Credit rating agency Moody’s said that the Budget has a mixed bag of credit implications for corporates. Here are 10 stocks that have been moving on the back of Budget proposals.
1) Tata Power (-1.75%) will benefit from the exemption of import duties on thermal coal. The power sector has been grappling with fuel shortages and rising coal prices. Tata Power relies on imported coal for its 4000MW Mundra UMPP, although it faces the bigger issue of paying market prices for coal from Bumi Resource’s mines in Indonesia after the government there changed regulations on coal exports.
2) Vedanta Resources will also benefit from the exemption of import duties on thermal coal. Margins for its growing merchant power business are expected to improve, which contributes about 3 per cent of the company’s revenues.
3) Gail India will benefit because the customs duties of 5% on liquefied natural gas (LNG) have been abolished. Gail India is one of India’s largest gas importers. It will also benefit from others importing LNG through its ownership of India’s largest gas transmission network.
4) Tata Chemicals will be able to expand and modernize facilities because equipment for fertilizer plants is now exempted from import duty.
5) Tata Steel: A 2 per cent increase in excise duty is marginally negative for manufacturing industries such as steel and metal producers. The effect on steel producers will be partly neutralised by the increase in custom duty for non-alloy flat-rolled steel to 7.5% from 5%, providing some protection to domestic steel prices from China’s cheaper imports.
6) Tata Motors: A 2-5% increase in excise duties on vehicles is negative. The company is hanging on to its third spot in the domestic passenger market, where demand has slowed, implying that increasing prices would not be easy.
7) Cairn India: The announced 80% or Rs 2,000-per-metric-tonne increase in tax on domestic crude production will hurt upstream companies. The tax will reduce the realised price by $5.5/barrel. This will be a double whammy for ONGC, which anyway faced lower realizations owing to the government’s subsidies on diesel, kerosene and liquefied petroleum gas and where upstream companies including ONGC are required to share approximately 30-50% of these subsidies.
8) State Bank of India (-2%): Banks will get capital but remain depressed by the government’s worsening fiscal position. For FY13, the Indian government has earmarked Rs 15,888 crore in the national budget to infuse capital into public-sector banks and other financial institutions. This is lower than last year. Separately, the government also indicated its intention to set up a financial holding company whose purpose would be to raise funds and meet the equity capital requirements of public sector banks and financial institutions. However, it is unclear how this vehicle would be funded.
9) Mahindra & Mahindra (2.2%): The stock has been rising because contrary to expectations, an excise duty on diesel vehicles has not been announced.
10) ITC (2.3%): Though the government has hiked excise duty brokerage firm CLSA has maintained an 'outperform' call on ITC. Excise duty structure becomes hybrid with effective hike at ~15%. The hybrid system raises the proportion of variable taxes. New slab could drive volumes, particularly from illicit market. Remain confident of ITC’s pricing power, no downside to estimates, CLSA said in a note.
(With inputs from Moody’s note on Budget)