Emkay Budget

1st March 2007

Private Client Research

Emkay

Emkay

Union BudgetAnalysis2007-08

1 March, 2007 Private Client ResearchEmkay -

2Union Budget 2007-08 Please see the disclaimer on the last page For Private Circulation

The Union Budget for FY2007-08 announced by Finance Minister P Chidambaram ina nutshell is targeted more towards Rural India and aimed at controlling inflationarypressures within the Indian Economy. As mentioned by us in our Pre- Budget Report,the FM has strongly focused on Agriculture, Infrastructure, Public Health and Educationwhich continue to be the foundation blocks of the economy.

Agriculture has been accorded a big boost in this years budget with the FM increasingthe total planned outlay here by 28.6% to Rs 225 bn with the Bharat Nirman andother flagship programmes like Accelerated Irrigation Programme, Water ResourceManagement, Rain fed Area Development Programme getting renewed focus. On theother hand the outlay on Education has been increased by 34.2% YoY to Rs 323.5bn while for Public Heath services the plan outlay is up by 21.9% from last year to Rs152.91 bn.

In terms of revenue raising measures, the 1% education cess and the increase individend distribution tax from 12.5% to 15% have come as small negative surprisesfor the capital markets. On the other hand allowing short selling settlements bydelivery and securities lending by institutions as well as allowing corporates to unlockvalue in group companies via issue of Exchangeable Bonds is a welcome step.

On a Sectorial basis the Cement sector became the whipping boy for the FM in hisbid to control inflationary pressures arising from rising cement prices. What surprisesus is that a differential excise duty structure based on retail cement price of Rs 190per bag is unlikely to curtail inflationary trends. In fact looking at the current trend incement prices (Rs 240 per bag prevailing in Mumbai and Rs 210 in Chennai) thecement manufacturers are in no mood to cut prices.

Also the IT sector has now come under the tax regime by the FM for the first time.While there is no doubt that IT services continue to grow rapidly and contributehandsomely to the services segment, the fact remains that IT now is no longer theblue eyed boy which continued to enjoy exemptions earlier.

We believe that higher plan outlays for Agriculture and Infrastructure in this budgetshould ensure that the GDP growth rate does not slow down. Our belief is that GDPgrowth in the medium term would be driven largely by the Manufacturing and Servicesectors. The FM has however done a commendable job by infusing the much-neededfinancial discipline with FY07 revenue and fiscal deficits estimated at a around 2%and 3.7% respectively.

From a common man’s perspective this Budget has addressed basic issues likeproviding of drinking water facilities, roads, sanitation, employment opportunities etcbut has largely been a non event for the Indian corporate sector except for minortinkering in certain key sectors.

We hence rate this Union Budget for FY2007-08 as a balanced exercise targetedlargely at Rural India and the common masses wherein efforts have been made toensure financial stability for corporates with a clear focus on macro issues likecontrolling inflation and price increases in essential commodities.

Emkay Union Budget Analysis 2007-08Private Client Research

We rate budget as positive andgood balancing excercise

Agriculture Infrastructure, PublicHealth and education to be the keythrust areas.

Education cess increased to 3%from 2%

A Cleverly Balanced Budget



Agriculture – Big Focus AreaThe government’s focus on the Agriculture sector is quite obvious as almost 60% ofour population still depends on agriculture as its livelihood. While acknowledging thefact that average growth in Agriculture was 2.3% in the 10th Five year plan was belowexpectations, the 11 th Five Year Plan has targeted an average agriculture YoY growthof 4%.

We believe that there are three important reasons for the increased focus on agriculturen A large part of population still lives on agriculture and increase in their incomes

would induce overall consumption of goods and servicesn Huge opportunity in food processing as India has an enviable position in most of

the agri-productsAs mentioned earlier Agriculture which used to previously account for a sizeablechunk (around 24% in 2001) of the GDP has seen its share drop to 18.5% in FY07and has seen a volatile uneven trend after its peak 10% growth in FY2004. Hencegoing ahead the renewed initiatives announced for Agriculture in this budget specificallywith regard to increased plan outlays creation of irrigational facilities, creation ofwater management cells, improved production due to better utilisation of seeds andfertilizers should ensure a sustainable growth in agriculture. We believe that foodprocessing industry would be major beneficiaries of the sustained agriculture credit.

Infrastructure Spending to accelerate further —During FY06, both savings rate and capital formation rates have remained impressiveat levels of 32.4% and 33.8% respectively. We believe that Infrastructure creation iscritical and unless we keep the pace of capital formation at around 30%, it would bedifficult to sustain the growth rate of GDP at 7 to 8% plus. In this Budget, Roads,power, telecom and drinking water projects have been accorded higher plan outlayswhich all promise a better infrastructure base ahead. We hence believe that PowerProjects, roads and water projects are the clear beneficiaries of the Budget. Thepower sector will benefit from the expected new ultra mega projects, besides theGolden Quadrilateral project is also fast moving towards completion. On the otherhand the water and Irrigation projects will not only benefit construction companiesbut also the domestic capital goods players as well as pumps and generator setmanufacturers.

Fiscal health continues to be in good shape –The Indian economy is in the midst of its best ever growth phase, with the GDPgrowth as per the Central Statistical Organization (CSO) likely to grow by 9.2% inFY07E from 8.99% recorded last year. What makes this growth look more re-assuringis that it has come off on a higher base from the previous year which makes it the 4th

consecutive year since 2004 onwards of sustained higher GDP growth for the economy.A major driver to this growth has been the Manufacturing Sector which contributesaround 25% of the GDP and grew by 11.3% as compared to 9.3% last year, followedby other sectors like construction, hotels, transport etc

On the back of a buoyant economy, the government is aiming to raise its tax revenuesfrom Rs.3459.7 bn to Rs.4038.7 bn, an increase of 16.7%. However, overall receiptsare likely to grow by 10.9%. Tighter control on non-Plan expenditure will ensure thatit does not go up beyond 16.3% of revised estimates for FY07. On the other hand,Plan expenditure has been increased to Rs. 2051 bn, up by 18.7%.

This leaves the government with a fiscal deficit of Rs. 1409.5 bn i.e. 3.3% of GDP ascompared to 3.7% in FY07 as per revised estimates. The Fiscal deficit is targeted at3.3% of GDP while revenue deficit is targeted at 1.5%, down from 2% on the revisedFY07E. We also observe that government borrowings are estimated to reduce by0.9% to Rs.1509.5 bn. This is largely positive and with a large part of capitalexpenditure going in for asset formation, it is likely to yield positive results in themedium-to-long-term perspective.

Agriculture to be a big focus area

Infrastructure spending to see a bigboost

The health of the Indian Economycontinues to be robust

Fiscal deficit as percentage to GDPis 3.3% as per revised estimates



Bharat Nirman… continued thrust on Infrastructurecreation –The government has continued its thrust on improving the Agriculture growth of ruralIndia by reinforcing higher commitment for the six components of Bharat Nirman.Overall outlay has been increased by a whopping 54% from Rs.122bn to Rs.187bn.On the other hand we also expect that since FY08E is the first year of the 11 th FiveYear Plan (2008-2013) which envisages huge investments in roads, power and otherinfrastructure projects is likely to witness a significant rise in expenditure oninfrastructure sectors. The Bharat Nirman Programme has continued to get continuedfocus from the government since we believe that these programmes would not onlyhelp the common man but also provide a big opportunity for corporate India.

Public Health & Education – the other two foundationblocksWe believe that, the other two important foundation blocks of the Indian economynamely Public Health and Education have rightly been given due importance in thisbudget. This is even more important if we note that India would have the largestworking population in the years to come. A healthy and educated population would,therefore, be very important contributor to the economy, which will make the growthrate sustainable in long-term.

As earlier stated by us in our Pre Budget report, that more than the changes intaxes and tariffs, the focus of the FM would largely be on the tax reforms andsimplified processes. Overall tax collection has shown a healthy trend so far andthe tax-to-GDP ratio, which is estimated to be at 10.5% for FY06 & is further expectedto touch 11.4% in FY07.

Tax Proposals:

Indirect Taxes –In line with aligning the customs duty and bringing it at par with the ASEAN levels,peak customs duty has been reduced from 12.5% to 10%. Despite reduction inpeak customs duty, overall custom collection is expected to go up by 20.7%, primarilydue to a sharp jump in the countervailing duty by over 20.7% from Rs. 380.4 bn toRs. 459.25 bn. This indicates that duty protection will largely continue for theindustries. A duty cut according to us will be beneficial for the metals & iron ores,chemicals, plastics and packaging sectors.

On the excise duty front, the FM has kept the CENVAT unchanged at 16%. Webelieve that reduction in the excise duty will be more than compensated by increasedvolumes and profitability. The excise receipts are projected to increase by 11% inFY08E from Rs. 1172.6 bn in current year. The service tax which accounts for12.4% of total taxes collected has seen its scope being widened to new segmentslike Renting of immovable property, Design services, Asset management services,Development and supply of content for use in telecom and advertising purposes andServices outsourced for mining of mineral, oil or gas.

Direct Taxes –The FM has kept corporate tax and personal income tax rates unchanged while notintroducing any new taxes for FY07. We are however surprised to observe a increaseDividend Distribution Tax from 12.5% to 15%. On the positive side capital gains taxand the securities transactions tax (STT) have remained at same levels which earlierthere was anticipation that there could be a increase here. Education Cess on theother hand has been increased by 1% from 2% earlier, which has been basicallyjustified to fund secondary level education. The Education cess is estimated tocollect Rs 119.3 bn in FY08 from Rs 81.9 bn in FY07.

Bharat Nirman Programmeaggresively pushed by thegovernment

Tax to GDP ratio improves to 11.4%in FY07 from 10.5% earlier

Peak Import duty cut to 10% from12.5%



Macro Issues which could not see the light of the daySome of the macro issues, which did not get mentioned by the Finance Minister inthis Budget, included Public Sector Investment Divestment, foreign direct investmentsincrease in Insurance, Aviation etc, also were not considered.

Market Outlook – Long-term positiveWe rate the Budget as progressive and a balanced exercise with the focus being onlong term sustainable and balanced economic growth. We believe that, higher visibility,thrust on capital formation for long-term growth, fiscal prudence and tax reforms, willattract investors to the equity market with a long-term focus. Corporate numbershave been broadly in line with expectations but we expect marginal changes on thedownside to our earning estimates in the light of the Budgetary recommendations.

This ensures higher visibility of earnings and helps investors in taking a long-termcall on the stocks as well as on the market. However although we remain positive onthe long-term prospects of the market, we do not rule out the possibility of a short-term correction. Liquidity, in the short term particularly from foreign institutionalinvestors (FIIs), would be a deciding factor in the short term. However the long-terminvestment time frame and reasonably good risk to reward expectations are primaryreasons, which we believe are attracting FII investment in the Indian equity marketand we do not see any change in this trend, at least in the medium to long term.

Sectorially we believe the stocks from FMCG, Food Processing, Telecom, Hotels,Capital Goods, Power, Oil & Gas/Allied services players to be impacted positively.

Hence it is quite clear that Infrastructure, Consumption and Agri related sectorswould be the major beneficiaries of the process.

Our Top PicksIn large Caps we like Bajaj Auto, Mahindra & Mahindra, Amtek Auto, Kirloskar OilEngines, Infosys, Tech Mahindra. ACC, UltraTech, L&T.

In the Mid Cap space, we continue to be positive on Ratnamani Tubes, RPGTransmission, Automotive Axles, Paradyne Infotech, Tanla Solutions, Tata Elxsi,Global Vectra, Royal Orchid Hotels, Gabriel, Sujana Metal, Shree Cement, MangalamCement, Pratibha, Patel Engineering, Paper Product, Great Offshore, Jindal Drilling,BL Kashyap, Ansal Housing and Peninsula Land.

Market outlook - Long Term Trendcontinues to be positive

Infrastructure, consumption and Agrirelated sectors to benefit most.



CENTRAL GOVERNMENT FINANCES(Particulars) FY06 FY07BE FY07RE YoY (%) FY08BE YoY (%)

REVENUE RECEIPTSTax RevenueUnion Excise Duties 1,120.00 1,190.00 1,172.66 4.7 1,302.20 11.0Customs 642.15 770.66 818.00 27.4 987.70 20.7Corporation Tax 1,035.73 1,330.10 1,464.97 41.4 1,684.01 15.0Income Tax 662.39 774.09 825.10 24.6 987.74 19.7Service Tax 230.00 345.00 381.69 66.0 502.00 31.5Taxes of Union Territories 8.49 9.03 13.41 58.0 14.42 7.5Other taxes & duties 2.65 2.65 2.65 - 3.15 18.9Gross Tax Revenue 3,701.41 4,421.53 4,678.48 26.4 5,481.22 17.2Less: NCCD for financingNational CalamityContigency Fund 16.00 15.00 15.00 (6.3) 18.00 20.0Less: States' share 944.02 1,134.48 1,203.77 27.5 1,424.50 18.3Centre's Net Tax Revenue [A] 2,741.39 3,272.05 3,459.71 26.2 4,038.72 16.7Non-Tax RevenueInterest Receipts 212.45 192.63 201.31 (5.2) 193.08 (4.1)Dividends & Profits 254.81 275.00 304.38 19.5 339.25 11.5External Grants 30.19 26.16 24.69 (18.2) 21.35 (13.5)Other Non-Tax Revenue 238.37 260.71 235.98 (1.0) 264.71 12.2Non-Tax Revenue of Union Territories 7.53 8.10 7.24 (3.9) 7.11 (1.8)Total - Non Tax Revenue [B] 743.35 762.60 773.60 4.1 825.50 6.7Total Revenue Receipts [C=A+B] 3,484.74 4,034.65 4,233.31 21.5 4,864.22 14.9CAPITAL RECEIPTSRecoveries of Loans 117.00 80.00 54.50 (53.4) 15.00 (72.5)Misc Capital Receipts 23.56 38.40 5.28 (77.6) 416.51 7,788.4Debt receipts to finance fiscal deficits 1,461.75 1,486.86 1,523.28 4.2 1,509.48 (0.9)Total Capital Receipts [D] 1,602.31 1,605.26 1,583.06 (1.2) 1,940.99 22.6Total Receipts [C+D] 5,087.05 5,639.91 5,816.37 14.3 6,805.21 17.0

NON-PLAN EXPENDITURERevenue ExpenditureInterest Payments 1,300.32 1,398.23 1,461.92 12.4 1,589.95 8.8Defense 486.25 515.42 515.42 6.0 540.78 4.9Subsidies 468.74 462.13 534.63 14.1 543.30 1.6Grants to State and U.T. Governments 303.90 353.61 361.52 19.0 384.03 6.2Admin & Social Responsibility 702.21 714.91 748.34 6.6 777.40 3.9Total Revenue Non-Plan Expenditure [E] 3,261.42 3,444.30 3,621.83 11.1 3,835.46 5.9Capital ExpenditureDefence 330.75 374.58 344.58 4.2 419.22 21.7Other Non-Plan Capital Outlay 36.35 78.53 108.06 197.3 493.14 356.4Loans to Public Enterprises 20.17 14.80 15.20 (24.6) 7.67 (49.5)Others 0.45 0.42 (0.60) (233.3) (1.28) 113.3Total Capital Non-Plan Expenditure [F] 387.72 468.33 467.24 20.5 918.75 96.6Total Non Plan Expenditure [G=E+F] 3,649.14 3,912.63 4,089.07 12.1 4,754.21 16.3

PLAN EXPENDITURERevenue ExpenditureCentral Plan 828.36 1,074.69 1,040.49 25.6 1,287.27 23.7Central Assistance for State & UT Plans 313.17 362.93 405.35 29.4 456.27 12.6Total Revenue Plan Expenditure [H] 1,141.53 1,437.62 1,445.84 26.7 1,743.54 20.6Capital ExpenditureCentral Plan 244.17 238.15 224.61 (8.0) 262.12 16.7Central Assistance for State & UT Plans 52.21 51.51 56.85 8.9 45.34 (20.2)Total Capital Plan Expenditure [I] 296.38 289.66 281.46 (5.0) 307.46 9.2Total Plan Expenditure [J=H+I] 1,437.91 1,727.28 1,727.30 20.1 2,051.00 18.7Total Expenditure [G+J] 5,087.05 5,639.91 5,816.37 14.3 6,805.21 17.0

Revenue Deficit [H+E-C] 918.21 847.27 834.36 (9.1) 714.78 (14.3)% of GDP 2.6 2.1 2.0 1.5Fiscal Deficit 1,461.75 1,486.86 1,523.28 4.2 1,509.48 (0.9)% of GDP 4.1 3.8 3.7 3.3Primary Deficit 161.43 88.63 61.36 (62.0) (80.47) (231.1)% of GDP 0.5 0.2 0.1 (0.2)

Source: Ministry of Finance, Annual Budget FY2007-08

(Rs bn)



ECONOMIC DATA CHARTS

Where the Rupee comes from Where the Rupee goes

Fiscal deficit (Rs bn) Revenue deficit (Rs bn)

GDP Growth by constituents (%) Gross domestic savings & capital formation (%)

Source: Government of India, Annual Budget FY2007-08, Economic Survey FY2006-07

Other Taxes0%

Service Tax6% Income Tax

12%

Corporation Tax21%

Customs12%

Union Excise Duties16%

Borrowings18%

Non debt capital receipts

5%

Non Tax Revenue10%

Defence12%

Grants to State and U.T. Govts

5%

Admin & Social Resp9% Interest

19%

Plan Expenditure25%

State share of tax & duties17%

Loans0%

Capital Outlay6%

Subsidies7%

0

200

400

600

800

1000

1200

1400

1600

FY01

FY02

FY03

FY04

FY05

FY06

FY07

RE

FY08

BE0

1

2

3

4

5

6

7%

Fiscal Deficit (Rs.bn) % of GDP

0

200

400

600

800

1000

1200

FY01

FY02

FY03

FY04

FY05

FY06

FY07

RE

FY08

BE0

1

1

2

2

3

3

4

4

5

5%

Revenue Deficit (Rs.bn) % of GDP

-7

-5

-3

-1

1

3

5

7

9

11

13

2000-01 2001-02 2002-03 2003-04(P) 2004-05(P) 2005-06(Q) 2006-07(AE)

Agriculture Manufacturing Services Gross domestic product at factor cost

20

22

24

26

28

30

32

34

36

1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05(P) 2005-06(Q)

Gross domestic saving Gross domestic capital formation



INDIRECT TAX PROPOSALSCustoms Duty / Export Dutyn Peak rate for non-agricultural products from 12.5% to 10%.n Import duties on most chemicals and plastics from 12.5% to 7.5%.n Reduction in duty on seconds and defectives of steel from 20% to 10%.n Full exemption in duty for all coking coal irrespective of the ash content.n Customs duty on polyester fibres and yarns from 10% to 7.5%.n Customs duty on raw-materials such as DMT, PTA and MEG will also be reduced from 10% to 7.5%.n Duty on cut and polished diamonds down from 5% to 3%, rough synthetic stones from 12.5% to 5% and on

unworked corals from 30% to 10%.n Full exemption in import duty on dredgers.n Reduction in duty on drip irrigation systems, agricultural sprinklers and food processing machinery from 7.5% to 5%.n general rate of import duty on medical equipment reduced to 7.5% from 12.5%.n Crude as well as refined edible oils exempted from the additional CV duty of 4%.n Reduction in duty on sunflower oil, both crude and refined, by 15 percentage points.n Reduction in duty on pet foods from 30% to 20%.n Reduction in duty on watch dials and movements as well as umbrella parts from 12.5% to 5%.n For the pharmaceutical and biotechnology sector the duty on 15 specified machinery proposed to be reduced from

7.5% to 5%.n Import duty of 3% on all private import of aircraft including helicopters. Such import will also attract countervailing

duty and additional customs duty.n Export duty of Rs.300 per metric tonne on export of iron ores and concentrates and Rs.2,000 per metric tonne on

export of chrome ores and concentrates.

Excise Duty & Service Taxn No change in the general CENVAT rate or in the service tax rate.n Reduction in ad valorem component of excise duty on petrol and diesel from 8% to 6%.n Exemption limit for small scale industry (SSI) from Rs.1 crore to Rs.1.5 crore.n Full exemption from excise duty biscuits whose retail sale price does not exceed Rs.50 per kilogram.n Full exemption from excise duty all kinds of food mixes including instant mixes.n Reduction in excise duty on umbrellas and parts of footwear from 16% to 8%.n Reduction in excise duty on plywood from 16% to 8%.n Full exemption in excise duty for biodiesel.n Full exemption from excise duty for water purification devices operating on specified membrane based technologies

as well as domestic water filters not using electricity.n Extension of excise duty exemption to all pipes of diameter exceeding 200 mm used in water supply systems.n Reduction in present rate of excise duty of Rs.400 per metric tonne to Rs.350 per metric tonne on cement which is

sold in retail at not more than Rs.190 per bag. On cement that has a higher MRP, the excise duty will be Rs.600 permetric tonne.

n Increase in specific rates of excise duty on cigarettes by about 5%. Excise duty (excluding cess) on biris will beraised from Rs.7 to Rs.11 per thousand for non-machine made biris and from Rs.17 to Rs.24 per thousand formachine made biris.

n Excise duty on pan masala not containing tobacco will be reduced from 66% to 45%.n Rise in the exemption limit for small service providers from Rs.400,000 to Rs.800,000. Consequently, 200,000

assessees out of a total of 400,000 assessees will go out of the service tax net.n New services under service tax net :

n Services outsourced for mining of mineral, oil or gas;n Renting of immovable property for use in commerce or business;n Development and supply of content for use in telecom and advertising purposes;n Asset management services provided by individuals;n Design services.



n Levy of service tax on services involved in the execution of a works contract with option of composition scheme underwhich service tax will be levied at only 2% of the total value of the works contract.

n Exemption of clinical trial of new drugs from service tax.

DIRECT TAX PROPOSALSn Income tax rates remain unchangedn STT untouchedn The threshold limit of exemption in the case of all assessees increased by Rs.10,000n The deduction in respect of medical insurance premium under section 80D be increased to a maximum of Rs.15,000

and, in the case of a senior citizen, a maximum of Rs.20,000.n Removal of surcharge on income tax on all firms and companies with a taxable income of Rs.1 crore or less.n Cross country natural gas distribution network, including gas pipeline and storage facilities integrated to the network

and navigation channel in the sea to be included in list of infrastructure facilities eligible for deduction u/s 80IAn 5-year holiday from income tax for hotels upto 4 star hotels, as well as for convention centres with a seating capacity

of not less than 3,000 built in Delhi, Faridabad, Gurgaon, Ghaziabad or Gautam Budh Nagar during the period April 1,2007 to March 31, 2010.

n Deduction under section 35(2AB) relating to in-house research and development extended until March 31, 2012.n Extension of MAT to income in respect of which deduction is claimed under sections 10A and 10B of the Income Tax

Act.n Rise in the rate of dividend distribution tax from 12.5% to 15% on dividends distributed by companies.n Rise in the dividend distribution tax on dividends paid by money market mutual funds and liquid mutual funds to 25%

for all investors.n Exclusion of expenditure on free samples as well as expenditure on displays from the scope of FBT.n ESOPs under the ambit of FBT.n Exemption limit for individuals and HUFs for Banking Cash Transactions Tax (BCTT) increased from Rs.25,000 to

Rs.50,000.n Increase in education cess by 1%n Tax exemption on aviation turbine fuel sold to turbo prop aircraft extended to all small aircraft less than 40,000 kg.n Benefits of investment in venture capital funds confined to undertakings in biotechnology; information technology

relating to hardware and software development; nanotechnology; seed research and development; research anddevelopment of new chemical entities in the pharmaceutical sector; dairy industry; poultry industry; and production ofbio-fuels.



SECTOR SUMMARY

Source: Emkay Private Client Research

Sector Budget Impact Top PicksAutomobiles Neutral Mahindra & Mahindra Ltd, Bajaj Auto LtdAuto Components Neutral Ahmednagar Forgings, Automotive Axles, Amtek Auto, GabrielCapital Goods / Power Equipment Positive Ratnamani Metal, Bharati Shipyard, Kirloskar Oil Engines,

RPG Transmission, Sujana Metal ProductsCement Negative ACC, Shree Cements, Ultra Tech, Mangalam CementsConstruction Negative L&T, Madhucon Projects, Pratibha Industries, Patel EngineeringFMCG Positive Paper Products, Cosmo FilmsHospitality Positive Royal Orchid, Kamat Hotels, Hotel LeelaventureIT/Software Negative Infosys, Tech Mahindra, Tanla Solutions,Tata Elxsi,

Paradyne Infotech, NIIT TechnologiesMedia Negative --Oil & Gas and Allied Services Positive Global Vectra, Great Offshore, Jindal DrillingRealty Neutral NESCO, BL Kashyap, Ansal Housing, Peninsula LandTelecom Positive --



SECTOR IMPACTANALYSIS



AUTOMOBILESBUDGET IMPACT : NEUTRAL

IMPACT ON THE SECTOR

TOP PICKS

BUDGET HIGHLIGHTS

Impact on EPS

Price EPS (Rs)Company (Rs) FY07E FY08E Reco Remarks

Pre Budget Post Budget

Mahindra & Mahindra* 806 54.6 68.3 68.3 BUY Increase in farm credit is positivefor M&M in the long term

Bajaj Auto 2617 127.5 160.1 160.1 BUY Extension of sec. 35 (2AB) wouldbe positive for Bajaj Auto

n Deduction on R&D expenditure u/s 35 (2AB) extended till 31st March 2012.

n Farm credit target raised to Rs225,000 cr in 2007-08 from earlier Rs190,000 crin 2006-07.

n Increase in the provision for the National Highway Development Programme(NHDP) from Rs.9,945 crore in 2006-07 to Rs.10,667 crore next year.

n A Secondary and Higher Education Cess on imported goods at 1% of aggregateduties of customs excise and income tax has been imposed in addition existingcess of 2%.

n Deduction u/s 35 (2AB) was going to expire on 31st March 2007 and Extensionof section 35 (2AB) till 31st March 2012 is a positive development for OEMs likeTata Motors, M&M, Ashok Leyland, Bajaj Auto, Hero Honda and TVS Motors.These companies would continue to claim benefits of 150% deduction on R&Dexpenditure incurred during the year.

n Increase in farm credit target by 18% to Rs225,000cr would continue to drivedemand for tractors and is a positive for companies like M&M.

n Increase in provision for the NHDP will increase the highway network in India andis positive for demand growth for commercial vehicles in the long term.

n The impact of Increase in education cess will be negligible on the companies.

n Mahindra & Mahindra Ltd and Bajaj Auto Ltd

Passenger Cars80%

Utility Vehicles15%

MPVs5%

Total Vechicle Production

Auto Market Composition

Source : SIAM

Source : SIAM

Source: Emkay Private Client Research / * Consolidated



AUTO ANCILLARIESBUDGET IMPACT: NEUTRAL


TOP PICKS

BUDGET HIGHLIGHTSn Peak Customs Duty has been reduced from 12.5% to 10%

n Optional excise duty on nylon filament yarns has been increased from 8% to12%.

n A Secondary and Higher Education Cess on imported goods at 1% of aggregateduties of customs, excise and income tax has been imposed in addition existingcess of 2%.

n Reduction in peak customs duty is likely to increase the competition for domesticauto component players compared to other emerging countries like Thailandand China. But we don’t expect it will impact earnings of any auto componentplayers under our coverage.

n Increase in excise duty on nylon filament yarns from 8% to 12% will increasethe input prices for tyre companies.

n The impact of Increase in education cess will be negligible on the companies

n Amtek Auto, Ahmednagar Forgings, Automotive Axles & Gabriel

Impact on EPS



Amtek Auto* 372 22.9 28.1 28.1 BUY No impact

Ahmednagar Forgings 260 19.1 26.6 26.6 BUY No impact

Automotive Axles 590 37.9 48.1 48.1 BUY No impact

Gabriel India 31.65 2.7 3.9 3.9 BUY No impact

Auto Component Market ($ bn) Indian Auto Component Exports ($ bn)

Source: Emkay Private Client Research, ACMA

2,3002,645

3,100

3,750

4,400

1,000

2,000

3,000

4,000

5,000

FY02 FY03 FY04 FY05 FY06*

10

40

0

10

20

30

40

50

CY2006 CY2014

CAGR 17%

1.8

25

0

5

10

15

20

25

30

CY2006 CY2014

CAGR 34%

578760

1020

1400

1800

0

500

1000

1500

2000

FY02 FY03 FY04 FY05 FY06*

Auto Component Exports USD mn.

Source : ACMA, * Estimated figure

Auto Comp Industry InvestmentUSD mn.

Source : ACMA, * Estimated figure

Source: Emkay Private Client Research / * Consolidated




BUDGET HIGHLIGHTS

BUDGET IMPACT: POSITIVE BANKING & FINANCE

n Ceiling for TDS deduction on FD at increased to Rs.10,000

n Benefit of Sec 72A extended to voluntary mergers

n Transfer now limited to 20%

n Will help to mobilise more resources and reduce operational hassles

n Will help consolidation in the industry and will benefit private as well as foreignbanks

n Mildly negative of housing finance and infrastructure financing companies

Positive for all banks especially Private Sector Banks

Overall View on Stocks-

Source: Emkay Institutional Research



BUDGET IMPACT : POSITIVE


TOP PICKS

BUDGET HIGHLIGHTS

CAPITAL GOODS / POWER EQUIPMENT

n Increase in budgetary support for APDRP from Rs650crs in 2006-07 to Rs800crsin 2007-08. APDRP is being restructured to cover all district headquarters andtowns with a population of more than 50,000.

n Raised allocation for Rajiv Gandhi Grameen Vidyutikaran Yojana from Rs3000crsto Rs3900crs

n Exemption of excise duty on pipes used for taking water from water treatmentplant. This exemption will be application irrespective of whether they are used fortaking water from treatment plant to the first storage point or from one storagepoint to another storage point.

n Subsidy allocation for non-central PSU shipyards and private sector shipyardhas been increased to Rs132crs in 2007-08 from Rs25crs in 2006-07.

n Excise duty exemption on high speed cold-set web offset printing machineswith a minimum speed of 70,000 copies per hour is being withdrawn and 8%excise duty is being imposed.

n A Secondary and Higher Education Cess on imported goods at 1% of aggregateduties of customs, excise and income tax has been imposed in addition existingcess of 2%.

n Two new ultra mega power projects are likely to be awarded by July 2007. Ministryof Power will also take initiatives for facilitating setting up of merchant powerplants by private developers and private participation in transmission projects.

n Increase in budgetary support for APDRP will help to monitor power usage andis likely to benefit meter manufacturers

n Increase in allocation for Rajiv Gandhi Grameen Vidyutikaran Yojana will bebeneficial for equipment suppliers

n Exemption of excise duty on pipes used for taking water from water treatmentplant will benefit to companies like Ratnamani Metals and Tubes which haspresence in saw pipes

n Increase in subsidy allocation for non-central PSU shipyards and private sectorshipyard is positive direction for private shipbuilding players like Bharati ShipayrdsLtd. as it reduces the uncertainty of extension of subsidy offered by governmentto private shipbuilding players beyond October 2007.

n Cold-set web offset printing machines with minimum speed of 70,000 copies perhour will attract 8% excise duty from FY08 and prices of web offset printingmachines will go up. Manugraph India currently manufactures web offset printingmachines upto 55,000 copies per hour and would not impact Manugraph India.

n The impact of Increase in education cess will be negligible on the companiesn Two new ultra mega power projects and inititatives taken by Ministry of Power

will improve the demand for power equipment suppliers and transmissioncompanies.

0

100

200

300

400

500

Apr

May

June July

Aug

Sep

t

Oct

Nov

Dec Jan

Feb

Mar

0

100

200

300

400

FY06 FY07

IIP Capital Goods

Source:CSO

n Ratnamani Metal and Tubes, Bharati Shipyards & Kirloskar Oil EnginesImpact on EPS



Ratnamani Metal 700 76.0 107.2 109.5 BUY Exemption on excise duty onpipes on water projects will be Positive

Bharati Shipyards 372 24.8 37.4 37.4 BUY Increase in allocation for subsidies ispositive direction

Manugraph India 188 17.3 22.8 22.8 BUY The excise duty announcement will notimpact Manugraph

Kirloskar Oil Engines 242 15.6 17.6 17.6 BUY No Impact




BUDGET IMPACT: NEGATIVE CEMENT


TOP PICKS

BUDGET HIGHLIGHTS

Reduction of Excise Duty on Cement

Excise duty on cement sold in retail market has been changed from fixed – specificcharge to a differential based chargeFor large cement plant,

n Selling cement at a price below Rs 190 per 50-Kg bag (Rs 3800 per tonne),excise duty has been reduced from Rs 400 per tonne to Rs 350 per tonne.

n However, if the selling price of the cement is above Rs 190 per 50-Kg bag (Rs3800 per tonne), excise duty has been increased from Rs 400 per tonne to Rs600 per tonne.

For mini- cement plant,

n Selling cement at a price below Rs 190 per 50-Kg bag (Rs 3800 per tonne),excise duty has been reduced from Rs 250 per tonne to Rs 220 per tonne.

n However, if the selling price of the cement is above Rs 190 per 50-Kg bag (Rs3800 per tonne), excise duty has been increased from Rs 250 per tonne to Rs370 per tonne.

n The impact of the cement price increase remains negative.

n Cement prices currently in most markets are currently at above Rs 200 levels.An increase in excise duty by Rs 200 per tonne translates to only Rs 10 per 50-Kg bag.

n Given the robust cement demand, we expect an increase of Rs 10 per 50-Kgbag can easily be passed on to the final consumers.

n ACC, Shree Cements, Ultra Tech, Mangalam Cements

Impact on EPS



ACC 900 73.7 70.5 58.1 Hold --

Shree Cements 1147 106.7 148.6 121.2 Hold --

Ultra Tech 891 71.7 80.9 61.6 Hold --

Mangalam Cements 176 14.4 36.2 27.1 Hold --

Consumption (Mn Tonnes)

0.00

5.0010.00

15.0020.00

25.0030.00

35.00

NorthEas

tW

est

South

Central

Expor

ts

Regions

Mn

Ton

nes

Apr-Dec'06

Apr-Dec'05

Source: CMA




CONSTRUCTIONBUDGET IMPACT: POSITIVE

BUDGET HIGHLIGHTSPositiven Allocation to Bharat Nirman for FY07-08 increased by 31.6% to Rs 246.03 bnn Budgetory support for NHDP to Rs 126.67 bn against 99.45 bn.(up by 27.2%)n RIDF XIII (Rural Infrastructure Development fund) has been allocated Rs 40 bn

for rural roads.n JawharLal Nehru National Urban Rebewal Mission budgetary allocation increased

to Rs 49.87 bn against Rs 45.95 bn.n AIBP(Acclerated Irrigation Benefit Programme) allocation increased by 54.4%.

to Rs 110 bn against Rs 71.21 bn 06-07,. Of this, the grant component to StateGovernments will be Rs.3580 crore an increase from Rs.2,350 crore

n Rajiv Gandhi Drinking Water Mission - from Rs46.8bn to Rs58.5bn (up by 25%)n NHDP-III, NHDP-V and NHDP-VI are in advanced stages of planning or

implementation and Northern-Eastern region (NE) only 450 km has been awardedin 06-07 and is expected to fully award in 07-08.

n Few projects like the road-cum-rail bridge at Bogibeel, Assam, over theBrahmaputra, will be taken up as a national project.

n Under the Viability gap funding out of 37 Proposal, 21 has been sanctioned andintended to set up a Rs1bn revolving fund to accelerate growth (PPP) which atpresent is moving at slow pace.

n Funds of NSSF (National Small Savings Fund) now to be utilized by IndiaInfrastructure Finance Company Ltd for financing of Infrastructure Projects.

n Use of foreign exchange reserve to finance Infrastructure facility without monetaryexpansion

n Additional irrigation potential of 2,400,000 hectares, including 900,000 hectaresunder AIBP, will be created;

n World Bank has signed a loan agreement with Tamil Nadu for Rs.21.84 bn torestore 5,763 water bodies having a command area of 400,000 hectares.Preparation for similar projects for Andhra Pradesh, Karnataka, WB, and Orissa.

Negativesn Sec80IA(4) amended : The purpose of the tax benefit has all along been for

encouraging private sector participation by way of investment in development ofthe infrastructure sector and not for the persons who merely execute the civilconstruction work or any other works contract. Accordingly, it is proposed toclarify that the provisions of section 80-IA shall not apply to a person who executesa works contract entered into with the undertaking or enterprise referred to in thesaid section. Thus, in a case where a person makes the investment and himselfexecutes the development work i.e., carries out the civil construction work, hewill be eligible for tax benefit under section 80-IA. In contrast to this, a personwho enters into a contract with another person [i.e., undertaking or enterprisereferred to in section 80-IA] for executing works contract, will not be eligible forthe tax benefit under section 80-IA.The above section will be implemented with retrospective effect from Assessmentyear FY00-01.

0

50

100

150

200

250

300

Bharat

Nirman

NHDP AIBP JNNURM RIDF

FY06 FY06FY07



IMPACT ON THE SECTORn Higher allocation to Infrastructure sector will boost Infrastructure company in the

long run.n Government taking measures with innovative idea of funding infrastructure sector

will also help Infrastructure Company to finance projects.n After interacting with companies in infrastructure segments we believe thatn prospective impact of Sec 80IA(4) will be high in comparison to retrospective

effect. The Section specifies that EPC contractors will not be exempted asbefore, which signify that the tax rate of the company’s will increase from existenceof 15%-22% to 24%-28% depending on the revenue mix .

Impact on EPS



Madhucon Projects 201 10.9 24.4 20.2 Buy Buy with Target Price of Rs 305.

Patel Engineering 347 22.0 27.5 21.2 Hold --

Pratibha 183 15.0 38.3 28.0 Hold --

TOP PICKS:Madhucon Projects, Patel Engineering and Pratibha




Fertilisers & Chemicals


BUDGET HIGHLIGHTS

BUDGET IMPACT: NEGATIVE

Domestic prices to realign downward in line with landed cost - marginal negativeLikely to have negative impact

n Peak Custom duty reduced to 10%

n Dividend distribution tax increased to 15%

GNFC, Tata Chemicals, Deepak Fertiliser,

Cormandel Fertiliser, GSFC

Overall View on Stocks-POSITIVE

NEGATIVE




FMCG


BUDGET HIGHLIGHTS

BUDGET IMPACT: POSITIVE

n Reduction in customs duty on food processing machinery from 7.5% to 5%;

n Full exemption from excise duty biscuits whose retail sale price does not exceedRs.50 per kilogram;

n Full exemption from excise duty all kinds of food mixes including instant mixes.

n Crude as well as refined edible oils exempted from the additional CV duty of 4%.

n Customs Duty on crude sunflower oil down from 65% to 50% and on refined oilfrom 75% to 60%

n Reduction in customs duty on food processing machinery shall induce higherinvestments in food processing industry;

n Exemption in excise duty on biscuits will be positive for biscuit manufacturerslike Britannia, ITC, etc who make biscuits falling in this range.

n Exemption from excise duty all kinds of food mixes including instant mixes willbenefit food processing companies like HLL, ITC, Nestle, Dabur, MTR Foods,etc

n Reduction of customs duty on sunflower shall help higher offtake of sunflower oiland may help sunflower oil marketing companies.

TOP PICKSn Paper Products, Cosmo Films

Impact on EPS



Paper Products 363 31.5 40.5 40.5 BUY Target Price : 478

Cosmo Films 75.4 11.3 15.3 15.3 BUY Target Price : 100 Source: Emkay Private Client Research



3.22.8

2.5

0

0.5

1

1.5

2

2.5

3

3.5

2004 2005 2006

Mn Nos


TOP PICKS

BUDGET HIGHLIGHTS

BUDGET IMPACT: POSITIVE HOSPITALITY

n Increase in spending on building tourist infrastructure from Rs 423 crore in 2006-07 to Rs 520 crore in 2007-08;

n Introduction of new section 80ID under the Income Tax Act for providing 5 yearholiday from IT for hotels upto 4 star hotels, as well as for convention centreswith a seating capacity of not less than 3,000 built in Delhi, Faridabad, Gurgaon,Ghaziabad or Gautam Budh Nagar during the period April 1, 2007 to March 31,2010;

n Applicability of service tax on renting / leasing of immovable property for use incommerce or business;

n Tax benefit of Venture Capital investment extended to investments in hotel-cum-convention centres of a certain description and size.

n Higher allocation for building tourist infrastructure shall have a long-term positiveimpact on the tourism sector in terms of larger number of tourists;

n Introduction of a 5 year tax holiday u/s 80ID shall induce higher investments inbuilding hotels in specified areas and shall improve the profitability of the project;

n Service tax on leasing / renting of property shall have a marginal negative impacthotel companies with asset-light strategy for there operations.

n Including investments in hotel-cum-convention centres by venture capital fundsfor tax benefits shall get higher investments in the sector.

n Hotel Leela Venture, Royal Orchid Hotel, Kamat Hotel

Impact on EPS



Hotel Leela Venture 57 2.4 3.4 3.4 BUY Target Price : 84

Royal Orchid Hotel 196 11.8 14.8 14.8 BUY Target Price : 243

Kamat Hotel 175 13.7 20.9 20.9 BUY Target Price : 230

Foreign Tourist Arrivals (Apr-Dec'06)

Source : Ministry of Tourism




IT/SOFTWARE


BUDGET HIGHLIGHTS

BUDGET IMPACT: NEGATIVE

TOP PICKS

n Minimum Alternate Tax (MAT): Minimum Alternate Tax (MAT) to be extendedto income in respect of, which deduction is claimed under sections 10A and10B.

n Inclusion ESOP under FBT: Employees’ Stock Option Plan (ESOP) has beenbrought under the Fringe Benefit Tax (FBT) in the Budget 2007-08, applicableafter April 2008.

n Dividend Distribution Tax: Dividend distribution tax for companies has beenraised from 12.5 per cent to 15 per cent.

n Thrust on e-Governance: e-governance allocation to increase from Rs. 300crore in 2006-07 to Rs. 500 crore in 2007-08 and also education outlay to increaseby 34% to Rs 34252 crore.

n Imposition of MAT on IT-ITES company would have a negative impact of around150-200 bps on the net margins, depending on the company’s exposure to taxshelter units, However, those company’s which are paying tax outside India willget some respite, on account of double taxation avoidance treaty, as they canset off the tax paid outside India against MAT.

n Inclusion of ESOPS under FBT, would impact the net margins, as it is a regularnorms of the Indian IT companies to issue ESOPs, in order to reward theemployees and reduce the attrition rate.

n Hiked in the dividend distribution tax from 12.5% to 15%, would have a negativeimpact on retained earning of the company, as IT companies use to pay higherdividend.

n No discussion on extension of Tax benefits under sec 10A/10B has been madein the current budget.

n Infosys, Paradyne Infotech, Tata Elxsi, Tanla Solutions, NIIT TechnologiesImpact on EPS



Infosys 2078 68.3 91.1 87.8 BUY Minor negativeTata Elxsi 275 16.4 23.7 22.9 BUY Minor ImpactTanla Solutions 317 16.7 24.8 24.0 BUY Minor impact, would set

Off against tax paid outsideIndia.

NIIT Technologies 397 29.7 40.7 40.1 BUY Minor negative, tax ratewould Up by around 300 bps

Paradyne Infotech 86 12.5 18.6 18 BUY Minor negative wouldbenefits from Incremental\spending in e-GovernanceProjects

0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%

Infos

ys TCS

HCL Tech

Satya

mW

ipro

Tech

Mahindra

(in

%)

Offshore as a % of Revenue Effective Tax Rate

Offshore Mix and Effective tax rate

Source: Company and Emkay PCG





BUDGET HIGHLIGHTS

BUDGET IMPACT: POSITIVE MEDIA

n Inclusion ESOP under FBT: Employees’ Stock Option Plan (ESOP) has beenbrought under the Fringe Benefit Tax (FBT) in the Budget 2007-08.

n Service Tax: Extension of service tax for development and supply of content foruse in telecom and advertising purposes.

n Service Tax: Sale of space or time for advertisement service, to specificallyinclude sale of space in business directories, yellow pages and trade catalogueswhich are primarily meant for commercial purposes;

n There is still parity in service tax of 12% on sale of space and time foradvertisement in electronics media and print media, there is no change in forsame in the current budget, however services tax extended to sale of space inbusiness directories, yellow pages and trade catalogues which are primarilymeant for commercial purposes, would not impact the any of the listed printmedia company, like HT media, Deccan Chronical, Jagran Prakashan.

n Inclusion of ESOPS under FBT would impact the Media Companies, havingESOPS schemes outstanding.

Note: No stock under active courage.

Growth of the Indian EntertainmentIndustry

Source: Industry





BUDGET HIGHLIGHTS

BUDGET IMPACT: NEUTRAL METALS

n No Change in import duty

n Export duty of Rs300/t on Iron Ore and Concentrates

n Export duty of Rs1,000/t on Chrome Ore and Concentrates

n Import duty on coking coal removed irrespective of ash content

n Reduction in import duty from 20% to 10%

n There has been no further tax changes for Non Ferrous metals post Jan 23,2007 notification reducing metals import duty from 7.5% to 5%

n Neutral

n Negative for iron ore exporters like Sesa Goa, NMDC as export prices arebased on import price parity. Levy of export duty will decrease their profits byRs300/t

n Negative for Chrome Ore exporters like Tata Steel as export prices are based onimport price parity. Levy of export duty will decrease their profits by Rs1,000/t

n Largely neutral as integrated producers are mostly buying coking coal with<12% ash content, which attracted nil customs duty

n Landed price of secondary and defective imports to come down, benefit largelyfor mini mills and re-rollers

SAIL, Tata Steel, JSW Steel, Monnet Ispat

Sesa Goa, NMDC, Gujarat NRE

Overall View on Stocks-POSITIVE

NEGATIVE




OIL & GAS AND ALLIED SERVICES


BUDGET HIGHLIGHTS


TOP PICKS

n Reduction in ad valorem component of excise duty on petrol and diesel from 8per cent to 6 per cent.

n Cross country natural gas distribution network, including gas pipeline and storagefacilities integrated to the network and navigation channel in the sea to be includedin list of infrastructure facilities eligible for deduction u/s 80IA

n Import duty of 3% on all private import of aircraft (excludes import by Govt &Scheduled Airlines) including helicopters. Such import will also attractcountervailing duty and additional customs duty.

n Reduction in ad-valorem excise duty on petrol and diesel shall have no immediateimpact as the reduction shall be adjusted in the recent reduction of rates doneby the government. In the longer term however increase in rates will have alesser duty impact to the extent of reduction;

n Inclusion of setting up of gas distribution pipeline in list of infrastructure facilitieseligible for deduction u/s 80IA will be beneficial to companies involved inimplementing city gas projects. Companies like Reliance Industries, GAIL andGSPL shall benefit.

n Imposition of 3% import duty on all private import of aircrafts including helicoptersmay impact helicopter logistic companies as they operate under a Non-ScheduledOperators Permit from the DGCA, although clarity is awaited on the issue. Theremay be marginal negative impact on Global Vectra.

n Global Vectra, Great Offshore and Jindal Drilling.

Impact on EPS



Global Vectra 246 15.2 26.1 26.1 BUY Target Price : 334

Great Offshore 576 35.8 56.9 56.9 BUY Target Price : 1153

Jindal Drilling 430 20.7 31.0 31.0 BUY Target Price : 786

Series Onshore Shallow Deep

Water Water

NELP - I 1 13 7

NELP - II 4 7 7

NELP - III 8 6 9

NELP - IV 10 0 10

NELP - V 10 2 6

NELP - VI 25 6 24

Total 58 34 63

Allocation of blocks under NELPprogramme

(excl. relinquished blocks):

Source : http://dghindia.org





BUDGET HIGHLIGHTS


POSITIVE

PHARMACEUTICALS

n Increased allocation on Health spending @ 21.9% to Rs.152.91 bn

n Increased Allocation of funds for HIV/ AIDS treatment to Rs. 9.69 bn

n Increase allocation on Polio eradication to Rs. 12.90 bn

n Exemption of clinical trails from service tax

n Custom duties on Chemicals and Medical equipment is reduced from 12.5% to7.5%

n Tax incentive for R&D has extended for 5 years ( 150% Weighted Average Tax)

n FBT on Free samples and Display has excluded

n Positive for Max India and Apollo Hospital.

n Companies like Cipla,Wockhard,Ranbaxy, Aurbindo and Novarities will bebenefited.

n Positive for Panacea.

n Positive for Research and CROs companies.

n Positive for API manufacturing companies, Apollo hospital and Max india will bebenefited

n Positive for MNCs and companies like Ranbaxy, Sun Pharma, Dr. Reddy’s,Glenmark and Biocon.

n Positve impact on Pharma companies.

n Panacea, Cipla, Ranbaxy, Dr Reddys, Wockhard, Biocon, Sun Pharma, ApolloHospital and Max India






BUDGET HIGHLIGHTS

BUDGET IMPACT: NEUTRAL

NEUTRAL

POWER

n Seven More UMPPs to be Awarded

n Extended by one year to 31st March 2008

n Increased Allocation to Rs.3,983 crore

n Increased Allocation to Rs.800 crore

n Increased demand for electrical equipments from companies like BHEL,Siemens, ABB

n Benefit to companies like Ratnagiri Gas & Power (Dhabhol) [unlisted]

n T&D companies to be key beneficiaries of higher orders and demand forequipments

Tata Power, Reliance Energy, NTPC, BHEL, Siemens, KEC, Jyoti Structures,Kalpataru, RPG Transmission






BUDGET HIGHLIGHTS

BUDGET IMPACT: NEUTRAL

Neutral

PAPER

n Custom duty reduced to 10%

n Education outlay increased by Rs 34.2% to Rs 324 bn

TNPL, BILT, JK Paper, Andhra Paper

n Negative to neutral since expenditures on stores, consumables and chemicalswill also come down

n Slight Positive impact






BUDGET HIGHLIGHTS

BUDGET IMPACT: POSITIVE TELECOM

n Committee for review: Department of Telecom to commission a study forworking out a unified tax structure for the sector. The annual revenue shareranges between 6-10 per cent of their revenues depending upon the circle wherethey operate. A unified tax structure has been a long-standing demand of telecomcompanies

n Service Tax: Extension of service tax for development and supply of content foruse in telecom and advertising purposes

n Rural connections: 15,054 villages have been covered under rural telephonyand efforts to be made to complete the target of covering 20,000 villages by2006-07.

n Currently service providers pay 6% to 10% AGR in different circles as licensefees. Part of this is apportioned towards USO fund, with the unified rate of 6%would further reduce the tariffs and increase the wireless penetration, whichinherently benefits players like, Bharti, R-Com, Idea.

World’s 10 largest mobile marketsby net addition in 2006

China 77,997,000India 53,784,800Russia 27,199,600Pakistan 26,600,500USA 24,017,200Indonesia 16,802,500Brazil 15,671,600Ukraine 12,206,500Nigeria 10,359,800Bangladesh 10,340,000

Source: Industry

0

20

40

60

80

100

120

Dec-01

Dec-02

Dec-03

Dec-04

Dec-05

Dec-06

(Subsc

riber

sin

Mn)

0

20

40

60

80

100

120

All India YoY Growth

All India cellular subscriber figures




BUDGET HIGHLIGHTS


POSITIVE

TEXTILES

n TUFS extended for 11th five year plan with an allocation of Rs 9110mn for FY08

n Customs duty on polyester fibres and yarns reduced from 10 per cent to 7.5 percent. The customs duty on DMT, PTA, MEG also reduced from 10% 7.5%

n Increased allocation towards TUF provides support to industry for the largeinvestments planned

n Reduction in customs duty on these products to bring down the cost of PSFand VSF

n Lakshmi Machine Works, Rajasthan Spinnin

OVERALL VIEW ON STOCKS-




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Weston Street033-22118369Tagore Street033 - 22597938Tarachand Dutta Street,033- 26501114Grant Lane09830667686Mukherjee Road033 24668300KOTA0744-2502877LUCKNOW9839552211MADURAI0452-3018691/92/93/94/0452- 4379688MYSORE0821 4250696MUMBAIBorivali022-28334629Borivali022-56610312Borivali9867697105Borivali9867129422Dadar022-32605528Dhobi Talao022-56023723Fort022-22653471/22875805Fort022-22704710Ghatkopar022-25122448Goregaon022-28770991J B Nagar9892343344Khar022-26049302Lokhandwala022-56778638/39Malad (E)022-28820352Malad (W)022-28891770Malad (W)022-28777679Masjid Bunder022-56357597Masjid Bunder9224575600Mulund022-25614154Mumbadevi23460060 / 61 /62Oshiwara9821233777Powai022-28573098Santacruz9869102930Santacruz (w)26616085 / 7075Ulhasnagar95251-3952746Versova022-26360617-18Vile Parle022-26714805NAGPUR0712-2538191NELLORE0861-2330841Sitabuldi0712-2558455NASHIK0253-5607814/15Gangapur Rd9326173938

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Emkay Share & Stock Brokers Limited (Emkay) has two separate independent equity research groups: Institutional Equities and Private Client Group. This document has been prepared by Emkay – PrivateClient Group (Emkay -PCG). Affiliates of Emkay Institutional Group may have issued other reports that are inconsistent with and reach different conclusions from the information presented in this report. Theviews and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating and target price of the Institutional Equities Research Group of Emkay Share & StockBrokers Limited. This document is not for public distribution and has been furnished to you solely for your information and any review, re-transmission, circulation or any other use is strictly prohibited. Personsinto whose possession this document may come are required to observe these restrictions. This document is subject to changes without prior notice and is intended only for the person or entity to which it isaddressed to and may contain confidential information and/or privileged material. We are not soliciting any action based upon this material. This report is not to be construed as an offer to sell or the solicitationof an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It is for the general information of clients of Emkay -PCG. It does not constitute a personal recommendationor take into account the particular investment objectives, financial situations, or needs of individual clients. Though disseminated to all the customers simultaneously, not all customers may receive this reportat the same time. Emkay-PCG will not treat recipients as customers by virtue of their receiving this report. We have reviewed the report, and in so far as it includes current or historical information, it is believedto be reliable. It should be noted that the information contained herein is from publicly available data or other sources believed to be reliable. Neither Emkay, nor any person connected with it, accepts any liabilityarising from the use of this document. This document is prepared for assistance only and is not intended to be and must not alone be taken as the basis for any investment decision. The recipients of this materialshould rely on their own investigations and take their own professional advice. Price and value of the investments referred to in this material may go up or down. Past performance is not a guide for futureperformance. Opinions expressed are our current opinions as of the date appearing on this material only. We do not undertake to advise you as to any change of our views expressed in this document. Whilewe would endeavor to update the information herein on a reasonable basis, Emkay, its subsidiaries and associated companies, their directors and employees are under no obligation to update or keep theinformation current. Also there may be regulatory, compliance, or other reasons that may prevent Emkay and its affiliates from doing so. Prospective investors and others are cautioned that any forward-lookingstatements are not predictions and may be subject to change without notice. Emkay and its affiliates, officers, directors, and employees may: (a) from time to time, have long or short positions in, and buy orsell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in thefinancial instruments of the company (ies) discussed herein or act as advisor or lender / borrower to such company (ies) or have other potential conflict of interest with respect to any recommendation and relatedinformation and opinions. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or theirsecurities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.Analyst’s holding in the stocks mentioned in the report: NIL

Name Sector Tel No E-mail id

Avinash Gorakshakar Head of Research +91 22 6612 1206 [email protected]

Umesh Karne,CFA Auto, Auto Ancillary, Capital Goods, Power Equipment +91 22 6612 1281 [email protected]

Manish Balwani Cement, Construction +91 22 6612 1278 [email protected]

Sanjeev Hota IT, Telecom, Media +91 22 6612 1243 [email protected]

Pratik Dalal Hotels, Packaging, Retail +91 22 6612 1280 [email protected]

Suman Memani Mid-caps, Construction & Realty +91 22 6612 1279 [email protected]

Sunita Karwa Research Associate +91 22 6612 1282 [email protected]

Manas Jaiswal Technical analyst +91 22 6612 1274 [email protected]

Rajesh Manial Associate Technical analyst +91 22 6612 1275 [email protected]

Zeal Mehta Derivative Analyst +91 22 6612 1276 [email protected]

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