Budget and Capital Goods sector

2 Feb 2023 , 11:48 AM

• FY24 (BE) capital outlay is budgeted to grow 36% YoY, at Rs9.4trn vs FY23 (RE) outlay of Rs6.9trn (1% lower than BE), adjusted for non-capex items in Civil, Telecom & O&G.
• Increase in capex is primarily driven by Railways (+51% YoY), Road (+25% YoY), Telecom (66% YoY), Transfer to states (+61%) for multi-modal & Gati Shakti projects, OMCs (energy transition).
• FY23 RE for Defence capex is 2% lower than BE at Rs1.50trn and FY24BE is pegged to grow 8% YoY to Rs1.63trn. No details on domestic Defence procurement is available, which should grow in high-double digits. We do not see material impact from this on BHE IN, as FY23ii revenues will be ~20% YoY and FY24ii is also pegged at 15% YoY.
• Cumulative allocation under various ministries for the PLI scheme is pegged 58% higher at Rs81bn for FY24 (BE) vs Rs51bn expected in FY23 (RE). FY23 RE is scaled down by 50%. While Pharma PLI has seen 28% YoY drop, mobile phones is increased by 81%.
• Scheme-wise, Road has highest thrust (pre-elections) after 2-3 years of underinvestments, while rural drinking water, Swach Bharat, Metro, urban infra continue to see sustained focus and thrust.
• Railway capex in FY23 RE (incl. EBR) is 29% higher YoY, at Rs2.45trn (unchanged vs BE). Within this, capex for core segments at Rs1.64trn is 22% higher vs BE, and is +30% YoY. However, 7% decline is proposed in these core areas for FY24 BE, at Rs1.53trn. Investments, in various JVs/ PPP/funded-projects for HSR, RRTS & Metro projects slipped by 41% in FY23 RE vs BE to Rs437bn (+21% YoY) and is pegged to grow 18% YoY to Rs514bn in FY24.
• Rs350bn earmarked for energy transition to H2 for FY24 (through Oil PSUs). VGF for battery storage solutions (4000 MWh).

Analysts of IIFL Capital Services believe positive impact of the budget announcements on the capital goods sector.