The government In budget 2012 seems to have chosen the middle ground - a bit of fiscal consolidation, a bit of reform (offshore debt funding, capping subsidies) and a bit of hope (economy is picking up – higher tax rates should not impact growth), reports Rahul Kamat.

The market has broadly come to terms with the fact that the government is shackled by political and fiscal considerations and is not in a position to deliver major reformist budgets. In the backdrop of these modest expectations, Union Budget 2012-13 comes across as a job reasonably done. Somewhere, after the Uttar Pradesh elections there was some degree of concern that the populism may hold say; this budget at least dismisses those concerns by increasing tax revenues significantly and not indulging into any major populist expenditure increases. 

Continuing the trend seen in the last few years of increasing the availability of funds to the economy, especially to the infrastructure and priority sectors, in this budget as well as key announcements were made on that front.  This include doubling the fresh issue amount of tax-free bonds to Rs60,000 crore and reduction in withholding tax rate for three year external commercial borrowings (ECB) taken to fund infrastructure projects. 

While the private sector were facing the constraints in the past for lending from banks, the announcement of liberalizing ECBs will ensure smooth access to the funds and provide an impetus to bid for more projects. Says Amitabh Das Mundhra, Director, Simplex Infrastructures Ltd, “Doubling of infrastructure bonds from Rs30,000 to Rs60,000 crore is a well thought move for mobilizing the resources in the sector.” 

There is an expectation of a robust secondary debt market, which would increase participation from retail and foreign institutions. This would help companies in raising public debt at competitive rates. In the year 2011-12, the infrastructure sector was plagued by several headwinds – such as depleting order books, high interest rates and policy paralysis – resulting in execution slowdown and shrinking bottom lines of most of the infrastructure companies. Positively, infrastructure development remained high on the agenda of the budget. The budget has introduced several measures such as lowering the rate of withholding tax on interest payments on three year ECB’s for funding infrastructure projects and encouraging public private partnership in road construction projects by allowing ECB’s for capital expenditure on the maintenance and operations of all toll systems for roads and highway. It has added capital investments in irrigation, fertilizers, telecom towers and oil and gas to the list of eligible items for viability gap funding.

In terms of infrastructure ordering, it targets to award 8800 km of road projects in FY2013 by National Highway Authority of India as against 7300 km in FY2012 and has increased allocation of National Highway Development Programme (NHDP) and Accelerated Irrigation Benefit Programme (AIBP) in FY 2013 by 14% and 13% respectively. 

The higher allocation towards the number road projects, allowing NHAI to raise Rs10,000 crore through tax-free bonds means the authority would be able to award higher number of projects in the coming year. The reduction in the withholding tax from 20% to 5% will be beneficial to road builders but only concern on availability of foreign funds through ECB. 

Overall, the budget's impact on the sector is neutral. Another positive development for road developers is promoting Qualified Foreign Institutions to invest in corporate debt market. With increased participation, companies could raise public debt at competitive rates. 

Says M Murali, Director General, National Highways Builders Federation, “Unless the government allows the insurance sector and provident fund sector to invest the money into road sector by securitizing the loans to road sector the future plans may be bleak.” 

“We as an infrastructure company welcome the government’s move of announcing full exemption on imported equipments for road construction projects, this will have a hugely positive impact on the sector,” said Mundhra. 

Dr GVK Reddy, Chairman and Managing Director, GVK Power & Infrastructure Ltd overviews the budget as growth-oriented and aimed at sustaining the growth impetus seen in 2011, while giving main emphasis to sectors such as agriculture and industry. “This, according to me is integral to support India’s development ambitions in the long term,” he said adding, “It is positive, broad- based and an inclusive Budget that endeavours to address crucial reforms for development.”

Since the infra sector and construction equipment industry goes hand in hand, the construction equipment players examines the budget as positive sign for the sector. Opines, Anand Sundaresan, Managing Director, Schwing Stetter, “The infrastructure industry and construction equipment manufacturers are looking at the big chunk coming out of the $1 trillion investment on infrastructure proposed in the 12th five year plan.”

Meanwhile, Marg Group is happy to see the abolishment of dividend distribution tax (DDT). "This will now benefit infra companies that typically operate with a special purpose vehicle model," says GRK Reddy, Chairman & Managing Director of MARG Group.

According to Vinayak Chatterjee, Chairman, Feedback Infrastructure Services Pvt Ltd, instead of the PM’s office fire-fighting on various infra fronts, a sustainable institutional intervention like an Infra Ministry or an infra fast tracking board were given the go-by.

The increase in the service tax from 10% to 12% and hike in excise duty to 12% is the only dampener for the infrastructure sector. This can negatively affect the growth prospects of the sector and can further result in higher costs for infra players. Alok Sanghi, Director of Sanghi Industries Ltd, was disappointed with the higher taxation on account of excise and service taxes, which was unwarranted.  At times when freight costs have gone up recently, says Sanghi, this will impact the cement prices and will lead to inflationary trends. 

“On the other hand the focus of Government on the demand generation with special focus on infrastructure and low cost housing is commendable and will lead to better demand of cement,” he further states.  While most of the infra players were convinced with the budget, sectors such as power, ports and shipping and real estate gave thumbs down to FM’s initiatives. 

Although the power sector is another sector that has received extended attention from the budget, it failed to address the issue of bankrupt DISCOMS, escalating imports of electrical equipment, which has led to sharp deceleration in the growth of domestic electrical equipment industry.

The apex body of the domestic electrical equipment industry, IEEMA feels that the power transmission and distribution sector has been largely ignored while the generation sector has received some attention. 

Says Ramesh Chandak, President, IEEMA, “The hike in service tax and excise duty rates, will further impact the top-line and the bottom-line of electrical equipment manufacturers and consequently their commercial viability, which are already facing a crunch and working at broadly 65% of their production capacities.”

There were various favorable announcements in the budget for the sector, which has been grappling with fuel shortage, elevated price of imported coal and poor financial situation of state electricity board. Major announcements included waiving off basic custom duty on coal imports until FY 2014 and extension of 80-IA benefits to partially address the fuel availability issue and would be more beneficial for companies relying on imported coal for running their plants. Other positive announcements for the power sector included tax-free bonds of `10,000 crore for financing the power sector, allowing ECBs for part financing rupee debts of the existing power projects and reduction of withholding tax on interest payments on ECBs from 20% to 5%. These measures come on the back of recent PMO missive to Coal India to sign FSAs up to 80% of the fuel requirement of power companies – highlighting the government’s intention to undo some of the negative for the sector. 

Agrees Anil Sardana, Managing Director, the Tata Power, the removal of customs duty on imported coal, natural gas, LNG, and the incentives for the mining sector will marginally improve coal supply, but is still a far cry from achieving adequate fuel security. However, other measures including the Fuel Supply Agreements with CIL should provide some relief. 

Echoes Chetan Tamboli, CMD, Steelcast Ltd, “A lot of relief for power producers is considered in the budget by way of nil custom duty on import of coal and to allow ECB to part finance power plants. This will give growth to the nation’s economy.”  

Moreover, the Tata Power expects stronger sustained steps to be taken beyond the Budget, to address the core issues faced by the power sector. Given the huge effort required in rural electrification, the fall in Central Plan allocation for Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) from Rs6,000 crore (BE 2011-12) to  Rs4,900 crore (BE 2012-13) is a matter of concern. Further, the revised estimates of Rs3,544 crore against the budget estimates for 2011-12 show that funds provided have not been fully utilised.

Solar and wind energy which has emerged as a leading green energy technology has been largely ignored in the budget. “Even after our representation to the Union Planning Commission and the Union Ministry of New and Renewable Energy, the wind energy sector did not see any priority sector lending and reduction in the interest rates making the wind energy projects unviable with the present tariff rates,” says disappointed Ramesh Kymal, CMD, Gamesa Wind Turbines.

While the Union Finance Minister has announced customs duty exemption on imported coal and natural gas for power projects, there was nothing supportive in the budget for the wind and solar energy in particular, he While Ramesh Kymal is dismayed with the budget offering, Krishan Mehta, Managing Director, Energetic Lighting India Ltd hails budget as the government exempts the CFL coating chemical, Tri-band phosphor powder from the customs duty and reduced the exercise duty on LED lamps to 6%. 

Analyzing the budget document, EPC World discovered that the ports and shipping industry was largely overlooked. In fact, the total outlay for the Ministry of Shipping was reduced by about Rs850 crore from  Rs6524.92 crore (Budget 2011-12) to Rs5675.47 crore in the current budget. The key reduction appears to have been in budget for the shipping sub-sector which has been reduced from Rs3712 crore to Rs2128 crore. This is possibly in view of the significantly depressed conditions in the shipping markets. The Ports (JNPT and MBPT) and the Dredging Corporation have been given higher allocations aggregating Rs600 crore between themselves. The pain points of the industry have not been addressed.

The reduction in withholding tax from 20% to 5% on ECB related payments will help ports raise low cost foreign debt. The impact of introduction of negative list of services (only 17 of them) being exempt from service tax will need to be analyzed in greater detail to understand its impact on the ports sector as cost comparisons of competing services will undergo a change. 

The incentives given to the power sector such as tax free bonds, oil and gas pipeline projects to be eligible for VGF and removal of customs duty on coal imports will make the import of these fuels cheaper and possibly increase the cushion in the supply chain to pay more to the logistics service providers. 

Presenting his view on budget’s offering for ports and shipping sector,  Hemant Bhattbhatt, Senior Director, Deloitte India, says, “The ports sector would have benefitted from some dispensation for meeting social costs for implementing these projects especially the environment management and the rehabilitation and resettlement costs.” A weighted deduction on the lines of R&D expenditure to these costs would have been order. “On the whole a disappointing budget for the ports and shipping sector,” observes Bhattbhatt. 

As far as real estate sector is concerned, the industry has given mixed reaction. It seems fair to state that the Indian real estate sector does not have much to cheer about. The Union Budget has failed to highlight the role of the housing sector in the economy while also failing to acknowledge the significance of employment generation by the sector and the need of housing in the country. The Union Budget is clearly an opportunity missed by the government in achieving the dual purpose of providing shelter to weaker sections while boosting the GDP of the country.

To begin with, industry experts feels that, it is difficult to see the raising of the personal income tax exemption limit from Rs1.8 lakh to Rs2 lakh as anything more than tokenism. It is certainly not relevant for the aspiring Indian middle-class home buyer. The expected exemption limit of `3 lakh would have had some significance. That said, the 1% tax rebate for home loans of upto Rs15 lakh on homes costing upto `25 lakh will prove beneficial for developers in this segment Exempting proceeds from the sale of a residential property from capital gains tax if they are invested in equity or equipment of an SME definitely provides home owners with more reinvestment options. Previously, the only route for exemption was purchase of another property or tax saving bonds. “At the same time, this move could also result in a lowering of sales volumes on the secondary sale market,” projects Anuj Puri, Chairman & Country Head, Jones Lang LaSalle India.

The increase in the service tax rate from 10% to 12% will increase the cost of production for developers, who are already reeling under high input costs. It follows that this increased burden will be passed on to end users. This will mean an indirect impetus to real estate creation as well,” views Anurag Mathur, Managing Director, Cushman & Wakefield India.

Allowing External Commercial Borrowing (ECB) for affordable housing is, without doubt, an excellent move. It will ensure better capital availability for developers of low-cost housing. This sector is typified by low margins, and it becomes attractive only if developers are enabled to produce greater volumes. Better capital availability will help in timely project execution, which will result in higher volumes.

Jitendra Jain, MD & CEO, Neev Group feels that relaxation of ECB norms will certainly boost investments in the affordable housing sector, thereby, aiding the acute housing shortage. The reduction in the rate of withholding tax on external commercial borrowings, says Jain, from 20% to 5% for affordable housing will also give developers easy access to funds and reduce their interest costs. 

The postponement of a firm decision on FDI in multi-brand retail came as a discontent. The country seems to have missed yet another opportunity to boost the Indian economy by ways of significant foreign capital inflows. However, the increased spend on warehousing will certainly help the retail real estate sector, since more storage capabilities will help retailers to expand into more cities and towns. Likewise, the measures to increase funding for highways and other infrastructure will help put more territories on the real estate map. 

Lalit Jain, National President, CREDAI points out another unacceptable fact i.e. the interest subsidy on home loans which is definitely not enough for sustenance and will undeniably not help the economically weaker sections or the lower income group segment. “We definitely expected some boost to affordable housing segment in ways of special schemes and proposals wherein an interest subvention of 5 to 7% for the LIG and EWS housing and promotion of rental housing through tax exemption would have helped in sustaining the growth process of the real estate sector.” 

For infrastructure and real estate sectors, the Union Budget 2012-13 throws up a mixed bag in terms of positive measures and disappointments. However, amidst a backdrop of rising inflation, tight liquidity, high interest rates, industrial slowdown, delayed reforms and a negative market sentiment, the budget at best can be described as ‘realistic’ and to a large extent ‘growth oriented’.

What a South Mumbai is to Mumbai or a South Delhi is to Delhi could well be South Indian cities to India! The question is – will the southern region become the downtown of India?

Southern India has for long been the silent crusader, building and strengthening its real estate development as one of the most sought after destinations in the country. With improving transparency and visibility of the real estate markets in the South zone, cities such as Bangalore, Chennai and Hyderabad have attained a place on the global real estate map, a status that was limited just to Mumbai and Delhi in the past. 

While South Indian cities constitute nearly 45% of the country’s office space, the stock of 140 million sq ft in these cities is projected to grow at a CAGR of 8% for the period 2012 – 2016, lower than the projected national growth of 11%. This implies that the southern cities, particularly Bangalore and Hyderabad, are relatively rationalised in terms of medium term supply of office space, and the cities have chosen a strategy of pursuing selective quality developments over rapid expansion. While this would keep their share in India’s office stock range bound at 37%-40%, the South Zone’s vacancy rate by end-2012 is expected to be 16%, considerably lower than the pan-India vacancy rate of over 20%.

South India’s retail real estate market has gone through a makeover in the past decade when its retail stock grew from a mere 1.6 million sq ft in 2003 to 13.2 million sq ft in 1Q12. The share of South India’s retail stock to the pan-India stock is expected to record a notable increase from 20% at end-2011 to touch 36% by end-2016.

While demand remains healthy for organised retail spaces, it is polarised towards either successful malls or high streets, which have better footfalls and conversion ratio. As the mall stock in the southern cities sum up to breach the 40 million sq ft mark by end-2016, the vacancy by then is expected to witness a notable decline from the peak levels of 2014 to drop below the national average of 20.5%.

South India’s residential market has been an ardent follower of the ‘affordability’ mantra, with more than 80% of the new launches in the past two years being priced under INR 4,000 per sq ft (USD1 812 per sqm). As a result, the residential markets of South Indian cities have remained resilient in the past few quarters, relative to the significant decline recorded in the sales volume of Mumbai and NCR-Delhi. Having exhibited healthy resilience during times of uncertainty, it is imperative for the developers to ensure prudent pricing strategies in the coming quarters to remain competitive as well as sustain the momentum that they have gained during early 2012.

The focus of Indian real estate is shifting from Tier I to Tier II cities, and the southern region is also embracing the same, with secondary hubs developing in Kochi, Coimbatore, Vishakhapatnam and Mysore, that are persistently striving for higher milestones.

Real Estate Intelligence Service, Jones Lang LaSalle India

Mumbai, Feb 27 (EPC News): In the environment of cut-throat competition which exists in the Indian real estate market today, developers without a forward-looking marketing plan for their projects often lose out. Wherever one looks in the larger cities, commercial and residential property projects with dozens of unsold and un-leased units are evident.

One tends to assume that this state of affairs comes from a lopsided demand-supply scenario. While this is largely true, some of it can be attributed to skewed marketing, as well. Some interesting – if disheartening – real estate marketing insights:

• Many newly-launched real estate projects in good locations are losing out on sales because of faulty marketing vision

Coming from an exaggerated perception of the demand for trendy new concepts (‘lifestyle quotient’, ‘green living’, ‘smart workplaces’) the advertising agencies of such developers have hyped these projects off the market. Confronted with the highbrow amenities and specifications featured on hoardings, banners and advertisements, potential buyers often assume that the project is clearly beyond their means.

This ‘marketing disconnect’ seems to happen quite frequently in our larger cities, for either or both of two reasons:

1. These developers have not fathomed what marketing touch points will work with their target clientele.

2. The creative agencies retained for the marketing of these projects have not been able to fathom the developer’s vision, resulting in a fatal Chinese Whisper syndrome.

In both cases, sales and leases take an ‘inexplicable’ and terminal beating.

• An erroneous assumption that long-standing market reputation alone will ensure sales

This fallacy, based on an obsolete truth of the Indian real estate sector’s boom periods, has caused a number of very respectable real estate banners of yesteryears to hang limp in the winds of change that are blowing today.

During the boom time of 2007-’08, a developer’s brand was often sufficient to ensure property sales and leases. The market back then was largely driven by speculators who had very little insight into the true nature of real estate. For these players, a developer’s brand was often the only yardstick, and apartments and offices in newly launched projects were snapped up on that basis alone.

Today, even end-users and occupiers know exactly what they want from the spaces they buy and lease. They will patronize a project because it gives them what they want within their budgets – not because the developer has a long-standing brand.  In short, players who fail to adopt real-time marketing strategies for their projects are falling by the wayside.

• Developers tend to believe that real estate marketing can be safely entrusted to an advertising company

Because they cater to a wide band of business genres and product categories, generic advertising agencies lack the capabilities to deliver effective real estate marketing plans. In fact, most agencies tend to use a standard ‘cookie cutter’ methodology to address real estate marketing needs. In other words, they use large-format press ads, larger-than-life hoardings, radio jingles and kiosks without much thought to customization.

Today, real estate marketing is clearly a domain for real estate experts who are deeply involved in and informed about the Indian real estate market.

What Real Estate Marketing Works Today? 

In many instances, revitalizing a developer’s marketing strategy has required us to scrap the previous plan altogether. It is not uncommon to find a developer’s balance sheet burdened down by exorbitant promotion spends that are yielding zero results. A professional real estate marketing approach requires research-based insights into market demand, micro and macro-economic market influences and the study of historic sales graphs of a particular project typology in a given location. These insights can give an accurate and predictive road map of what the market wants now and will want in the future.

This kind of approach is extremely important from the standpoint that marketing of a project invariably begins much before construction begins. It is imperative to have a marketing plan which factors in real-time demand drivers as well as those that will prevail when the project nears completion.

In short, real-time real estate marketing consists of:

• Studying every facet of the project

• Juxtaposing it against prevalent and future market requirements

• Developing accurately targeted promotion collaterals and advertisements

• Allocating marketing funds in a highly focused, result-oriented manner

Interestingly, such an approach can often result in a 25% decrease in marketing spend and yield with a 20-30% increase in market response.

By Shajai Jacob, Head – Marketing & Communication, Jones Lang LaSalle India

Mumbai, Feb (EPC News): The infrastructure sector has preformed unevenly as per economic survey 2010-11. While the telecommunication sector has performed beyond expectations, the other sectors power, roads, National Highways Development Programme (NHDP) and railways have not been able to match up their targets during 2007-08 to 2009-10.

As per the survey the infrastructure investment is expected to reach to 8.73% of GDP from the 7.18% of GDP level in 2008 - 09. The sub sectors which achieved more the physical targets or even exceeded the targets were telecommunications, villages electrified under the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGYY), railway lines electrification, railway gauge conversion and new and renewal of road constructions under the Pradhan Mantri Gram Sadhak Yojana.

As on October 2010, Only 14  projects were ahead of schedule from the 559 monitored Central sector projects costing Rs150 crore and above. The remaining 117 projects are delivering on schedule with 293 projects have delayed performance and rest have not yet been commissioned. These projects include roads, power, railways, petroleum, telecom, coal and steel.

The delay has been varied in terms of months across sector. In the road transport and highways sector, 51 projects have reported delay in the range of 1 to 36 months; in the power sector 20 projects have reported delays in the range of 1 to 18 months and in the petroleum sector 16 projects have reported delays in the range of 1 to 16 months says the Survey.

As per the survey, the central sector project costing Rs150 crore and above has been successful in achieving steady reduction of time and cost over runs, and the above achievement is attributed to the close monitoring and system improvements  by the concerned ministries.

During the period between April 2010 and November 2010, sectors again had paradoxical performance. The switching capacity addition and cell phone connections in the telecommunications sector have increased by 39.7% and 27% respectively.

Crude oil production has increased by 11.5% and natural gas production by 19.8%.

The civil aviation sector has performed better than the last year in both cargo and passengers handled. The power and cement sectors have failed to impress with their below par performance.

Coal-sector grew at a very mild rate of 0.6 % as against 8% growth in previous year. The coal sector's performance has trickling down effect on thermal power generation this year.

Fertilizer production has also not seen any rise as against the previous year's 13.2% growth.

EPC News Bureau

Mumbai, Feb (EPC News): Amidst the rampant increase of inflation, Angel broking hold the view that Indian economy will stage a performance of 8% GDP growth, despite the potential being around 10% GDP growth.

The economical problem will be sorted out through policy reforms and fiscal actions and only monetary action will not deliver desired results. The other aspects to be considered are saving rate which is currently lower than expected, the looming fiscal deficit coupled with rising supply side inflation.

Angel broking has warned on sliding demand which has been sensed through moderate IIP growth despite the removal of base effect and low level of manufacturing price increases which is major factor in tightening the profit for quite a few companies.

As per the AB the core sectors to have considerable focus in Budget for positive reforms are mining, infrastructure and agriculture. AB expects infrastructure investments to be increased from current 6 – 7% to near about 9 – 10% and also FDI in retail to allowed up to 100%. AB also assumes the government to deliver positively on Fiscal deficit front with the back drop of nearly Rs1 lakh crore generation through 3G auction.

The UPA-II is expected to fasten the process of disinvestment especially for the companies like SAIL and Hindustan Coppers among other companies.

Sector specific view

Capital goods:

With the continuous capacity expansion, the government is expected to continue with the zero import duty on import of equipments for mega power projects (1,000MW and above for thermal) and 5% duty on import for smaller projects. The import duty is levied to encourage the domestic manufacturing and avoid influx of inexpensive Chinese equipments, which are been benefitted through low interest rates and undervalued Chinese currency.

Also the additional fund allocation to the various programs including the APDRP and RGGVY would continue to provide a boost to the transmission line players. AB expects a positive reform for capital goods sector in Budget 2011.

Cement:

The cement sector is having tough times since past one year and half especially due to declining utilisation level resulted from fading demand and simultaneous capacity expansion. The companies are expected to continue in feeling the pressure of thin profit margin due to increase in cost of raw material such as coal, limestone and fly ash.

Any announcement regarding new schemes in regards to infrastructure investments will provide a positive push to the cement sector. The cement sector is expecting that its demand in regards to the rationalisation of duty be considered in this budget. The NCAER has recommended 55% abatement on excise duty as against current Excise duty charged at 10% on cement price above Rs190 per bag; and Rs250 per tonne for cement price below Rs190 per bag.

The reduction of VAT on cement from 12.5% to 4% along with elimination of current 5.1% import duty of the raw materials like coal, pet coke and gypsum, will definitely have a positive impact on the sector. The overall impact is expected to be passed on to the end customer. AB holds neutral view on Cement sector.

Infrastructure

The sector has not been performed positively in the past year. There are various reasons for the non performance of the sectors which include delays in financial closure, environment clearance, reduction in order inflow coupled with the problem relating to land acquisition, inflationary prices, rising interest rates. However, the infrastructure sector is of core importance for economic development.

The Budget-2011 is expected to provide additional allocation to the key infrastructure programmes like Bharat Nirman, JNNURM, APDRP, AIBP and NHDP. The Budget is also expected to roll out policies which would enable to sort out Land acquisition and environment clearance, two major bottle-necks hampering timely execution of projects.

Also, government shall look at more avenues of long-term financing for the sector including creation of corporate debt market, dedicated infrastructure debt fund and attracting foreign investment, which would solve the current asset-liability mismatch problem faced by the banks. However, creation of these funds would require regulatory changes.

The market is expecting that the Tax benefit on investments made in infrastructure bonds be increased to Rs50,000. Reduction of the MAT rate from current 18% will also be beneficial to all the developers. Infrastructure to remain positive as per AB.

Metal & Mining

The budget 2011 will provide mixed bag to metal & mining sector. The ferrous alloys producers by increasing the import duty along with increase in export duty on iron ore which would be a boost to the steel companies. However such moves will have a negative impact on mining companies. AB is xpecting the import duty of ferroalloy to increase from current 5% to 7.5%.

The levying of mining tax of 26% on profit before tax (PBT) would be negative for mining companies as well as for steel companies having captive mines. The excise duty and customs duties on metal products are expected to remain at current levels of 10% and 5%, respectively. The disinvestment policy will continue even in this year which is a positive booster. Metal & Minig sectors outlook is neutral as per AB.

Oil & Gas

The consistent increase in the international crude price has resulted into under recovery of the Oil Marketing Companies up to Rs70,000 crore in 2011. This loss is slated to increase even in 2012 and if the crude prices stabilises at the current level, then OMC will see more red. The oil & gas sector expects the budgetary measures to be focused on reducing these burdens by reducing duties on crude oil and petro products and allocating higher amount of cash compensation.
However, the above said measure shall have very limited positive impact as these would assist in only reducing the losses.

The government needs to clarify over tax holiday provided to the natural gas producers who were awarded blocks during the NELP I-VII rounds. Oil & Gas to have neutral impact.

Power

The country continues to face power deficit due to delay in the commissioning of new capacities, fuel shortage in existing plants and deficiencies in the T&D system. The current situation prevails despite the power being one of the core focus sectors for the government. The sector expects the availability of tax deduction under 80-IA to be beyond 2011.

The deduction under Section 80-IA provides 100% deduction of the profits for 10 years during 15 years of operations, which will of tremendous assistance to the power companies. Also, Abolition of the import duty on power equipment from current 5% will result in to the reduction in the power cost and will be another positive impact for the sector.

For the companies dependent on imported coal any reduction on the import duty on coal from current 5% will be welcomed. AB expects positive impact on Power sector.

Real Estate

Real estate sector has been facing a tough market situation for past couple of years, which is mainly market driven along with the recent banking circulars and cautious watch towards the real estate sectors. In this budget real estate sector hopes that tax holiday under section 80-IB (10) be continues for current projects and also extend the provisions for 2012.

The section 80-IB (10) states that tax-free profit earned by developers and builders earned from housing projects which are below 1,000 sq ft, and have started on or before 31st march 2007 and completed within four years. The continuation of 80-IB (10) is expected to improve the cash availability to the developers and there by the shortage of approx 24mn houses shall also be covered.

The increase of exemption under section 80 C from current Rs1 lakh to approx Rs2 – 3 Lakh will be a boost to the buying fraternity. The increase under section 80 C will improve the affordability of the buyers and thereby positive impact to the sector. Similarly the increase in exemption limit on Interest loan paid for home loan from current Rs1.5 lakh under section 24 to Rs2 lakh will assist the buyers and thereby help the sector.

The sector seeks the recognition of townships as infrastructure development so as to attract the similar tax deductions. As per AB, Real estate not to attract any huge positives or negatives.

EPC News Bureau

Mumbai, Feb (EPC News): The third quarter performance of the cement sector offered a mix bag. The companies having south India focus experienced increased bottom line during Q3 because of supply disciple was managed that resulted in improved realisation.

The improved realisation to an extent nullified the effect of lethargic volume growth and cost pressure during the quarter. The companies operating in the northern and central regions have failed to report a sequential growth in their realisation and disappointed on the volume front as well.

The companies are expected to report a better performance in next couple of quarter on the backdrop of price rise in January 2011.

EPC News Bureau

Run-up to Union Budget 2011: Low on expectation

Mumbai, Feb (EPC News): Amid rising concerns over the government’s fiscal position and the sustained inflation pressures, the Union Budget for 2011-12 is likely to throw some light on the government’s plans to address the core issues. However, given  that elections are due in five states the focus may shift to spending in social sector schemes like the National Rural  Employment Guarantee Act (NREGA), food security and right to education.

Sectoral wish list/expectations:

Capital goods and engineering: In view of the robust investment expected in the Indian infrastructure sector, particularly the power sector, the demand outlook for the capital goods sector remains bright. However, various infrastructural bottlenecks, political scams and organisational inertia have slowed down the pace of awarding of orders in recent times. Nonetheless, most of the companies have revenue visibility for more than two years in terms of their book-bill ratio. However, concerns on Chinese competition would persist unless the government intervenes by withdrawing import incentives. It is expected that the budget impact for this sector remains to be positive.

Cement: Given the poor execution of infrastructure projects, the overall volume growth of the cement industry is unlikely to meet the guidance of 9% for FY2011 and will be in the range of 7-8%. However, the supply discipline followed by the manufacturers so far has resulted in a strong cement realisation in the half year of FY2011, particularly in the southern region. Going ahead, analysts believe a pick-up in the cement offtake could break the supply discipline and bring the prices under pressure. In addition, the key concerns remain an oversupply of cement due to capacity addition and cost pressure in terms of higher coal prices and increased freight cost because of an increase in fuel prices and the lead distance.

Infrastructure: Given the heavy investment required in the infrastructure space, the government’s thrust on infrastructure spending will continue. Even in the last budget the government had increased fund allocation across sectors. However, due to various scams, political issues and high inflation the government’s focus had shifted from infrastructure spending over the past few months. Thus, the project award activity and the execution of projects have been very slow recently, resulting in lower infrastructure spending. However, going ahead, the analysts believe the project awarding activity should pick up once again after the budget.

Oil & Gas: The Indian oil & gas space has witnessed significant reforms in the form of petrol price de-regulation. However, the recent spike in crude oil prices and the mounting inflation pressure have resulted in uncertainty regarding the timing of diesel price de-regulation. The burden of the rising fuel under-recoveries would remain an overhang on the oil marketing companies (OMCs) and upstream companies (Oil and Natural Gas Corporation [ONGC], Oil India Ltd [OIL] and GAIL India). Reliance Industries Ltd (RIL) would benefit from improving refining margins but the declining gas production from the Krishna-Godavari D-6 block is a concern.

Power: During the April-January FY2011 period, India generated about 669 billion units of power and its energy deficit remained in the range of 8%. Against a target of 21,441 MW India has added fresh capacity of about 10,210 MW in the year till date, taking its total capacity to 170,228 MW. This deficit is attributed to several challenges at the execution level and the government could address the same to boost the company’s power generation capacity. The delay from the leading power equipment suppliers is likely to be resolved soon as new players are rolling up their sleeves and would continue to get some kind of support from the government. On the other hand, the shortage of coal in India is another issue at present. To add to that, the deteriorating financial health of the distributing companies (discoms) remains a concern.
 
EPC News Bureau

Mumbai, Aug (EPC News): The JV between NTPC and BHEL is expected to increase the domestic manufacturing capacities in the Balance of Payment segment. At present, the limited number of BoP vendors in India may not be able to effectively support the 100GW capacity additions planned over the next 6 – 7 years.

Most of the BoP vendors are essentially system integrators and source their requirements from relatively smaller manufacturers with limited capacity and capability to expand on technology, engineering and manufacturing. Analysts believe that the scheduled commencement of operations at NBPPL’s manufacturing facilities from FY2014 would help in mitigating the anticipated shortage in the BoP segment.

Though the primary objective of setting up NBPPL is to undertake EPC contracts for power plants and manufacture power equipment, analysts feel that NBPPL would initially focus on setting up its BoP manufacturing facilities, especially coal and ash handling plants. Recent press articles suggest that NBPPL is actively scouting for a global technology provider to support the coal and ash handling segments of the BoP-EPC projects to be taken up by it. The foreign technology partner may also be offered a minority stake in NBPPL. 

Once selection of the foreign technology partner is finalised and clarity emerges regarding the commercial operation date (COD), increasing number of BoP –EPC projects attributable to NTPC and BHEL being awarded to NBPPL. While the above developments may help in alleviating the perceived shortage of BoP vendors, it has the potential to intensify competition in the BoP space leading to loss of pricing power for the existing and aspiring BoP players such as BGR Energy, Mcnally Bharat, Sunil Hitech and TRF.

EPC News Bureau