Money Bol » BUDGET 2010

Sector View: Aviation

Praveen Bajaj — Fri, 23 Apr 2010 18:28:15 +0000

Indian Aviation Industry: When will it Fly High…?

Our expert Mr Rahul Sonthalia offers his advice regarding sectors you should invest in and where you should stay away from. Visit our Stock tips sections for company specific views on investing.

Hospitality and Aviation Industry performed below the potential in spite of their good days and later a move towards heavy losses were noticed due to competition & recession backed by cost curtailing techniques & restricted investments. An expected boom in the Travel & Tourism Industry is expected in next upcoming decade that will contribute Rs. 8500 billion to the GDP.

However, Government’s contribution to the Tourism Infrastructure sector stands around 0.1% with Rs.1050 crore in the Budget 2010. In contrast to other neighbouring nations, India seems to be an expensive nation in hospitality industry. However, currently they are offering budgeted category rooms but norms related to acquisition of licenses may hinder their process to promote the same sector.

The Aviation Industry on the other hand can be backed up by Government support by introduction of low cost carriers and speeding up Infrastructural Projects.

Weakening Head wings

Although Travel & Tourism Industry has gained much potential over last few years with increase in number of Travelers but it is still the Airlines Industry that finds traces of financial crises. to see rising credit costs for new planes, while hedging against fuel prices would become increasingly difficult as a result of the crisis
It is yet not clearly defined that how any rescue package will work for the airline unless it deals with big expenses such as rising credit costs for new planes & hedging against fuel prices would become increasingly difficult as a result of the crisis
Jet Airways has already taken up initials for Business Re engineering by converting up to two thirds of its capacity to its low cost services, Jet Konnect. Besides leasing out at least seven of its Boeing 777-300ER planes, even selling one to an Emirate in UAE
Company like Kingfisher Airlines saddled with high volume of debt canceled the proposal to buy new airbus instead are returning their leased A320 aircrafts With 15%, market Share currently Indigo Airlines has taken competitive advantage over other operators by paring with thrift conscious customer base & operating in limited sectors. It is expected to increase its business more at a decreasing rate with its competitor Spicejet

In the near future both Kingfisher Airlines and Jet Airways are expected to diversify their operations to international sectors with doubling the units of aircraft they are currently earned with. However, with increased number of operations, infrastructural drawback at airports may be a hurdle for swift operation. However, the year 2010 may be a good opportunity for the Tourism & Aviation Industry backed by government support and the Common Wealth Games in 2010.

Author name: Rahul Sonthalia, Research Head, Kredent

Budget 2010: Bridging the Gap Between India and Bharat

Praveen Bajaj — Fri, 12 Mar 2010 15:43:43 +0000

The experts say that the FY10-11 budget is one of the best budgets the government has presented in the recent years which not only introduced reforms that would instigate growth, but also focused on the mounting deficit and laid a clear road map that ensured that the country is not on the path of becoming the next Greece.

I agree to all what the experts say that the budget did so many things that is good for the economy in the longer term it includes things like:

Reducing the tax slabs that would empower the consumer
Moving towards simplified tax reforms
Only partial roll-back of stimulus
Thrust on Power generation and infrastructure, etc.

I could go on and keep talking about these things, but one of the most important take aways which I believe is not receiving media attentionis that the government is is working towards bridging the gap between BHARAT & INDIA.

This is the place I believe where the growth lies, the steps like

Allocation Rs 66, 100 cr for rural development in FY10-11
Increased spending on rural infrastructure
Increasing agricultural productivity
Increased spending on primary education at rural level
Increase spending on rural employment and other social schemes
Higher focus on power development in rural sector, etc

will definitely instigate the growth and bridge the long time gap and empower the masses that would lead to the higher inclusive growth.

Hence, as an analyst I believe that one theme that could be worked upon in the near term and which could have the potential of creating wealth in the long term is to invest in companies that is working in rural India or rural development.

Some examples could include pharma companies that focus mainly on rural medicines, rural infrastructure companies, food processing companies, etc.

I will start working on this theme and would let you all know what stocks could be invested on and would be great if you all could also share your views on whether this theme makes any sense or not and if yes than stocks you believe could be worked on.

Till then

Happy Investing

Author: Rahul Sonthalia, Analyst, Kredent Group

BUDGET HIGHLIGHTS 2010

Praveen Bajaj — Tue, 02 Mar 2010 10:26:20 +0000

Poor Monsoon – affected Rabi and Kharif crops
India weathered the crisis well
Supporting and delivering services and not giving directly to the citizens
2009-10 – Challenging year attributed to 2008-09 Q3, Q4
GDP
FY 2008-09 – GDP 6.7 % Substantial fiscal expansion
Q1 2009-10 – GDP 6.1%
Q2 2009-10 – GDP 7.9%
Q3 & Q4 – expected higher than 7.2%
Hope to reach 10% GDP shortly
Negative growth in agriculture
Renewed growth in Manufacturing – Dec 2009 – 18% (highest in past 2 decades)
Since Dec 2009 – food prices transmitted to other non food items
Budget to reflect Govt’s vision for development
Ensure better management of Food security
Move towards Fiscal consolidation
Make growth more broad based and ensure demand supply are better managed and matched
Need to review the public spending, mobilize resources
Exit strategy from Expansionary fiscal stance in past 2 years

Fiscal consolidation
Explicit reduction in Domestic Public Debt FM to come out with a report
To introduce Simple Tax system which includes Voluntary compliance
Direct Tax Code (DTC) – To be in a position to implement DTC from 1-April 2011
GST – To finalize the structure of GST and implement by 1-April-2011
Disinvestment program – PSU
Oil India, NHPC, NTPC, Rural Electrification Corp; NMDC, SVJN
Raise Rs 25000 Cr in FY 2010
Proceed to utilize Capex for social sector for creating new assets
Unlock value for all stakeholders
Adhered to fiscal roadmap

Simplify FDI regime
Defined indirect investment by foreign companies in Indian Companies
Automatic route – Payment for Royalties etc
Clarity and predictability for FDI policy

Banks
To extend geographic coverage of Banks
RBI considering additional banking licensing to Pvt Sectors and NBFC (if meet RBI eligibility criteria)
Rs 1900 Cr as Tier I capital in 4 Pub Banks infused
Rs 16500 Cr infused to maintain min 8% Tier I Capital Ratio in Public sector banks
Increase lending to rural economy
Interest subvention of 2% preshipment export credit – extended to 1 more year (handicraft, handloom, carpet and SMEs)

SEZ
– 127% growth
Ensure continued growth – boost export and employment

AGRICULTURE
Rs 300 Cr – Rashtriya Krishi Vikas yojana
Need greater competition, need to take a firm view of retail trade
Extend period of repayment of loan from Dec 31-2009 to June 30
Additional 1% interest subvention who repaid Crop loan in time increased to 2% (effective rate of 5% P.A.)

Infrastructure
Rs 1.73 Lakh crore for Infrastructure (46% of plan allocation)
Allocation to Road Transport increased to Rs 19,894 Cr
Allocation of Rs 16,752 Cr for railways
Freight corridor (Del-Mum)
IIFCL authorized to refinance
Rs 48000 Cr for Bharat Nirman
Rs 5400 Cr for urban development

Pollution levels
Development of clean energy
Establish National Clean Energy Fund; Funding for research in clean energy technology
Rs 20 Cr one time grant for Zero liquid discharge; Hosiery exports Tirupur, TN
Rs 200 Cr to Goa – tourism, increase green cover
Mission clean Ganga – double allocation to NGRVA in 2010
Competitive bidding for coal block for Power
Draft food security bill ready

Education
Rs 31,036 Cr for primary school
Plus states to access 3675 Cr for elementary education

Rural Development
Rs 66100 Cr for rural development
NREGA allocation stepped up to Rs 41000 Cr
Rs 22300 Cr for Health Ministry in FY 2011
Rs 10000 for Indira Awas Yojana
To create a slum free India at the earliest
Rs 1.38 Lakh Cr for social sector spending
Khadi reform program with ADB USD 150 million signed in Dec 2009
National social security fund for unorganized sector Rs 1000 Cr (initial allocation) weavers, rickshaw pullers etc
Health insurance cover to below Poverty line 1 Cr smart cards have been issued. Extend to all such MG NREGA beneficiaries who worked for more than 250 days in last year

New Pension scheme –
Govt to contribute to each NPS account Rs 1000/month
Min contribution Rs 1000, Max Rs 12000
Available for another 3 years
Allocation Rs 100 Cr
To benefit 1 lakh NPS subscribers
Appeal St Govt to contribute similarly

Skill development
Target 50 Cr skilled people by 2022
Now 15 Cr
21 high growth sectors
Create 10 lacs skilled manpower
Textile Ministry to train 30 lac person over 5 years
Empowerment of women
Improve female literacy rate – sakshar bharat
Allocation of Minority welfare Rs 2800 Cr
Financial sector legislative Reforms Commission to be set up to reform the Financial Sector and govt organizations
350 recommendations have been implemented and 450 under review.

UID numbers
To meet 1st set of UID numbers in FY 2011
Allocated Rs 1490 Cr to the authority
A SYMBOL for Indian Rupees (just like Dollar, Japanese Yen, Pound Sterling, Euro)
Allocation of Rs 147,344 Cr for Defense (include Rs 60000 Cr for capital exp)
Law and order and security – under control
Recruit 2000 youth in paramilitary forces
Gross Tax receipt Rs 4.76 lakhs
5.5% Fiscal deficit target in FY 2011 [Rs 3,81,408 Cr]
(7.8% in 2008-09, 6.9% per revised estimate)
4.8% Fiscal deficit target in Fy 2012

TAX PROPOSALS
Sound Tax admin
Tax reforms is a process and not an event
Saral II Form for salaried tax payers – simple format of only 2 pages
Income Tax (Personal)
Rs 1.6 lakhs to Rs 5 lakhs – 10%
Rs 5.0 lakhs to Rs 8 lakhs – 20%
More than Rs 8 lakhs – 30%
Additional Deduction of Rs 20,000 for an LT Infrastructure bonds
Contribution to Central Govt health scheme –
Surcharge reduce from 10 to 7.5%
MAT increased to 18%
To encourage R&D – weighted deduction on in house R&D from 150% to 200%
Deduction for payment to National Lab, Research associations, College etc for scientific research of 175% (from 125%)
Weighted deduction – approved research – social 125%
Profit linked deduction – changed to Investment linked deduction
Boost tourism sector –
Investment linked deduction – for 2 star hotels and above

Housing and Real Estate
– pending projects to be completed within 5 (from 4 years) to claim deduction from profits

Tax Audit
40 lacs – audit required – increase to 60 lacs
Receipt exceeding Rs 10 lacs increased to Rs 15 lacs

Presumption tax
Small tax payers increased to Rs 60 lacs

TDS – Rationalize
Allowed if tax is deducted at any time
Increase interest on tax deducted but not deposited from 12% to 18%

LLP
If converted Pvt Companies – not subjected to Capital gains tax
Revenue loss of Rs 26000 Cr in a revenue year

INDIRECT TAX
3 fiscal stimulus package – helped improve significantly
Partially roll back rate reduction of Excise and enhance non petroleum products
Partial rollback in Excise Duty 10% from 8%
Petrol excise duty increased by Rs 1 / lt
Excise duty on Large Cars, SUVs Cars increased to 22%
Restore 5% duty on Crude petroleum
Restore 7.5% duty on Petrol and Diesel
Raised excise duty on all non smoking tobacco
Raised import duty on Gold and Silver
Dearer: Refrigerator, TV, AC, Cigarettes, Jewellery, Cars, Petrol, Mobile Phones,
Cheaper: Toys, Latex, Medicines (16% – 10%), CDs,
Service Tax rate unchanged at 10%
Rev Gain Rs 20500 Cr

BUDGET FY 2010-11

Praveen Bajaj — Sat, 27 Feb 2010 08:51:19 +0000

Macro economic expectations
Budget 2010-11 will be presented against a backdrop of reviving economic conditions. The year 2009-10 saw all the economic indicators painting a healthy picture of the economy after a year of subdued growth. GDP has started to accelerate; IIP has gone into a double digit growth trajectory. Exports have entered into positive growth zone. All these indicate a robust economy but these are still incipient signs and the economy still faces a huge risk in the form of inflation which is expected to reach double digit by this fiscal end. Finance Minister Pranab Mukherjee faces dilemma in the form of managing inflation and at the same time pushing the economy firmly on the growth path. In order to maintain growth momentum, fiscal stimulus needs to be maintained but the cost of retaining fiscal stimulus is high fiscal deficit which the country cannot afford. What strategy he adopts to balance all these contrasting factors would be unveiled on Feb 26, but this is what we expect the budget 2010-11 to come up with.

Government Revenue
Corporate sector is lobbying to bring down the corporate tax rate but considering the deficit reduction target of Govt and implementation of Direct tax code and Goods and services tax, we do not expect any change in the corporate or individual tax rate. A hike in the tax revenues is projected, seeing the buoyancy in the corporate bottom lines. Tax revenues can be expected to grow at a healthy rate of 20% as against a decline witnessed in the current year. With a robust growth observed in the industrial production, the customs and excise collections too may be projected to rise after the decline observed in the current year. The current Budget that penciled in only Rs.1,120 Cr as disinvestment proceeds, marked a conservative approach in budgeting Non-Debt Capital Receipts. However the estimates for disinvestment proceeds for FY 2010-11 could be buoyant at Rs.30,000 – 35,000 Cr. Proceeds from 3G auction are also expected to be realized next year and thus we expect a non-tax revenue of Rs 1,40,000 cr in this budget year. Overall, revenue receipts are expected to grow by 15.4% over that of the budgeted figure for 2009-10. Total receipts are expected to grow about 20% to Rs 7,43, 061 cr in the year 2010-11.

Government Expenditure
Budget 2009-10 saw expenditure burgeoning 13.3% to Rs 10,20,838 cr. This year emphasis would remain on reining in expenditure. The Plan Expenditure would be in line with the Gross Budgetary Support approved by the Center. It is estimated at Rs.3,73,000 Cr for FY 2010-11 marking a YoY growth of 14.7%. This fiscal would not be burdened with extraordinary inclusions such as 6th Pay Commission Arrears or the farm loan waiver scheme. Marking a trend based growth in the expenditure for various other heads, the total non-plan expenditure is estimated around Rs.7,40,000 Cr. The total expenditure for the year to come is projected in the range of around Rs.11,12,200 Cr.

Fiscal Deficit
Considering the revenue and expenditure our fiscal deficit estimation for FY 2010-11 stands at around Rs.3,70,000 Cr lower than Rs.4,00,996 Cr for the current year. Estimating a growth of 11% for the next fiscal the GDP at market prices would stand between Rs.68,00,000-69,00,000 Cr. Fiscal deficit at Rs.3,70,000 Cr would then imply a fiscal deficit to GDP ratio of 5.4%, close to the figure of 5.5% that has been targeted in the several statements made by various Finance Ministry Officials.

Government borrowing
We expect that Rs 3,60,000 cr- Rs 3,70,000 cr of the deficit to be financed by market borrowing. Adding to that appx redemptions of Rs 1,15,000 cr we get a gross market borrowing in the range of Rs 4,60,000 cr to Rs 4,75,000 cr against a borrowing of Rs 4,51,000 cr for the year 2009-10. We expect that major part of the borrowing will be completed in the early part of 2010-11.

Fiscal stimulus
There are a lot of concerns over the withdrawal of fiscal stimulus. Like most of the newspapers and economists, we also expect a selective and gradual roll back of stimulus measures. Broad stimulus measures included enhanced spending on critical rural infrastructure and social security measures, payment of dues under 6th pay commission, and waiving of agricultural loans. All these are mostly irreversible measures and offer no scope for a roll back. The areas where we might see some steps taken are excise duty and service tax rates. Excise duty was reduced from 12-14% to a mean rate of 8% and service tax rate was reduced from 12% to 10%. While excise duty for some of the sectors like automobile, cement and FMCG might be increased, export oriented sectors might be spared as recovery in exports is still fragile. Service tax rates might not be tinkered with as it is linked to implementation of Goods and services tax (GST) but we might see an expansion in service tax coverage.

Author: Praveen Bajaj, B.Com(H), MBA (SCMHRD)