Budget impact: Capital goods stocks to benefit with increased spend on roads, railways

Rs.800cr allocated for modernizing ports and increasing their efficiency. The funds to also be used in developing new greenfield ports both in the eastern and western coasts.

Mar 01, 2016 11:03 IST India Infoline News Service

The Spend on roads & highways, railways (20% increase at Rs1,210 bn), power T&D, renewable (65% increase in NRE to Rs102bn), urban infra - metro projects (19% increase at Rs100bn) & smart cities (20% higher at Rs72bn) and water continue.  For Power T&D , there is Capex for rural electrification, feeder separation & T&D infra upgrade increased by 50% under DDUGJY (Rs30bn) & IPDS (Rs30 bn).   

Renewables  will see spend under NRE increased by 65% to cRs100bn. Limited accelerated depreciation benefits to 40% may slow the pace of capacity additions in renewable projects (solar & wind) by retail and SME players.  For Water, there is a fast track 89 projects under AIBP (accelerated irrigation benefit program), spend Rs170 bn in FY17 and cRs865bn over five years; create a long term irrigation fund in NABARD with initial corpus of Rs200bn; Rs60bn projects to be implemented through multilateral funding for ground water resource management; Rs22.5bn allocated for Namami Ganga.   

For Healthcare three is a proposal to set up NDSP (National Dialysis Services program) under PPP mode. Customs & excise duty exemption on certain equipments will be positive for Siemens. Clean Environment (energy) cess increased 2x to help fund renewable projects & new emission norms for thermal power plants (positive - BHEL, Alstom India).  Steps identified to revive stalled PPP projects (Provide legal framework for dispute resolution and re-negotiations in PPP projects and public utility contracts).  Increase in customs duty on capital goods from 7.5% to 10% will provide relative support to the domestic manufacturers.  Service tax (6.5%) to be levied wef 01-03-2016 on construction & EPC works for metro/monrail projects awarded. No material impact, as will be passed on customers/ developer. Marginally negative for L&T (Hyderabad metro asset).  There is a proposal to correct the inverted duty structure for varied capital good items.

Infrastructure - Positive
Key Announcement Impact
Target to award 10,000 km of National Highways in FY17. Also 50,000 km of State Highways to be upgraded as National Highways Positive for the entire Road sector
Total outlay for roads and highways increased to Rs.97,000cr Will lead to increased investments in road projects. Positive for all companies in the Road sector
Re-vitalization of PPP through Public Uility Bill for dispute resolution, development of new Credit Rating System and guidelines for re-negotiation of PPP Agreements Positive for BOT Players like IRB Infra, Sadbhav Infra, Ashoka Buildcon, PNC Infra
Service tax @5.6% to be levied on contracts entered on or after 1st March 2016 for construction of monorail and metro Negative for ITD, Jkumar Infra, Reliance Infra
Redevelopment of unserved and under-served airports; to develop 10 of 25 non-functional airstrips around the country Positive for companies like GMR Infra
Rs.800cr allocated for modernizing ports and increasing their efficiency. The funds to also be used in developing new greenfield ports both in the eastern and western coasts Positive for companies like Adani Ports, ITD Cementation, Simplex Infra
Creation of a dedicated Long Term Irrigation Fund in NABARD with an initial corpus of about Rs.20,000cr. Positive for companies like Pratibha Industries, Jain Irrigation, ITD Cementation
Withdrawal of 80IA benefit under IT Act for development and O&M on or after 1st April, 2017. However investment linked deduction under section 35AD of IT Act to be allowed. Negative for selected players availing 80IA benefit like KNR Constructions
Imposition of countervailing duty on selected machinery used in construction of roads Negative for road development companies
Custom duties exemption on direct imports of specified goods for defence withdrawn Inline with Government's focus of Make in India. Will benefit companies like BEL, LT, Bharat Forge
Custom duties on certain capital goods products increased from 7.5% to 10% Positive for domestic capital goods companies like Crompton Greaves, BHEL, LT, Thermax
Total outlay for Infrastructure sector pegged at Rs.221,246cr for FY17 (FY16: ~Rs.180,000cr) Positive for the entire Infra sector

Also read:
The budget clearly focused on the rural and social infra: Sanjay Nayar, KKR India

Budget has focus on rural, social and infrastructure sectors: Anjani Kumar

FM presented a balanced budget with a focus on infrastructure and agriculture sectors

Budget took some positive steps towards boosting urban infrastructure and housing

Related Story

Open Free Demat Account (Rs699)