasal Bima Yojana, etc are likely to aid rural economy’s prospects. We believe
as far as investment in equities is concerned
that improvement in rural economy may lead to improvement in consumption. Newly introduced
National Health Protection Scheme under Ayushman Bharat Programme covering 10 crore families Outlook & Valuation
and providing free gas connection to 8 crore poor families might help NDA to win the trust of EWS To summarise the Budget 2018, we are of the view that amid the challenges from soaring oil prices,
and rural population once again. dwindling revenue collection led by transitory impact of GST and lack of private capex, FM has
managed to balance fiscal prudence and need for spurring economic growth. However, it would
Infrastructure Remains as Key Area of Focus
be a difficult task for the government to maintain the fiscal prudence in case crude oil price sustains
Budget 2018 continued to put strong focus on infrastructure development, which is in line with the
above US$70. Nonetheless, we believe that with the visible sign of improving earnings momentum
expectations. FM has allocated an extra budgetary support of Rs5.97 lakh crore v/s Rs4.94 lakh
along with likely pickup in capex (public and private) will essentially bode well for equity markets.
crore in last budget for infrastructure sector, which is encouraging as India needs large amount of
Equity market has delivered handsome returns of ~28% since last budget led by huge improvement
investment in infrastructure due to growing needs. However, road construction for FY18E is likely
in domestic liquidity but we expect a moderate return in low to mid teens in FY19E.
2
Union Budget 2018-19 February 01, 2018

Exhibit 1: Budget at a glance


YoY Growth (%) As % Of GDP
(Rs crs) FY16 FY17 FY18 RE FY19 BE FY18 RE FY19 BE
Revenue Receipts 1,195,025 1,374,203 1,505,428 1,725,738 9.5 14.6 9.0 9.2
Tax Revenue 943,765 1,101,372 1,269,454 1,480,649 15.3 16.6 7.6 7.9
Non-Tax Revenue 251,260 272,831 235,974 245,089 (13.5 ) 3.9 1.4 1.3
Capital Receipts 595,758 600,991 712,322 716,475 18.5 0.6 4.2 3.8
Recoveries of Loans 20,835 17,630 17,473 12,199 (0.9 ) (30.2 ) 0.1 0.1
Other Receipts 42,132 47,743 100,000 80,000 109.5 (20.0 ) 0.6 0.4
Borrowing and Other Liabilities 532,791 535,618 594,849 624,276 11.1 4.9 3.5 3.3
Total Receipts 1,790,783 1,975,194 2,217,750 2,442,213 12.3 10.1 13.2 13.0
Scheme Expenditure 725,114 - - - - -
On Revenue Account 545,619 - -
On Capital Account 179,495 - -
Expenditure on Other than Schemes 1,065,669 1,975,194 2,217,750 2,442,213 12.3 10.1 13.2 13.0
On Revenue Account 992,142 1,690,584 1,944,305 2,141,772 15.0 10.2 11.6 11.4
of which, Interest Payments 441,659 480,714 530,843 575,795 10.4 8.5 3.2 3.1
On Capital Account 73,527 284,610 273,445 300,441 (3.9 ) 9.9 1.6 1.6
Total Expenditure 1,790,783 1,975,194 2,217,750 2,442,213 12.3 10.1 13.2 13.0
On Revenue Account 1,537,761 1,690,584 1,944,305 2,141,772 15.0 10.2 11.6 11.4
Of which, Grants in Aid for Creation of Capital Assets 131,754 165,733 189,245 195,345 14.2 3.2 1.1 1.0
On Capital Account 253,022 - -
Revenue Deficit 342,736 316,381 438,877 416,034 38.7 (5.2 ) 2.6 2.2
Effective Revenue Deficit 210,982 150,648 249,632 220,689 65.7 (11.6 ) 1.5 1.2
Fiscal Deficit 532,791 535,618 594,849 624,276 11.1 4.9 3.5 3.3
Primary Deficit 91,132 54,904 64,006 48,481 16.6 (24.3 ) 0.4 0.3

3
Union Budget 2018-19 February 01, 2018

Fiscal Deficit Remains at Comfort Zone; Targeted fiscal deficit at 3.3% in FY18E Exhibit 3: Revenue Trend
On the macro front, the Government has maintained its stance on fiscal deficit despite uncertainly
1,600,000
over non tax revenue. It aims to maintain the same at 3.5% for FY18E and 3.3% in FY19E.
1,400,000
Further, it aims to achieve fiscal consolidation mainly through ~17% rise in tax revenue to 1,200,000
Rs1,481bn in FY19E. 1,000,000
800,000
600,000
Exhibit 2: Key Economic Indicators 400,000
5.8 200,000
5.6 5.2
4.9 -
4.8
4.8 4.5 4.5 4.4 FY12 FY13 FY14 FY15 FY16 FY17 FY18 RE FY19 BE

4.0 3.6 3.5 3.5 Corporation Tax Taxes on Income Customs


3.2 3.2 3.3
3.1 3.1 3.0 Union Excise Duties Service Tax Centre’s Net Tax Revenue
3.2 2.7
2.6 2.6
2.4 2.1 2.2 Source: Budget document, RSec Research
1.8 1.8 1.8
1.6
1.6 1.1
0.8 0.4 0.4 0.3 Exhibit 4: Non Tax Revenue trend
0.1
- (Rs bn) FY14 FY15 FY16 FY17 FY18 RE FY19 BE
FY09 FY10 FY11 FY12 FY13 FY14 FY17 FY18 RE FY19 BE FY20 P FY21 P
Non-Tax Revenue 1,989 1,979 2,513 2,728 2,360 2,451
Fiscal Deficit Primary Deficit Revenue Deficit
Interest receipts 219 238 254 162 136 152
Source: Budget document, RSec Research Dividend and Profits 904 898 1,121 1,230 1,064 1,073
External Grants - - 19 13 37 27
Other Non Tax Revenue 851 829 1,103 1,305 1,104 1,179
Receipts of Union Territories 15 14 15 18 19 21
Source: Budget document, RSec Research

4
Union Budget 2018-19 February 01, 2018

Exhibit 5: Expenditure of Government of India Exhibit 6: Expenditure of Major Items


(Rs cr) FY16 FY17 FY18 RE FY19 BE (Rs cr) FY16 FY17 FY18 RE FY19 BE
Centre’s Expenditure Pension 96,771 131,401 147,387 168,466
Establishment Expenditure of Centre 334,870 423,851 468,914 508,400 Defence 225,895 251,781 267,108 282,733

Central Sector Schemes/Projects 521,374 589,471 634,318 708,934 Subsidy

Other Central Sector Expenditure 592,909 570,377 638,009 678,017 Fertiliser 72,415 66,313 64,974 70,080
Food 139,419 110,173 140,282 169,323
Statutory and Regulatory Bodies 5,818
Petroleum 29,999 27,539 24,460 24,933
Autonomous Bodies 41,939
Agriculture and Allied Activities 23,694 50,184 56,589 63,836
Public Sector Undertakings 9,696
Commerce and Industry 16,247 21,364 26,310 27,956
Public Sector Banks 25,000 Development of North East 1,987 2,496 2,682 3,000
Financial Institutions 1,627 Education 67,239 72,016 81,869 85,010
Others 508,829 480,714 530,843 575,975 Energy 21,123 30,964 41,682 41,104
Centrally Sponsored Schemes and other Transfers External Affairs 14,518 12,753 13,690 15,012
Finance 71,213 41,549 29,449 20,342
Centrally Sponsored Schemes 203,741 241,295 285,582 305,517
Health 34,131 39,005 53,198 54,667
Finance Commission Grants 84,579 95,550 101,490 109,373
Home Affairs 67,821 78,360 88,143 93,450
Other Grants/Loans/Transfers 53,310 54,650 89,437 131,972 Interest 441,659 480,714 530,843 575,795
Grand Total 1,790,783 1,975,194 2,217,750 2,442,213 IT and Telecom 15,079 17,985 17,802 22,380
Source: Budget document, RSec Research Others 46,008 63,667 69,515 72,845
Planning and Statistics 5,959 4,494 5,063 5,199
Rural Development 90,235 113,877 135,604 138,097
Scientific Departments 17,432 19,493 22,370 24,906
Social Welfare 31,691 31,812 38,624 44,220
Tax Administration 26,011 22,146 77,747 105,541
Transfer to States 114,802 132,704 120,265 142,858
Transport 87,413 102,200 107,092 134,572
Union Territories 11,843 13,258 14,248 14,123
Urban Development 20,180 36,946 40,754 41,765
Grand Total 1,790,783 1,975,194 2,217,750 2,442,213
Source: Budget document, RSec Research
5
Union Budget 2018-19 February 01, 2018

Sectoral Impact

6
Union Budget 2018-19 February 01, 2018

Banking
Budget Proposal Impact Our View Stocks affected
ff Fiscal deficit target of 3.3% along with net ff Negative ff The Government has failed to adhere to its fiscal deficit target of 3.2% ff Negative for public sector banks as they have little
market borrowing of Rs4.62 lakh crore in for FY18 along with much higher market borrowings, which negatively scope for treasury gains from bond portfolio along
FY19 vs. Rs4.59 lakh crore in FY18. impacted the bond market. with higher MTM loss on excess SLR portfolio.

ff Net market borrowing remaining elevated at Rs4.62 lakh crore for FY19 ff Negative for all NBFC as their cost of fund will increase
and tighter liquidity condition may keep the bond yield at elevated level over the FY18 level.
in coming period.

ff Increase allowable provision for Non- ff Positive ff This will help the banks to strengthen the balance sheet and reduce ff Positive for the banks with higher stressed assets on
Performing Assets from 7.5% to 8.5% of their tax liability. balance sheet i.e. Axis Bank, ICICI Bank, PNB, SBI, UBI,
the total income. Canara Bank & Bank of Baroda.

ff Target of Rs11 lakh crore of agricultural ff Positive ff Agriculture credit target is in line with the current growth in the segment. ff Positive for the banking players as the agriculture
credit during FY19 vs. Rs10 lakh crore in sector is expected to revive due to good monsoon
FY18. last year and increased governmental thrust on rural
segment.

ff Increasing credit target under Pradhan ff Positive ff It will help to revive the credit growth in MSME segment. ff All banks and NBFC.
Mantri Mudra Yojana (PMMY) to Rs3 lakh
crore in FY19 from Rs2.4 lakh crore in
FY18.

ff Issue of Rs65,000 crore of additional PSB ff Negative ff Additional recapitalisation bonds for PSBs are in line with earlier ff Positive for all public sector banks.
recapitalisation bonds to Public Sector announcement.
Banks.
ff To provide much-needed growth capital to the PSBs post cleaning of
balance sheet over next two quarters.

7
Union Budget 2018-19 February 01, 2018

Banking
Budget Proposal Impact Our View Stocks affected
ff Increased thrust for digital transactions. ff Positive ff It will help the banking sector in medium to long-term. ff All banks

ff Measures for deepening corporate ff Positive ff It will facilitate comprehensive development of corporate bond ff All banks
bond market: (a) mandate to take 25% market and reduce concentration risk related to corporate credit
total borrowing of corporate from capital segment.
market and; (b) relaxation of norms
ff However, it will erode some incremental business from banks to
related to investment in corporate bond
corporate bond market.
to from current ‘AA’ to ‘A’ grade ratings.

Sector Outlook
We believe that incremental deterioration in asset quality has been aptly addressed in last few quarters along with substantial progress in resolution of existing NPAs. Further, credit growth has
revived after touching an all-time low in 1HFY18. We expect major part of incremental credit growth may flow into private banks helping them to improve their operating performance. The sector also
got negatively impacted by sharp rise in bond yield due to deteriorating conditions on fiscal deficit front both at centre and state level. Resultantly, the benchmark G-Sec bond yield jumped to 7.60%
compared to 6.66% as of 2QFY18-end. Increase in G-Sec yield will result in MTM loss on non-HTM investment portfolio of the banks as well as lead to sharp decline in treasury income especially for
the PSBs. Hence, we continue to prefer private banks having higher exposure to consumer and business banking loans.

8
Union Budget 2018-19 February 01, 2018

Capital Goods
Budget Proposal Impact Our View Stocks affected
ff NIL Basic Custom Duty from earlier 5% on solar tempered glass ff Positive ff It will reduce cost of manufacturing of solar plants. ff ABB.
used to manufacture solar cells/panels/modules.

ff Printed Circuit Board Assembly (PCBA) of charger/adapter and ff Positive ff Positive for domestic PCBA manufacturers. ff Dixon Tech and ABB etc.
moulded plastics of charger/adapter of cellular mobile phones.

ff Propose extra-budgetary expenditure of Rs5.97lakh crore on ff Positive ff Positive for Capital Goods companies. ff KEC International and Kalpataru
infrastructure. Power Transmission etc.

ff Focus on completion of rural electrification.


ff Allocation of Rs2.04lakh crore for Smart City Mission. ff Positive ff Positive for household electrical appliance and equipment ff Crompton Greaves Consumer
manufacturers. Electricals and ABB etc.
ff Capital Expenditure of Indian Railways is earmarked at Rs1.5 ff Positive ff Augmentation of rail infrastructure will result in healthy order ff ABB and KEC International etc.
lakh crore for FY19 (14% YoY) and up-gradation of railway lines. inflows for Capital Goods companies.

Sector Outlook
We believe ordering activities have improved on transmission and railways electrification front. Looking ahead, we expect further up-tick in ordering activities led by schemes i.e. UDAY, DDUGJY, IPDS,
Housing for All and SAUBHAGYA etc. These schemes are expected to result in better cash flows and new investments in state T&D networks and Independent Power Producers (IPPs), going forward.

9
Union Budget 2018-19 February 01, 2018

Cement
Budget Proposal Impact Our View Stocks affected
ff Impetus to improve rural economy by means of increased ff Positive ff Rural areas account for >50% of total cement consumption in India, which ff Entire sector
allocation towards MGNREGA (+28% YoY), Fasal Bima Yojana had been going through tough phase over last two years led by consistent
(target to cover up to ~40% in FY18E), increased allocation deceleration in rural economy. In our view, the Government has tried to strike
to rural (+24% yoy) sector and increase in long-term (up to the right chord to spur the rural economy by targeting to double the income of
Rs200.0bn) and micro irrigation fund (up to Rs50.0bn) etc. farmers over the next five years. A higher disposable income in the hands of rural
populace will certainly lead to higher cement consumption.

ff Infrastructure status to Affordable Housing Segment and ff Positive ff The Government seems to remain committed to affordable housing and already ff Entire sector
increased allocation for Pradhan Mantri Awas Yojana. had announced a number of measures to spur the segment. We foresee
infrastructure status to affordable housing segment as the best measure so far
done by the NDA Government to accelerate affordable housing development.
It will entail all developers in affordable housing segment to get loans at lower
rates enabling them to expedite construction activities.

ff Continued thrust on infrastructure development. ff Positive ff The NDA Government has already undertaken a number of reforms to revive ff Entire sector
infrastructure activities in the country especially in Roads & Highway, Power,
Railway and Irrigation sectors etc, which have already started paying off in terms
of increasing contribution of cement consumption from Infrastructure segment.
Further, increased allocation to infrastructure segment (up to Rs3,961.0bn) will
continue to ensure higher cement consumption, going forward. We foresee
cement consumption from infrastructure segment to increase from 30% in FY17E
to 35% in FY18E.

Sector Outlook
Cement sector had been witnessing subdued consumption in rural areas over last two years due to deficient monsoon and consistent deterioration in rural economy. Further, rural demand was
affected by government’s demonetization drive, the effect of which is still prevalent. Budget 2017-2018 will certainly provide a much needed thrust to rural economy, which is of utmost importance,
and will lead to improvement in cement demand in rural areas in FY18E.

10
Union Budget 2018-19 February 01, 2018

Consumer
Budget Proposal Impact Our View Stocks affected
ff No increase in tax on cigarettes. ff Positive ff Although GST roll-out and compensation cess is levied on cigarettes, there was ff ITC, VST Industries and Godfrey Phillips.
a concern that the Central Government could levy Excise Duty in addition to these
duties. No such levy is a definite positive for the sector.

ff Increased allocation for rural ff Positive ff Initiatives i.e. MSP at 1.5x of cost for Kharif crops, increasing allocation for institutional ff Entire consumer sector.
development. credit for agriculture sector and other similar initiatives will increase disposable
income levels in the hands of the consumers, which augurs well for the entire sector.

ff Setting up of Fisheries and Aquaculture ff Positive ff This move demonstrates government’s willingness to create organised structure for ff Avanti Feeds, Godrej Agrovet, Apex
Infrastructure Development Fund the sector, which will benefit the large organised players. Frozen Foods and Waterbase.
(FAIDF) for fisheries sector.

Sector Outlook
The consumer sector had been adversely impacted in past couple of years due to weak consumer demand, demonetisation and trade disruptions post GST roll-out. However, two consecutive good
monsoons, higher MSPs of key crops and higher share of organised players post GST roll-out would drive strong double-digit revenue and earnings growth for the sector. Although valuations remain
stretched at 41x FY19E earnings Ex-ITC, we believe that the companies with market leadership, strong pricing power and huge under-served market will continue to outperform in coming years.

11
Union Budget 2018-19 February 01, 2018

Infrastructure
Budget Proposal Impact Our View Stocks affected
ff Budgetary and extra budgetary expenditure on ff Positive ff L&T, NCC, KNR Constructions and J.
infrastructure increased to Rs5.97 lakh crore for ff A hefty 21% increase in allocation is likely to ensure higher order book for Kumar Infra, etc.
FY19 from Rs4.94 lakh crore in FY18E. infrastructure companies and also boost employment generation.

ff Railway capex has been earmarked at Rs1.49 ff Positive ff Higher capex to aid construction companies involved in EPC works. ff NCC, Simplex Infra, Escorts etc.
lakh crore mainly to strengthen network and
enhance carrying capacity.

ff Emphasis on rural infrastructure including rural ff Positive ff Allocation of Rs55,000cr for various rural infra projects including 2.6lakh ff All small EPC companies.
roads through higher allocation to MGNREGA. kms rural roads augurs well for small EPC players.

ff Roads and highways to remain in focus. ff Positive ff Continued focus on road development to result in higher ordering activities ff Ashoka Buildcon, NCC, Sadbhav
9,000kms to be completed in FY18E. in coming months. Further, improvement in lending ability of the PSBs is Engineering, J. Kumar Infra etc.
positive for road developers.

ff 51 lakh housing units to be built each in FY18 and ff Positive ff This may ensure healthy business visibility for civil contractors. ff Ahluwalia Contracts, NBCC, NCC,
FY19E in rural areas and 37 lakh units in urban Simplex Infra etc.
areas.

Sector Outlook
In addition to emphasis on reviving rural economy, the Union Budget continued to focus on boosting infrastructure activities in the country. India cannot achieve desired growth without focussing on
infrastructure development. Roads & Highway, Railways, Urban Infrastructure projects have already witnessed a decent traction over last two years. Thus, we believe that renewed focus on overall
infrastructure segment, irrigation, airports, metro projects, affordable housing may see sound traction in FY19E along with other segments as well. We maintain our positive view on the sector from
long-term perspective and recommend looking at the companies, which are least exposed to developmental business. We prefer the companies, which are least leveraged and having sizeable
order book.

12
Union Budget 2018-19 February 01, 2018

Information Technology
Budget Proposal Impact Our View Stocks affected
ff Allocation for Digital India raised to Rs3,073cr from Rs1,426cr. ff Positive ff Expected to create opportunities for Indian IT ff TCS, Infosys, Wipro and other quasi-
companies to work with the government. IT firms like BLS International and
Vakrangee.
ff It is a small incrementally positive development
for IT sector/companies, which work with the
government.

ff Exploring use of Block Chain technology proactively for ushering in ff Positive ff Opportunities for IT firms to work with the ff TCS, Infosys and Wipro.
digital economy. Government in creating Indian version of distributed
ff Negative for CDSL in case SEBI uses
digital ledger technology.
Blockchain in depository operations.
ff Indian IT firms to get more opportunities to work
with the Government on an emerging technology.

ff Proposal to increase digital intensity in education, to gradually replace ff Positive ff Expected to create opportunities in field of digital ff CL Educate, Navneet Education and S.
‘‘Black Board’’ with ‘‘Digital Board’’. education, opportunities for niche players Chand & Co.

ff Technology-driven up-gradation of teachers’ skills through recently


launched digital portal ‘‘DIKSHA’’.

Sector Outlook
We are positive on the near and medium-term prospects of Indian IT firms, given the improving global economy, better visibility for global IT budgets and strong growth in digital services. Key
macroeconomic risks including BREXIT and election of Donald Trump as the US President seem to have noticeably ebbed. Despite a strong stock performance of late, we believe that valuations of
IT companies are still reasonable. With improving growth, high cash flow generation, increasing buy-backs as a measure of cash return to shareholders and good management quality, we expect
IT stocks to perform well, going forward.

13
Union Budget 2018-19 February 01, 2018

Pharmaceuticals
Budget Proposal Impact Our View Stocks affected
ff Formation of National Health Insurance Scheme to benefit 10 crore poor ff Positive ff We expect significant expansion in ff Apollo Hospitals, Narayana Hrudayalaya, Shalby,
families (~50 crore beneficiaries) who will be having an annual medi-claim health insurance coverage. Fortis Healthcare, Thyrocare and Dr. Lal PathLabs.
benefit of Rs5 lakh per family for secondary/tertiary hospital care.

Sector Outlook
Following years of market outperformance in the US market, the growth for most Indian generics manufacturers has slowed down in past 18-24 months mainly owing to increased scrutiny of Indian
facilities, which led to more cGMP-related observations (Lupin, Sun Pharma and Dr. Reddy’s). The effect has been compounded in terms of slower US FDA approvals for which a significant part of
the value of near-term pipeline has either been eroded or delayed. And, additionally, the US generics industry has seen significant consolidation and increased pressure on pricing led by faster
approvals (GDUFA). However, Indian pharma companies have been focussing on developing complex generics and specialty products (high margin; limited competition), which will support their
earnings growth in the medium-term.

We expect the Indian pharma companies to revert to their historical growth trajectories from 1HFY19E as the GST and demonetization led disruptions seem to have ebbed. We believe Indian pharma
market an attractive structural growth story led by increasing lifestyle diseases, improvement in healthcare accessibility, higher per capita income and expanding insurance penetration.

We continue to remain bullish on Indian pharmaceutical sector from medium to long-term perspectives.

14
Union Budget 2018-19 February 01, 2018

Power
Budget Proposal Impact Our View Stocks affected
ff Allocation of Rs16,000crore for SAUBHAGYA scheme, ff Positive ff Improvement in policy environment and higher infrastructure ff All power generation and T&D equipment
which was launched earlier to provide free electricity spend will aid in reviving demand scenario of power sector. manufacturing companies.
connection to 4 crore households.

ff Focus on completion of rural electrification. ff Positive ff It will encourage investments in T&D space. ff Power Grid Corp.

ff Necessary measures to encourage the state ff Positive ff It will encourage private investments in solar energy. ff Tata Power and Adani Power etc.
governments to put in place a mechanism to ensure
ff It would increase IRR of solar power producers.
that their surplus solar power is purchased by DISCOMs
or licensees at reasonably remunerative rates.

Sector Outlook
Domestic power sector continues to face problems relating to poor system demand, low PPAs, and poor financials of the DISCOMs. However, recently launched UDAY scheme witnessed positive
response from the DISCOMs, which should eventually lead to improvement in their financial health and ability to draw more power. We believe that improvement in policy environment and
infrastructure spend coupled with manufacturing activities will aid in reviving demand environment of the power sector. In our view, implementation of UDAY scheme is expected to improve power
demand in FY19E, while increase in coal output would provide a much-needed fillip to the sector.

15
Union Budget 2018-19 February 01, 2018

Tyres
Budget Proposal Impact Our View Stocks affected
ff Custom Duty on Truck & Bus Radial Tyres increased to ff Positive ff An increase in duty will make domestic TBR comparable with imported ff JK Tyres, Apollo Tyres,
15% from 10%. tyres and aid domestic companies to witness higher volume. CEAT etc.

Sector Outlook
We expect the sector to witness a healthy traction, going forward on the back of improving outlook of domestic OEM industry, increasing road connectivity across the country and rising aspiration of
middle class population. Further, with benign raw material prices, likely benefits from imposition of Anti Dumping Duty on Chinese TBRs and increase in Custom Duty on TBR, we expect Indian tyre
manufacturers to report better numbers, going ahead.

16
Union Budget 2018-19 February 01, 2018

Top Picks
Company CMP* Reco Target Price P/E (x) P/B (x) EV/EBIDTA (x)
(Rs) (Rs) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E
Banking
HDFC Bank 1,991 BUY 2,285 35.1 30.3 25.3 5.7 4.3 3.7 - - -
Federal Bank 98 BUY 150 20.2 18.0 14.2 1.9 1.6 1.5 - - -
Capital Goods
Crompton Greaves 252 BUY 305 54.1 43.6 35.6 29 21.2 14.7 33.3 27.3 22.9
consumer Electricals
Skipper ltd 238 BUY 289 21.8 18.8 14.0 4.9 4.0 3.2 11.9 10.2 8.2
Cement
UltraTech Cement 4,391 BUY 5,100 46.2 55.6 41.3 5.0 4.7 4.2 25.4 24.0 16.5
Sagar Cement 1,006 BUY 1,200 66.6 23.3 2.8 2.7 2.4 22.0 16.6 10.6
Consumer
Dabur India 350 BUY 404 48.3 44.7 37.8 12.6 10.8 9.3 38.6 35.2 29.5
ITC 275 BUY 320 32.9 30.3 27 7.4 6.9 6.7 21.5 19.6 17.5
Infrastructure
NBCC 229 BUY 300 58.7 48.8 34.6 12.3 11.0 9.1 57.0 45.1 29.8
KNR Constructions 305 BUY UR 28.6 20.5 18.1 4.9 4.0 3.3 19.9 15.3 11.8
IT
Persistent Systems 783 BUY 920 20.0 17.7 14.6 3.5 3.1 2.7 12.4 11.1 8.7
Tata Elxsi 1,026 BUY 1265 36.9 27.6 23.3 11.4 8.9 7.1 20.9 17.3 14.4
Pharmaceuticals
Cadila HC 418 BUY 554 28.2 22.1 16.6 6.3 5.1 4.1 24.4 16.6 12.7
Alkem Labs 2,232 BUY 2,610 29.9 34.0 25.3 6.0 5.3 4.6 27.2 24.1 19.7
Power
Power Grid Corp 194 BUY 244 13.5 11.0 8.8 2.0 1.8 1.5 9.3 8.6 7.3
NTPC 169 BUY 192 14.8 12.5 11.0 1.4 1.3 1.2 11.0 10.4 9.6
Source: RSec Research; Note: *CMP as on February 01, 2018

17
Union Budget 2018-19 February 01, 2018

Reliance Securities Limited (RSL), the broking arm of Reliance Capital is one of the India’s leading retail broking houses. Reliance Capital is amongst India’s leading and most valuable financial services companies in the private sector. Reliance Capital
has interests in asset management and mutual funds, life and general insurance, commercial finance, equities and commodities broking, wealth management services, distribution of financial products, private equity, asset reconstruction, proprietary
investments and other activities in financial services. The list of associates of RSL is available on the website www.reliancecapital.co.in. RSL is registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014

General Disclaimers: This Research Report (hereinafter called ‘Report’) is prepared and distributed by RSL for information purposes only. The recommendations, if any, made herein are expression of views and/or opinions and should not be deemed or
construed to be neither advice for the purpose of purchase or sale of any security, derivatives or any other security through RSL nor any solicitation or offering of any investment /trading opportunity on behalf of the issuer(s) of the respective security(ies) referred
to herein. These information / opinions / views are not meant to serve as a professional investment guide for the readers. No action is solicited based upon the information provided herein. Recipients of this Report should rely on information/data arising
out of their own investigations. Readers are advised to seek independent professional advice and arrive at an informed trading/investment decision before executing any trades or making any investments. This Report has been prepared on the basis of
publicly available information, internally developed data and other sources believed by RSL to be reliable. RSL or its directors, employees, affiliates or representatives do not assume any responsibility for, or warrant the accuracy, completeness, adequacy
and reliability of such information / opinions / views. While due care has been taken to ensure that the disclosures and opinions given are fair and reasonable, none of the directors, employees, affiliates or representatives of RSL shall be liable for any direct,
indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way whatsoever from the information / opinions / views contained in this Report.

Risks: Trading and investment in securities are subject to market risks. There are no assurances or guarantees that the objectives of any of trading / investment in securities will be achieved. The trades/ investments referred to herein may not be suitable to
all categories of traders/investors. The names of securities mentioned herein do not in any manner indicate their prospects or returns. The value of securities referred to herein may be adversely affected by the performance or otherwise of the respective
issuer companies, changes in the market conditions, micro and macro factors and forces affecting capital markets like interest rate risk, credit risk, liquidity risk and reinvestment risk. Derivative products may also be affected by various risks including but
not limited to counter party risk, market risk, valuation risk, liquidity risk and other risks. Besides the price of the underlying asset, volatility, tenor and interest rates may affect the pricing of derivatives.

Disclaimers in respect of jurisdiction: The possession, circulation and/or distribution of this Report may be restricted or regulated in certain jurisdictions by appropriate laws. No action has been or will be taken by RSL in any jurisdiction (other than India),
where any action for such purpose(s) is required. Accordingly, this Report shall not be possessed, circulated and/or distributed in any such country or jurisdiction unless such action is in compliance with all applicable laws and regulations of such country or
jurisdiction. RSL requires such recipient to inform himself about and to observe any restrictions at his own expense, without any liability to RSL. Any dispute arising out of this Report shall be subject to the exclusive jurisdiction of the Courts in India.

Disclosure of Interest: The research analysts who have prepared this Report hereby certify that the views /opinions expressed in this Report are their personal independent views/opinions in respect of the securities and their respective issuers. None of RSL,
research analysts, or their relatives had any known direct /indirect material conflict of interest including any long/short position(s) in any specific security on which views/opinions have been made in this Report, during its preparation. RSL’s Associates may
have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of research report. RSL, its Associates, the research analysts, or their relatives might have financial interest in
the issuer company(ies) of the said securities. RSL or its Associates may have received a compensation from the said issuer company(ies) in last 12 months for the brokerage or non brokerage services. RSL, its Associates, the research analysts or their relatives
have not received any compensation or other benefits directly or indirectly from the said issuer company(ies) or any third party in last 12 months in any respect whatsoever for preparation of this report.

The research analysts has served as an officer, director or employee of the said issuer company(ies)?: No

RSL, its Associates, the research analysts or their relatives holds ownership of 1% or more, in respect of the said issuer company(ies).?: No

Copyright: The copyright in this Report belongs exclusively to RSL. This Report shall only be read by those persons to whom it has been delivered. No reprinting, reproduction, copying, distribution of this Report in any manner whatsoever, in whole or in part,
is permitted without the prior express written consent of RSL.

RSL’s activities were neither suspended nor have defaulted with any stock exchange with whom RSL is registered. Further, there does not exist any material adverse order/judgments/strictures assessed by any regulatory, government or public authority or
agency or any law enforcing agency in last three years. Further, there does not exist any material enquiry of whatsoever nature instituted or pending against RSL as on the date of this Report.

Important These disclaimers, risks and other disclosures must be read in conjunction with the information / opinions / views of which they form part of.

RSL CIN: U65990MH2005PLC154052. SEBI registration no. ( Stock Brokers: NSE - INB / INF / INE 231234833; BSE - INB / INF / INE 011234839, Depository Participants: CDSL IN-DP-257-2016 IN-DP-NSDL-363-2013, Research Analyst: INH000002384); AMFI ARN
No.29889.

18

Potrebbero piacerti anche