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Union Budget

Equity market
Comsi Comsa (so, so)

While Budget 2011-12 has not rolled back the stimulus for the markets, it is low on significant policy actions. Hence,
CRISIL Equities believes it is essentially neutral for the domestic equity markets.

Higher capital outlay and other policy measures for infrastructure, education and realty sectors are expected to boost
sentiments and support the players’ growth, but the overall impact on profitability may not be significant. The
government has focused on easing financing to infrastructure. The allocation to infrastructure has been raised by 23.3
per cent to Rs 2.14 lakh crore. The FII limit for investment in corporate bonds (with maturity over five years) issued in
the infrastructure sector has been raised by US$20 bn. Further, the additional deduction of Rs 20,000 for investment in
long-term infrastructure bonds would be extended in FY12. While these measures will facilitate financing infrastructure
projects, we believe execution delays rather than financing pose a bigger challenge for infra companies. The
liberalization of interest subvention of 1 per cent on housing loans and enhancing of housing loan limit to Rs 25 lakh for
units under priority sector lending would be positive for players in affordable and low income housing. The 24 per cent
increase in budget allocation for education is expected to be positive for the sector.

The removal of STPI exemption and bringing SEZ (developers and production units) under purview of MAT would
adversely impact the IT sector. On the taxation front, while reduction in surcharge from 7.5 per cent to 5 per cent is
positive for normal tax paying companies, the benefit would be nullified for companies under MAT due to 0.5
percentage points increase in MAT rate.

Allowing foreign investors to invest in domestic mutual funds is a key positive for equity markets and is expected to
lead to higher capital flow from foreign investors. Continuing with its divestment agenda, the government has set a
target of raising Rs 40,000 crore through divestment of its stake in central public sector undertakings, which we believe
would be challenging in the current market conditions.

The Nifty started the budget day on a positive note. However, the index was very volatile. It witnessed an intra-day high
of 5477 (+3.3 per cent) and an intra-day low of 5309 (+0.1 per cent); it closed at 5,333 (+0.6 per cent) for the day.

CRISIL RESEARCH ANALYSIS, FEBRUARY 28, 2011 1


Union Budget

Equity market
NIFTY Close as of Change Remarks
28-Feb-11 25-Feb-11
NIFTY 5333 5304 0.6% Budget expected to be neutral for markets
Sectoral indices
AUTO 8253 8251 0.0%
METAL 15349 15344 0.0%
BANKEX 11840 11832 0.1%

HEALTH CARE 5718 5720 0.0%


The liberalisation of interest subvention of 1 per cent
on housing loans and enhancing of housing loan limit
REALTY 1982 1956 1.3%
to Rs 25 lakh for units under priority sector lending
would be positive
OIL&GAS 9459 9405 0.6%

CAPITAL GOODS 12400 12325 0.6%


PSU 8381 8216 2.0% Divestment plans of Rs 40,000 crore for FY12
CONSUMER DURABLES 5632 5631 0.0%
POWER 2523 2522 0.1%

TECK 3573 3571 0.0%


IT 6107 6107 0.0%
FMCG Increase in tax exemption limit expected to result in tax
3432 3286 4.5%
savings of Rs 2,060

Source: NSE, BSE

Outlook for 2011: A tale of two halves

For 2010, the domestic consumption story played out for consumer durables, auto, FMCG, banking and healthcare
sectors, helping the markets to deliver 18 per cent returns. However, realty, metals, power, infrastructure and oil & gas
sectors underperformed the broader markets. Net FII inflow in 2010 was Rs 627 bn in the secondary equity markets.
The year 2011 has started with strong headwinds in the form of high inflation, rising crude prices, monetary tightening
and dent in corporate credibility. These domestic concerns coupled with improvement in developed economies have so
far led to net selling of over Rs 130 billion in the secondary equity markets. As a result, Indian markets have not only
underperformed most of the developed markets but also most emerging markets significantly in the past two months.

CRISIL Equities expects domestic consumption to remain strong and India to register GDP growth of 8.3 per cent in
FY12. The recent spike in crude oil prices, driven by political turmoil in the crude-producing regions needs to be
closely monitored because consistently high crude prices could pose a real threat to the Indian markets given its high
dependence on oil imports. This risk is accentuated by an already high inflation and there is little leeway for further
monetary tightening without impacting growth. While the government targets fiscal deficit of 4.6 per cent in FY12, we
believe it could be a challenge to achieve.

CRISIL RESEARCH ANALYSIS, FEBRUARY 28, 2011 2


Union Budget

Equity market
Nevertheless, CRISIL Equities believes that 2011 will be a tale of two halves for the Indian market. In the first half we
expect the market to continue to remain subdued due to concerns on high commodity prices, inflation and earnings
downgrades while in the second half we expect potential absence/bare minimum impact of most of these factors would
provide buoyancy to the markets. A strong GDP growth expectation coupled with attractive valuation could support the
market in the second half. On the back of global concerns and earnings downgrade we have tempered our returns
expectations. We expect the Nifty to trade at 6200-6400 (Sensex 20700-21200) by the year-end (December 31). We
expect banking, IT and pharma to deliver strong returns but remain neutral on telecom and infrastructure, and negative
on real estate.

FII and DII flows in secondary equity markets One-year forward P/E multiple
(Rr an) FII DII 25
300
19x
250
20
200

150 15
100
14x
50 10 Median =14x
0

-50 5 7x

-100

-150 0
Mar-10

Jul-10

Nov-10

Dec-10
Apr-10

Oct-10
Jan-10

Jun-10

Jan-11
May-10
Feb-10

Feb-11
Aug-10

Sep-10

Jul-06

Jul-07

Jul-08

Jul-09

Jul-10
Apr-06

Oct-06

Apr-07

Oct-07

Apr-08

Oct-08

Apr-09

Oct-09

Apr-10

Oct-10
Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11
Source: NSE Source: Industry

CRISIL RESEARCH ANALYSIS, FEBRUARY 28, 2011 3


Union Budget
Impact of budget on companies under CRISIL Equities coverage
Fundamental Fair Value M.Cap Valuation FY11 FY12 EPS P/E FY11 P/E FY12 Budget
Name CMP (Rs)# Remarks
Grade (Rs) (Rs mn)# Grade EPS (Rs) (Rs) (x) (x) Impact
Auto and Auto Components
Dynamatic Technologies 4/5 1,241 1,090 5,902 4/5 31.30 54.90 34.82 19.85
Ramkrishna Forgings 3/5 166 99 1,626 5/5 12.20 14.10 8.11 7.02
Kirloskar Ferrous Indus 3/5 42 25 3,419 5/5 2.90 4.20 8.62 5.95
Hero Honda Motors 5/5 1,893 1,465 292,583 5/5 98.2 117.3 14.92 12.49
Biotechnology
Panacea Biotec 3/5 220 179 11,936 4/5 20.20 22.10 8.86 8.10
Building Products
Beardsell 3/5 61 46 176 5/5 5.60 6.10 8.21 7.54
Orient Ceramics & Industries 3/5 90 57 600 5/5 8.40 11.20 6.79 5.09
Expenditure on rural housing schemes like Indira
Visaka Industries 3/5 151 100 1,589 5/5 29.70 31.90 3.37 3.14 Awas Yojana increased. Expected to benefit in
terms of volume growth
Somany Ceramics 4/5 84 37 1,278 5/5 6.60 8.70 5.61 4.26
Capital Markets
Sumedha Fiscal Services 2/5 30 20 139 5/5 6.90 7.40 2.95 2.75
JM Financial 4/5 45 22 16,795 5/5 1.50 1.80 14.93 12.44 Qualified Foreign Investors allowed to invest in
MF schemes
Religare Enterprises 4/5 470 480 66,898 3/5 0.90 18.90 533.33 25.40

Lakshmi Finance & Industrial 1/5 58 40 120 5/5 10.90 N.A. 3.64 NA

Cements
Sagar Cements 2/5 202 135 2,009 5/5 2.10 7.60 64.21 17.74 Change in excise duty to impact negatively
OCL India 3/5 178 104 5,920 5/5 17.80 26.10 5.85 3.99

Chemicals
Dhanuka Agritech 3/5 87 68 3,421 5/5 10.10 12.10 6.77 5.65
Hydro S&S Industries 3/5 37 24 151 5/5 0.8 3.8 30.02 6.11
Navin Fluorine International 2/5 265 234 2,363 4/5 73.40 156.40 3.19 1.50
Plastiblends India 3/5 230 162 1,050 5/5 25.40 30.80 6.36 5.25
Punjab Chemicals & Crop
1/5 126 90 644 5/5 -26.30 -0.70 NM NM
Protection
continued…

CRISIL RESEARCH ANALYSIS, FEBRUARY 28, 2011 4


Union Budget
…continued
Fundamental Fair Value M.Cap Valuation FY11 FY12 EPS P/E FY11 P/E FY12 Budget
Name CMP (Rs)# Remarks
Grade (Rs) (Rs mn)# Grade EPS (Rs) (Rs) (x) (x) Impact
Phillips Carbon Black 4/5 290 135 4,498 5/5 33.30 48.80 4.07 2.77
Responsive Industries 3/5 85 93 24,411 3/5 3.40 3.60 27.44 25.92
Dhunseri Petrochem & Tea 3/5 266 155 5,071 5/5 30.20 29.30 5.13 5.29

Construction & Engg.


ARSS Infrastructure Projects 2/5 919 624 9,257 5/5 82.40 97.30 7.57 6.41
C&C Constructions 2/5 208 149 3,485 5/5 25.30 35.40 5.89 4.21
Era Infra Engineering 4/5 268 192 34,838 5/5 13.80 17.20 13.88 11.14
MBL Infrastructures 3/5 286 178 3,122 5/5 32.20 38.10 5.54 4.68
Marg 3/5 320 110 3,643 5/5 6.10 17.00 18.10 6.49 MAT on SEZ developers to impact earnings
Simplex Projects 3/5 353 153 1,928 5/5 40.90 59.00 3.74 2.59

Consumer Durables
Cut in Income Tax slabs and more disposable
Symphony 3/5 829 1,011 7,099 2/5 75.70 98.60 13.36 10.26
income in rural due to NREGA
Consumer Finance
Wall Street Finance 2/5 32 26 301 4/5 -0.05 1.60 NM 16.16

Containers & Packaging


Everest Kanto Cylinder* 4/5 146 68 7,287 5/5 5.00 8.30 13.60 8.19
Hindustan National Glass &
4/5 283 207 18,092 5/5 18.1 16.1 11.44 12.87
Industries
Jumbo Bag 2/5 35 23 184 5/5 0.60 1.10 38.42 20.95
Kanpur Plastipack 2/5 43 27 143 5/5 7.40 10.00 3.65 2.70
Time Technoplast 4/5 71 54 11,332 5/5 4.90 7.10 11.05 7.63

Diversified Consumer Services


Aptech 3/5 169 99 4,838 5/5 2.90 3.40 34.21 29.18

Electrical Equipment
Havells India 4/5 368 317 39,554 4/5 21.10 30.70 15.02 10.33
Modison Metals 3/5 44 26 850 5/5 4.40 5.10 5.95 5.14

Energy Equipment & Services


Dolphin Offshore Enterprises* 3/5 305 136 2,273 5/5 20.50 31.30 6.61 4.33
continued…

CRISIL RESEARCH ANALYSIS, FEBRUARY 28, 2011 5


Union Budget
…continued
Fundamental Fair Value M.Cap Valuation FY11 FY12 EPS P/E FY11 P/E FY12 Budget
Name CMP (Rs)# Remarks
Grade (Rs) (Rs mn)# Grade EPS (Rs) (Rs) (x) (x) Impact
Food Products
Harrisons Malayalam 3/5 113 78 1,435 5/5 8.90 14.80 8.74 5.25
Jeypore Sugar Co 2/5 152 128 579 4/5 -11.00 17.30 NM 7.38
KRBL 3/5 39 21 5,190 5/5 5.10 6.50 4.19 3.28
Increase in export duty on de‐oiled rice bran
KSE 3/5 190 167 534 4/5 16.50 27.30 10.12 6.12
cakes to benefit domestic users
KLRF 2/5 38 29 146 5/5 10.10 12.90 2.87 2.25
Lakshmi Energy & Foods* 3/5 130 41 2,619 5/5 18.60 21.40 2.23 1.94

Health Care Services


Apollo Hospitals Enterprise 5/5 533 465 57,984 4/5 13.40 17.10 34.70 27.19

Hotel Restaurants & Leisure


Introduction of 10% service tax (before adjusting
Savera Industries 2/5 73 41 490 5/5 5.20 5.90 7.89 6.96 for 50% abatement) will impact earning given
the oversupply in the industry
Power Utility
NTPC 5/5 232 170 1,400,492 5/5 10.50 12.20 16.18 13.92

Industrial Conglomerates
Century Plyboards India 3/5 73 59 13,086 4/5 6.00 7.00 9.82 8.41 Change in excise duty to impact negatively
IT Services
Polaris Software Lab 4/5 235 182 18,037 5/5 20.00 22.70 9.09 8.01
Infinite Computer Solutions 3/5 269 160 7,034 5/5 24.30 30.90 6.58 5.18 Non extension of STPI,SEZ under MAT regime
Omnitech Infosolutions 3/5 282 130 1,806 5/5 42.40 48.70 3.07 2.68
Zylog Systems 3/5 656 401 6,595 5/5 89.30 100.00 4.49 4.01
Spanco 3/5 289 144 4,041 5/5 17.40 29.50 8.28 4.88

Shipping & Shipyard


ABG Shipyard 3/5 348 346 17,624 3/5 45.60 49.10 7.59 7.05

Machinery
Eimco Elecon India 4/5 339 224 1,291 5/5 29.10 36.80 7.69 6.08
Wendt India 4/5 1,229 1,030 2,060 4/5 93.60 115.00 11.00 8.96
continued…

CRISIL RESEARCH ANALYSIS, FEBRUARY 28, 2011 6


Union Budget
…continued
Fundamental Fair Value M.Cap Valuation FY11 FY12 EPS P/E FY11 P/E FY12 Budget
Name CMP (Rs)# Remarks
Grade (Rs) (Rs mn)# Grade EPS (Rs) (Rs) (x) (x) Impact
Media
UTV Software Communications 3/5 570 503 20,435 4/5 39.80 58.40 12.64 8.61

Metals & Mining


Electrosteel Castings 4/5 58 31 9,680 5/5 4.20 3.30 7.37 9.38
Nissan Copper 2/5 3.8 3 1,729 5/5 0.20 0.40 13.75 6.88
No export duty on iron ore pellets to encourage
MSP Steel & Power 2/5 75 61 3,553 4/5 10.30 17.20 5.94 3.56
value addition process for iron ore fines
Monnet Ispat 4/5 593 562 35,920 3/5 45.60 44.10 12.33 12.75

Oil & Gas


Confidence Petroleum India 3/5 20 18 4,555 4/5 2.10 3.30 8.38 5.33

Paper & Forest Products


Reduction in customs duty on waste paper is a
Rainbow Papers 3/5 67 53 4,605 5/5 4.30 11.50 12.28 4.59
positive
West Coast Paper Mills 3/5 113 80 5,032 5/5 14.90 16.40 5.38 4.89

Personal Products
GKB Opthalmics 2/5 44 38 158 4/5 7.90 5.50 4.82 6.92

Pharmaceuticals
Plethico Pharmaceuticals 3/5 530 370 12,605 5/5 76.50 75.70 4.84 4.89

Real Estate
Ackruti City* 3/5 640 206 14,991 5/5 19.60 61.60 10.52 3.35
DLF 3/5 356 212 359,627 5/5 12.60 15.70 16.81 13.49
Phoenix Mills 2/5 192 177 25,652 3/5 8.60 9.60 20.59 18.45
Ashiana Housing 3/5 220 125 2,342 5/5 24.30 31.90 5.14 3.92
Omaxe 2/5 176 136 23,605 5/5 7.40 15.40 18.38 8.83 Interest subvention & increase in priority limit is
Parsvnath Developers 2/5 63 29 12,816 5/5 4.10 5.10 7.18 5.77 a positive for companies in affordable housing
Vipul 2/5 31 15 1,758 5/5 1.80 4.30 8.14 3.41

Specialty Retail
Thangamayil Jewellery 2/5 152 161 2,207 3/5 21.60 25.40 7.45 6.33
continued…

CRISIL RESEARCH ANALYSIS, FEBRUARY 28, 2011 7


Union Budget
…continued
Fundamental Fair Value M.Cap Valuation FY11 FY12 EPS P/E FY11 P/E FY12 Budget
Name CMP (Rs)# Remarks
Grade (Rs) (Rs mn)# Grade EPS (Rs) (Rs) (x) (x) Impact
Textiles & Apparel
Kandagiri Spinning Mills 2/5 141 93 360 5/5 30.90 33.30 3.02 2.80
Excise duty on branded garments to have some
Aarvee Denims & Exports 3/5 75 60 1,406 5/5 12.80 13.60 4.68 4.41
impact on demand
Filatex India 2/5 54 35 598 5/5 11.90 8.20 2.93 4.26
Ginni Filaments 2/5 18.2 13 749 5/5 3.29 1.96 3.84 6.43
JBF Industries 3/5 232 164 11,724 5/5 53.20 58.10 3.08 2.82
Excise duty on branded garments to have some
Kewal Kiran Clothing 4/5 560 490 6,039 4/5 38.3 46.1 12.80 10.62
impact on demand
Siyaram Silk Mills 4/5 374 316 2,962 4/5 56.2 64.4 5.62 4.90
Excise duty on branded garments to have some
Shri Lakshmi Cotsyn 2/5 150 86 1,791 5/5 35.6 41.1 2.42 2.09
impact on demand
Sangam (India) 3/5 59 42 1,670 5/5 12.6 16.3 3.36 2.60
Jasch Industries 2/5 16.4 12.6 143 5/5 2.00 2.30 6.30 5.48
Nahar Spinning Mills 3/5 136 93 3,361 5/5 35.3 32.6 2.64 2.86
* Grading is under review
# As on Feb 28, 2011

Explanation of CRISIL Fundamental and Valuation Grade


CRISIL Assessment CRISIL Assessment
Fundamental Grade Valuation Grade
5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP)
4/5 Superior fundamentals 4/5 Upside (10-25% from CMP)
3/5 Good fundamentals 3/5 Align (+-10% from CMP)
2/5 Moderate fundamentals 2/5 Downside (negative 10-25% from CMP)
1/5 Poor fundamentals 1/5 Strong downside (<-25% from CMP)

CRISIL RESEARCH ANALYSIS, FEBRUARY 28, 2011 8

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