Growth triggers still missing in Nirmala Sitharaman's second Budget

Companies which stand to gain the most are rural focused players, gas utilities, building material makers and logistics firms.

The Street was disappointed with the lack of major measures to boost consumption, and shed the most in a single trading session in over three years. While the Budget largely focused on boosting investments in the agricultural and infrastructure sectors, it did little to alleviate the stress in two key sectors of the economy – auto, which accounts for half of the manufacturing GDP, and real estate, the second largest employer after agriculture. In addition, the lack of announcements to reduce the stress in the non-banking financial sector is also seen to be a headwind for consumption growth. The gradual withdrawal of tax deductions could be a negative for insurance, mutual funds and real estate, as well as for savings in general. Companies which stand to gain the most are rural focused players, gas utilities, building 
 

ABB India

• With a near leadership in data centres, ABB is well-placed to benefit from the opening up of sector to private players
• ABB’s execution track record, especially in last 2 – 3 years, also adds to the appeal
• In its leaner avatar, it caters to high growth markets like automation (for sectors like cement, metals, oil and gas), transportation (metro and railways), electric vehicles, energy efficiency and robotics, which help it strike a good balance between products and services
• Valuations at 50x CY20 earnings are rich

Astral Poly Technik
 

• Agriculture and irrigation allocated Rs 2.83 trillion, another Rs 3.6 trillion allocated for Jal Jeevan Mission with an aim to supply water to all households
• These initiatives coupled with setting up of new smart cities should boost demand for pipes, wherein analysts see Astral Poly Technik as a major beneficiary
• Anti-dumping duty imposed on CPVC pipes last August for six months is already accruing benefits for Astral
• Analysts expect Astral’s earnings to grow at a fast pace in the coming years

Container Corp of India

• Investments in railway infrastructure through public-private-partnership model is a major trigger
• Seamless national supply cold chain for perishables is also a positive
• Proposal to launch national logistics policy will create a single-window e-logistics market, benefitting Concor
• Completion of the dedicated freight corridor, both on western and eastern sectors, will help boost volumes
• A divestment candidate, sale of additional stake are other triggers

Dabur India
 

• Dabur will be a beneficiary of a likely improvement in rural economy with government’s aim to double farmers’ income in the medium term; and good rabi season along with higher minimum support prices for crops in the near term
• Around half of its business comes from rural areas, which could go up as Dabur is deepening its rural footprint by adding new villages under coverage
• Strategy to focus on key power brands
• International business continues to add to Dabur’s earnings

DLF

• DLF was the biggest loser among realty stocks on the Budget day in absence of major measures to revive the sector Affordable housing got some benefits, but the company is not a major player in this segment
• No announcement on easing of liquidity pressure could worsen the situation for the sector amidst weak demand
• Intention to do away with tax exemptions for interest payment on housing loans gradually is a major negative

Hero MotoCorp

• Steps to boost rural economy with a healthy allocation of ~1.6 lakh crore to irrigation and allied sectors, and increase in agricultural credit along with support for smaller enterprises to help two wheeler companies
• Expectations of a strong rabi crop, better farm realisations and reservoir levels also a positive
• With about half its revenues coming from rural India and downtrading by customers due to increase in vehicle prices, Hero stands to gain
• Changes in income tax slabs will result in higher disposable income and help revive two wheeler demand

Hindustan Unilever

• Along with focus on rural India, the government’s aim to double farmers’ income by FY22 improves outlook for players like Hindustan Unilever (HUL)
• HUL earns around 40 per cent of revenues from rural pockets and will gain due to its largest distribution network and a wide product range
• Good rabi season and increase in minimum support price of crops are likely to support rural economy
• Would also see higher cash flow from abolition of dividend distribution tax
• A sustained push to premium products and merger of GlaxoSmithKline Consumer further improves its earnings outlook

ITC

• ITC would need price hikes of 6-7 per cent to offset the 11-12 per cent increase in excise duty on cigarettes
• A sharper impact is likely on deluxe-sized filter tipped segment, which is 40 per cent of ITC's cigarette volumes
• Analysts estimate that profit of cigarette business may fall by 13-15 per cent if price hikes are not taken given its 85 per cent contribution to ITC’s operating profit
• While competitive intensity from smaller players is rising in the mass segment, illegal cigarettes in premium segment is also a concern
• Rural and tourism push to help ITC’s FMCG and other business

Indraprastha Gas            

• Expansion of National Gas Grid from 16,200 km to 27,000 km will be a big positive for GAIL, the country's largest pipeline infrastructure company
• Awarding of new city gas distribution rights and improved gas consumption will help GAIL’s transmission volumes to continue growing at a healthy pace
• GAIL is already expected to benefit from rising consumption due to start of new fertiliser plants with take-or-pay clause
• The stock trades at 5.5x FY21 estimated EBITDA, a discount to its five-year average of 7.4x

Narayana Hrudayalaya  
 

• Proposal to set up hospitals in 112 districts under public-private partnership will benefit players such as Narayana
• Empanelment of hospitals as part of Ayushman Bharat Scheme is another positive for the healthcare player
• Narayana Hrudayalaya remains better placed among peers with specialised services
• Moreover, expanded capacities will also add to the company’s volumes
• Improving maturity profile of its hospitals will further help the company improve its profitability

SpiceJet
 

• Development of 100 more airports proposed by 2024 to support the UDAN scheme for regional connectivity
• SpiceJet is the one of the key players in the tier II and tier III cities and should benefit from the boost in passenger volumes
• Krishi Udan, focus on tourism development and steps to develop tourist destinations are also a positive
• Near-term concerns from falling passenger growth, engine issues and yield pressures will continue to be headwinds for the sector

Ultratech Cement
 

• The 6 per cent increase in Pradhan Manti Awaas Yojana outlay to ~27,500 crore is positive for cement companies
• Extension of additional deduction of ~1.5 lakh interest on affordable housing loans to March 2021 indirectly bodes well for cement makers
• Continued focus on metro railway projects and plan to develop 100 new airports will improve cement demand
• Cement prices are already rising and gains from incremental demand will be benefit UltraTech, which has expanded capacities