Execution challenges, rising input cost and interest rate scenario continue to remain a concern and will continue to drive the financial and stock performance.
Indian infrastructure companies have been lagging behind investors’ expectations for quite some time as their financial performance have been affected by slowdown in order inflows, delays in execution, challenges in getting financial closure, environment clearance and land acquisition.
All this has led to lower than expected sales growth for the past few quarters. Further, profitability has been impacted by rising input costs and interest rates.
While key issues related to land acquisition, environmental closure and rising interest rates are outside the purview of the Budget measures, the Finance Minister has somewhat tried to meet financing needs of the companies in the sector.
Budget Proposals
Proposal: Budgetary allocation for the sector has been increased by 23% to Rs 2,14,000cr
Impact: Higher order inflows
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Companies: Positive for the sector
Proposal: Tax free infra bonds worth Rs 30,000 crore by various government undertakings; additional tax deduction of Rs 20,000 for investment in long-term infrastructure bonds extended by one more year
Impact: Investors will benefit due to tax deductions available and companies will benefit as it will ease their financing needs
Companies: Positive to companies who borrow
Proposal: FII limit for investment in corporate bonds issued in infrastructure sector doubled to $40 billion
Impact: Higher foreign flows into the sector
Companies: Positive for the sector
Proposal: Parallel excise duty exemption for domestic suppliers producing capital goods needed for expansion of existing mega or ultra mega power projects (UMPPs)
Impact: Anomaly of full excise paid by domestic manufacturers and concessional basic customs duty of 2.5% enjoyed by imported equipments has been corrected
Positive for: Larsen and Torubro and Bharat Heavy Electricals Limited
Proposal: Removal of production and distribution bottlenecks for items like fruits and vegetables, milk, meat, poultry and fish. Scope of exemptions from excise duty enlarged to include equipments needed for storage and warehouse facilities on agricultural produce.
Impact: Higher investments for building cold chains
Positive for: Voltas, Blue Star
Proposal: Exemption limit for the general category of individual taxpayers enhanced from Rs 1,60,000 to Rs 1,80,000
Impact: Higher disposable income with consumers
Positive for: Voltas, Blue Star
Proposal: IFCL to achieve cumulative disbursement target of Rs 20,000 crore by FY11-end which will further go up by 25% in FY12; Seven projects sanctioned with debt of Rs 1,500 crore under take-out financing scheme while another Rs 5,000 crore will be sanctioned in FY12
Impact: Ease in financing of long term funds needed by infrastructure companies as banks are largely constrained due to asset liability mismatch and at 13% of outstanding credit of banks, infrastructure sector is close to the maximum sectoral allocation limit
Companies: Positive for the sector
Measure: Current surcharge of 7.5% on domestic companies reduced to 5%
Impact: Lower taxation leading to higher profit
Companies: Positive for the sector
Proposal: Rate of Minimum Alternative Tax proposed to be increased from 18% to 18.5%
Impact: No significant increase in effective taxation costs
Companies: Positive for infrastructure developers or asset owners
Sector outlook
The Finance Minister expects Indian economy expected to grow in the range of 8.75-9.25% FY12. This means continued growth momentum in the infrastructure sector in terms of order inflows. However, execution challenges, rising input cost and interest rate scenario continue to remain a concern and will continue to drive the financial and stock performance.