Union Budget 2020-21 Preview
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Please refer to important disclosures at the end of this report
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Union Budget 2020-21 Review
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Government tries to balance growth with fiscal
prudence
As widely expected by the markets the Government decided to strike a balance
between growth and fiscal prudence and did not cut back aggressively on
expenditure. Fiscal deficit for for FY20 was relaxed to 3.8% while fiscal deficit for
FY21 was also relaxed by 50bps to 3.5%. Total Government expenditure for the
year was cut back to ` 26.98 lakh cr. against budget estimates of ` 27.86 lakh cr
up by 16.6% yoy. Cutback in expenditure was largely on account of lower
subsidies (` 74,596 cr.) and interest payments (` 35,366 cr.).
The cutback in food subsidy clearly reflects the Government’s focus to shift away
towards a more targeted spending regime. Some of the highly successful targeted
schemes are the DBT, Ujjawala, PMAY, Ayushman Bharat, Swach Bharat and Jal
Jeevan scheme. Targeted spending allows the Government to achieve the desired
results by lower spending as they are able to plug leakages.
Key highlight of the Budget was the Government’s focus on boosting domestic
manufacturing as they increased import duties on a wide range of goods which
will help domestic manufacturing companies. Some of the sectors which are
expected to be the key beneficiary would be consumer durables, household
appliances, pipes and solar pumps.
Government trying to boost consumption by spending and tax cuts
The Government is clearly looking to stimulate the economy through increased
spending and tax cuts. Government expenditure in budgeted to grow by 12.7% yoy
to ` 30.45 lakh cr. in FY2021. Revenue expenditure is budgeted to grow 11.9%
yoy to ` 26.3 lakh cr., while capital expenditure is budgeted to grow at 18.1% yoy
to ` 4.12 lakh cr.
On the direct tax front the Government has introduced a new optional tax regime
wherein individual earning less than ` 15 lakh can take advantage of lower tax
rates but will have to forego deductions like sec 80 C, HRA, Sec 80 D, standard
deduction and interest deduction on housing loan. The new regime would be
beneficial only for individuals who are not able to fully utilize the deductions
available. As per Government estimates revenue foregone on account of new tax
regime will be to the extent of ` 40,000 cr.
Hike in import duties in line with make in India theme
In order to boost domestic manufacturing the Government has hiked import duties
on various items:
Import duties on household appliances like fans, mixer, grinder, water heaters,
etc. have been hiked from 10% to 20%.
Custom duties on various kitchenware items have been increased from 10% to
20%.
Custom duties on water cooler, Refrigerated farm tanks, industrial ice cream
freezer have been increased from 7.5% to 15%
Custom duties on footwear have been increased from 25% to 30%.
We believe that the hike in import duties would boost local manufacturing and is in
line with the Government’s make in India theme.
Fiscal deficit for FY2021 at 3.5%, while
fiscal deficit for FY2020 was revised up
to 3.8%.
Government trying to stimulate the
economy through mix of spending and
tax cuts.
Key highlight of budget was focus on
make in India.
Government to forego revenues of
`
40,000cr.due to New optional
income tax regime
Government decision to hike import
duties on many items in line with
expectations.
Union Budget 2020-21 Review
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Tax revenue assumptions for FY21 look realistic and achievable
Gross tax collections for FY2021 are expected to grow at 12.0% yoy against a
growth of 4.0% in FY2020. Net tax collections growth is expected to be lower at
8.7% in FY2020 given that devolution to states are expected to grow by 19.5%.
Direct taxes are expected to grow by 12.7% yoy driven by personal income tax
which is budgeted to grow by 14.0% yoy while corporate taxes are expected to
grow by 11.5% yoy.
Indirect tax collections are expected to grow by 11.1% yoy which is in line with
GDP estimates of 10.0% yoy. GST collections are expected to grow by 12.8% yoy.
Similarly excise and customs duties are expected to grow by 10.4% and 7.7%
respectively.
Tax revenue growth for FY2021 seems to be realistic and it is highly unlikely that
there could be major shortfall especially given that the economy is expected to
revive in FY2021.
Non tax revenue budgeted to grow significantly
Non-tax revenue are expected to grow by 11.4% yoy predominantly driven by
telecom revenues which are budgeted to grow by 125.5% yoy to `133,027 cr. It
seems that the Government is factoring in additional revenues either from
spectrum auction or from settlement of AGR claims with telecom companies.
Disinvestment targets for FY2020 has been revised significantly higher to
`210,000 cr. from revised target of `65,000 cr. in FY2020. While the
disinvestment targets are stiff they could be achieved if the Government is
successful in it’s attempt to strategic sales of Air India, BPCL etc. and is able to
push through the IPO of LIC.
Therefore we believe that there is a chance of revenue shortfall in FY2021 if the
Government is unable to push through it’s plan of strategic divestments in
companies like Air India and BPCL. However we don’t think that the shortfall would
be as large as FY2020 given that tax collections assumptions are realistic.
Exhibit 1: % of GDP
Particular
FY19RE
FY19A
FY20BE
FY20RE
FY21BE
Gross Tax Revenue
12.0%
10.9%
11.7%
10.6%
10.8%
Devolution to States
4.1%
4.0%
3.8%
3.2%
3.5%
Net Tax to Centre
8.0%
6.9%
7.8%
7.4%
7.3%
Direct Taxes
6.4%
6.0%
6.3%
5.7%
5.9%
Indirect taxes
5.6%
5.0%
5.3%
4.9%
4.9%
Capital Receipt (ex borrowing)
0.5%
0.6%
0.6%
0.4%
1.0%
Revenue Expenditure
11.5%
10.6%
11.6%
11.5%
11.7%
Subsidies
1.6%
1.2%
1.6%
0.0%
0.0%
Total Capital Expenditure
1.7%
1.6%
1.6%
1.7%
1.8%
Total Expenditure
13.2%
12.2%
13.2%
13.2%
13.5%
Revenue Deficit
2.2%
2.4%
2.3%
2.4%
2.7%
Fiscal Deficit
3.4%
3.4%
3.3%
3.8%
3.5%
Primary Deficit
0.3%
0.4%
0.2%
0.7%
0.4%
Source: Budget documents, Angel Research
Union Budget 2020-21 Review
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Exhibit 2: Budget 2019-20 at a glance
Particular
Budget (` cr)
YOY (%)
FY19A
FY20BE
FY20RE
FY21BE
FY20RE
FY21BE
(A) Revenue Receipts (1+2)
15,52,915
19,62,761
18,50,100
20,20,926
19.1
9.2
Gross Tax Revenue (a+b)
20,80,465
24,61,195
21,63,423
24,23,020
4.0
12.0
Devolution to States/Trf to NCCD
7,63,254
8,09,133
6,58,836
7,87,111
-13.7
19.5
%
36.7%
32.9%
30.5%
32.5%
1) Tax Revenue (Net to Centre)
13,17,211
16,49,582
15,04,587
16,35,909
14.2
8.7
a) Direct Taxes
11,36,574
13,35,000
11,70,000
13,19,000
2.9
12.7
Income Tax
4,73,003
5,69,000
5,59,500
6,38,000
18.3
14.0
Corporate Tax
6,63,572
7,66,000
6,10,500
6,81,000
-8.0
11.5
b) Indirect taxes
9,43,891
11,26,195
9,93,423
11,04,020
5.2
11.1
Custom Duties
1,17,813
1,55,904
1,25,000
1,38,000
6.1
10.4
Excise Duties
2,31,982
3,00,000
2,48,012
2,67,000
6.9
7.7
Service Tax
6,904
0
1,200
1,020
-82.6
-15.0
GST
5,81,559
6,63,343
6,12,327
6,90,500
5.3
12.8
Others
5,633
6,948
6,884
7,500
22.2
8.9
2) Non Tax Revenue
2,35,704
3,13,179
3,45,513
3,85,017
46.6
11.4
(B) Capital Receipts (3+4+5)
7,63,518
7,72,529
8,48,450
10,78,306
11.1
27.1
3) Recovery of Loans
18,052
14,828
16,604
14,967
-8.0
-9.9
4) Disinvestment
94,727
1,05,000
65,000
2,10,000
-31.4
223.1
5) Borrowings and Other Liabilities
6,50,739
6,52,702
7,66,846
8,53,340
17.8
11.3
Total Receipt(A+B)
23,15,112
27,86,349
26,98,551
30,46,230
16.6
12.9
(C)Revenue expenditure
20,07,399
24,47,780
23,49,645
26,30,145
17.0
11.9
6) Of which interest payments
5,82,648
6,60,471
6,25,105
7,08,203
7.3
13.3
(D) Capital expenditure
3,07,714
3,38,569
3,48,907
4,12,085
13.4
18.1
Total Expenditure (C+D)
23,15,113
27,86,349
26,98,552
30,42,230
16.6
12.7
(E) Fiscal Deficit (C+D-A-3-4)
6,49,419
7,03,761
7,66,847
7,96,337
18.1
3.8
(F) Revenue Deficit (C-A)
4,54,484
4,85,019
4,99,545
6,09,219
9.9
22.0
(G) Primary Deficit (E -6)
66,771
43,290
1,41,742
88,134
112.3
-37.8
GDP
1,90,10,200
2,11,00,607
2,04,35,965
2,24,79,562
7.5
10.0
Fiscal Deficit (% of GDP)
3.4%
3.3%
3.8%
3.6%
Source: Company, Budget documents, Angel Research
Union Budget 2020-21 Review
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Sharp fall in subsidy burden on account of lower food subsidy
Since BJP came into power in 2014, the subsidies have been falling as a % of GDP
due to couple of favorable factors like falling prices of oil and fertilizers raw
material, coupled with reforms in agriculture sector like DBT and regularization of
Urea pricing. Subsidies for FY20 are expected to come at ` 227,555 cr, which is
significantly below budgeted estimates of ` 301,694 cr. Most of the savings on
subsidies has been on account of food subsidies which is now expected to come in
at ` 108,688 cr. as against budget estimates of ` 184,220 cr. Subsidies are
expected to remain stable for FY21E also. As a % of GDP subsidies are expected to
go down to 1.2% of GDP as compared to 1.6% which was budgeted for FY20.
Exhibit 3: Subsidy
Subsidy Break-down
FY16
FY17
FY18
FY19A
FY20BE
FY20RE
FY21BE
Major Subsidies
2,41,857
2,32,705
1,91,183
1,96,769
3,01,694
2,27,255
2,27,794
Fertilizer Subsidy
72,438
70,000
66,441
70604.8
79996
79997.85
71309
yoy growth (%)
1.9%
-3.4%
-5.1%
6.3%
13.3%
13.3%
-10.9%
Food Subsidy
1,39,419
1,35,173
100281.69
101327
184220
108688.35
115569.68
yoy growth (%)
18.5%
1.0%
-25.8%
1.0%
81.8%
7.3%
6.3%
Petroleum Subsidy
30,000
27,532
24,461
24836.95
37478
38568.86
40915.21
yoy growth (%)
-50.2%
-8%
-11.2%
1.5%
50.9%
55.3%
6.1%
Interest Subsidy
13,808
18865
22,146
20008.78
26116.63
25946.02
28178.86
yoy growth (%)
80.9%
4%
17.4%
-9.7%
30.5%
29.7%
8.6%
Other Subsidy
2,136
3,128
11,099
6176.22
10343.04
10356.25
6136.01
yoy growth (%)
32.7%
46%
254.8%
-44.4%
67.5%
67.7%
-40.8%
Total Subsidy
2,57,801
2,54,698
2,24,429
2,22,954
3,38,154
2,63,557
2,62,109
yoy growth (%)
-0.2%
-1%
-11.9%
-0.7%
51.7%
18.2%
-0.5%
% to GDP
1.8%
1.7%
1.3%
1.2%
1.6%
1.3%
1.2%
Source: Company, Budget documents, Angel Research
Government trying to stimulate economy through mix of spending,
tax cuts and thrust on domestic manufacturing
The government surprised the market and did not go for any major
expenditure cuts in the budget. With this budget the Government has made its
intentions clear that they will try and maximize spending while staying within
the limits prescribed by the FRBM act.
The move on the direct tax front by the Government would be beneficial for
individuals who are not able to fully utilize the deductions available and will
put more disposable income in the hands of certain section of people which
will help boost spending to a certain extent.
Domestic manufacturing is the biggest beneficiary of the budget as hike in
custom duties would boost local manufacturing and would be beneficial for
domestic manufacturing firms.
Union Budget 2020-21 Review
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Sectoral Impact
Union Budget 2020-21 Review
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AC/Freezer/Refrigerators Neutral
Announcement
Custom duty increased on refrigerators and AC
compressors from 10% to 12.5%.
Custom duty increased on water coolers, refrigerated
farm tanks, industrial ice cream freezer from 7.5% to
15%.
Impact
It would increase the cost of refrigerators and ACs,
which is negative for companies like Voltas, Blue Star,
Hitachi, Havells, Whirlpool India, etc.
Positive for commercial refrigerator/ manufacturers like
Blue Star, Voltas, etc.
Agriculture & Rural Development Negative
Announcement
Government stick to its target to double farmer income by
2022, which looks difficult to achieve. Allocation to
agriculture, irrigation and rural development decreased
by 2% to `2.83 lakh crore.
Agriculture credit target was raised to `15 lakh crore from
`12 lakh crore in previous budget.
Impact
Negative for companies such as Coromandel
International, Chambal Fertilizers etc.
Positive for agriculture sector.
Automobile Positive
Announcement
Custom duty was increased in completely built units of
commercial vehicles and commercial electric vehicles to
40% from 30% and 25% respectively. Custom duty was
also increased in semi knocked units of commercial
electric vehicles by 10-15%.
Impact
This will be positive for the electric vehicle manufacturer
companies like Tata Motors and M&M
Union Budget 2020-21 Review
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Banks & Financial Services (BFSI) Negative
Announcement
Credit guarantee scheme for NBFCs extended
The FM said that RBI has asked to extend debt-
restructuring window for MSMEs by one more year.
The limit for FPIs in corporate bonds is to be raised from
9% to 15% and select government securities are to be
fully opened for NRIs
In order to opt for the new tax regime, taxpayers will not
be allowed to take exemptions under Section 80C, HRA,
etc.
The tax support provided to Sovereign funds to invest in
the infrastructure sector. This will support infra sector
and investments in renewable space.
Eligibility limit for NBFCs for debt recovery under
SARFAESI Act proposed to be reduced to asset size of
Rs100cr or loan size of `50 lakh.
Tax holiday for Affordable Housing to increase for one
more year.
Impact
This announcement will help address NBFCs/HFCs
resolve their temporary liquidity or cash flow mismatch
issues, and also enable them to continue contributing to
credit creation and provide last mile lending to
borrowers, thereby, spurring economic growth.
Positive for NBFCs and Banks.
This will help to deepen the bond market and will be
positive for rating companies.
Negative for Insurance and AMC companies, it will also
negatively affect banks as they earn fees by selling third
party products.
Positive for NBFCs and Infrastructure Finance
companies.
Positive for smaller NBFCs as they can improve
recovery..
Positive for HFCs.
Broadband Connectivity Positive
Announcement
Government proposed to provide `6,000cr to Bharatnet
programme in 2020-21 to further enhance broadband
connectivity in rural areas.
Impact
This would benefit Polycab India.
Union Budget 2020-21 Review
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Cement/Infra/Real Estate Neutral
Announcement
Government has highlighted their intent to invest over
`100 lakh crore in Infrastructure over the next 5 years.
Allocation to Pradhan Mantri Awas Yojana increased by
8.6% to `27,500cr.
Allocation to roads & railways projects increased by
10.6% and 3.3% to `91,823cr and `72,215cr
respectively. Government under the Pradhan Mantri
Gram Sadak Yojana (PMGSY) increased allocation by
38.6% to `19,500cr. Government proposed ` 1.7 lakh
cr. for transport infrastructure against `1.56 lakh cr. in
last budget.
Government plans 100 more airport by 2024 was a key
positive coming from the budget for infrastructure sector.
Affordable Housing project - In order to incentivize
building affordable houses to boost supply, the period of
approval of the Affordable Housing project by the
competent authority is proposed to be extended by one
year to March 31, 2021.
It has been proposed to extend the time limit for
sanctioning of loans for Affordable Housing for availing
deduction under section 80EEA of the Act.
Impact
Positive for Infrastructure and cement sector as a whole.
Positive for cement companies such as UltraTech
Cement, JK Cement, ACC, JK Laxshmi etc.
Positive for road infrastructure companies such as L&T,
PNC Infratech, KNR Constructions etc. and neutral for
railway companies such as Titagarh Wagons, Texmaco
rail etc.
Positive for infrastructure development companies such
as L&T.
Real Estate developers will launch more projects in the
near future under Affordable Housing such as Sobha
Ltd.
Union Budget 2020-21 Review
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Consumer Durables Positive
Announcement
Custom duty increased on household appliances from
10% to 20%. Household appliances include fans, mixer,
grinder, shavers, hair-removing appliances, water
heaters, hair dryers, irons, ovens, grillers, roasters,
coffee & tea makers, toasters, cooking plates, etc.
Custom duty increased on water filters from 10% to
20%.
Impact
Positive for Indian Fan manufacturers like Crompton,
Orient, Havells, Bajaj and household appliances
manufacturers like TTK Prestige, etc
Positive for companies like Blue Star, HUL, etc.
FMCG Negative
Announcement
National Calamity Contingency Duty (NCCD) on various
lengths of cigarettes have been raised by `105-500 for
thousand units, which translate hike in the range of 1.7-
4x.
NCCD on various tobacco products has increased by
15%
Impact
This will create negative sentiment in the near term for
cigarette manufacturers like ITC, VST Industries, and
Godfrey Phillips. However, in our view, cigarette
manufacturers would pass on the hike in the duty to
consumers.
I
Footwear Positive
Announcement
Custom duty increased on footwear from 25% to 35%.
Impact
Positive for Indian Footwear Industry like Bata, Relaxo.
Household Appliances Positive
Announcement
Custom duty increased on household items from 10%
to 20%. Household items include ceramic tableware,
glassware used for tables, kitchens, toilets.
Custom duty increased on kitchenware, pans utensils
and pressure cookers from 10% to 20%.
Impact
Positive for tableware & glassware manufacturers like La
Opala RG, etc.
This will be positive for kitchen appliances companies
like TTK Prestige, Hawkins Cooker and Butterfly
Gandhimathi Appliances.
Union Budget 2020-21 Review
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Mattresses Positive
Announcement
Custom duty increased on mattresses from 20% to 25%.
Impact
Positive for Indian mattress manufacturers like Sheela
Foam, Nilkamal, etc.
Pipes Positive
Announcement
Government has approved `11500cr for Jal Jeevan
Mission.
Impact
Key pipe companies will be the beneficiaries viz. Finolex
Industries, Prince Pipes, etc.
Power Positive
Announcement
Government proposed to replace conventional energy
meters by prepaid smart meters over the next 3 years in
all States and Union Territories. This would give
consumers the freedom to choose the supplier and rate
as per their requirements.
Impact
This is positive for meter manufacturing companies like
HPL Electric & Power.
Union Budget 2020-21 Review
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Print Media Positive
Announcement
Government proposed to reduce basic customs duty on
import of newsprint, uncoated paper & light-weight
coated paper from 10% to 5%.
Impact
Print media companies importing newsprint (as key raw
material) for manufacturing newspaper. This move to
reduce the manufacturing cost for these companies.
Positive for DB Corp, Jagran Prakashan, HT Media, etc.
Solar Pumps Positive
Announcement
PM KUSUM to cover 20 lakh farmers for standalone
solar and 15 lakh farmers grid-connected pump sets.
Impact
Key pump companies that stand to benefit are Shakti
Pumps, Crompton Greaves Consumer Electricals, etc.
Union Budget 2020-21 Review
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Budget Picks
Particular
CMP
Target
Sales
OPM
PAT
ROE
P/E
EV/Sales
Price
(` Cr)
(%)
(` Cr)
(%)
(x)
(x)
FY21E
FY22E
FY21E
FY22E
FY21E
FY22E
FY21E
FY22E
FY21E
FY22E
FY21E
FY22E
Hawkins Cooker
4,247
5,110
856
976
14.6
14.6
87
100
46.7
42.8
25.7
22.4
2.6
2.3
Bata India
1,797
2,133
3,622
4,056
26.5
26.7
456
549
18.5
18.8
50.7
42.1
5.9
5.2
Orient Electric
241
294
2,487
2,835
8.4
8.5
111
136
22.9
22.3
46.2
37.7
2.1
1.8
Blue Star
835
930
6,651
7,449
6.7
6.9
269
312
25.9
26.0
29.8
25.7
1.2
1.1
Polycab India
964
1,070
9,282
10,624
11.6
11.6
710
815
20.0
18.6
20.2
17.6
1.5
1.3
Source: Company, Angel Research
Union Budget 2020-21 Review
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Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com
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Union Budget 2020-21 Review
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Please refer to important disclaimer at the end of this report