Riding on high growth: Key gainers from the Budget 2021 proposals

A 7.5 per cent rally in the Sensex over the past two trading sessions gives a clear indication of what the street thinks about the Budget and corporate earnings in the December quarter. A status quo on taxes and the government emphasis on growth are considered to be the right prescription by experts.

The focus on long-term growth drivers such as investments in infrastructure is expected to have a multiplier effect, while asset monetisation and divestment would help generate necessary funding. Given the infra tilt, the key gainers are companies and service providers in the construction value chain. Further, a focus on localisation and increase of duties in select sectors are also expected to boost manufacturing across sectors.

The other key gainer has been the financial space, given the proposals for privatisation and steps to address the bad-loans issue through the creation of a bad bank. 

Larsen & Toubro

 

• The Budget proposals emphasised on infrastructure investment, with focus on roads, railways, water, sanitation, and metro and urban development.
• Larsen & Toubro (L&T) is present in all the areas under infrastructure. 
• The firm’s current order book (excluding services business) at Rs 3.3 trillion or 3.6x in last 12 months revenue, provides ample growth visibility.
• Factoring in higher execution from infrastructure investments and externally funded projects as indicated in the Budget document, analysts at ICICI Securities have raised their earnings estimate by 4-6 per cent for FY21, FY22, and FY23.

ABB India

• All-time high allocation to Ministry of Railways, with increase in traffic facilities, electrification, and new lines to aid component makers such as ABB India.
• Result-linked power distribution scheme, with an outlay of Rs 3 trillion, will help create infrastructure including pre-paid smart metering and feeder separation as well as upgradation of systems.
• Jal Jeevan Mission, Urban Swachh Bharat Mission, PLI schemes, and mega investment textile parks are positive for ABB, according to Anand Rathi Research.

Ashok Leyland

• A 26 per cent rise in infrastructure investments across sectors will be beneficial to commercial vehicle (CV) makers.
• Within infrastructure, the focus on improving road infrastructure will be a key trigger for pure-play CV companies such as Ashok Leyland. Increase in defence allocation will also help as the company has some exposure to the segment.
• Scrappage of CVs after 15 years after a fitness test should open up a vast market for replacement aiding volumes.

Astral Poly Technik

• The Centre has set aside Rs 2.9 trillion to provide tap water connection to nearly 30 million households under the Jal Jeevan Mission.
• Creation of a micro irrigation fund with a corpus of Rs 5,000 crore under the NABARD is also proposed.
• These initiatives and government’s efforts to boost affordable housing are positive for pipe manufacturers like Astral Poly Technik.
• Pickup in construction activity, demand revival in metro, and market share gains from unorganised players are key triggers for the stock.

Container Corp Of India

• Commissioning of Eastern and Western Freight Corridors by June of 2022 could help tilt the cargo mix in favour of rail and aid market share gains.
• Higher volume share and double stacking to help improve efficiencies and margins of the largest rail container freight operator.
• The government reiterated its stance on Container Corporation’s divestment to be done by FY22 which is positive for investors.
• Valuations however will depend on revised land licence policy and the uptick in trade volumes.

State Bank of India

• Among state-owned banks, State Bank of India (SBI) was the first to regain the Street’s confidence after its September quarter (Q2) numbers.
• With healthy earnings growth, analysts feel SBI’s financials are on course for normalisation.
• Net NPAs, even without the Supreme Court’s stay on asset quality classification, came at 2.08 per cent in Q2, lower than a year ago.
• Analysts say, Budget’s proposal to set up an asset reconstruction company to buy bad assets from PSU banks is positive for SBI and others.
• The Budget's pro-growth proposals should mean higher growth for SBI.

Sanjeev Prasad MD & Co-head, Kotak Institutional Equities

“The Budget focuses on growth, and has relaxed the medium-term fiscal consolidation targets. The government has rationalised expenditure from the high FY21 levels, while providing higher support. The bigger focus remains on supply-side reforms to kick-start the investment cycle, critical for India’s medium-term growth prospects. Higher-than-expected bond yields pose the biggest risk to the market, as earnings recovery is largely priced in the market’s high valuations,” says Sanjeev Prasad MD & Co-head, Kotak Institutional Equities.

Dilip Buildcon

• Increase in the budgetary outlay to roads and highways from Rs 1.07 trillion last year to Rs 1.22 trillion in FY22 is seen as a positive sign for road contractors such as Dilip Buildcon. It would lead to higher awarding and construction of projects.
• Dilip Buildcon already has a healthy order book of nearly Rs 26,000 crore, which provides earnings visibility for three years based on its FY20 revenues.
• Analysts say pickup in execution, aided by improved labour availability, and focus on improving balance sheet through asset monetisation have enhanced the outlook.

UltraTech Cement

• The government’s thrust on infrastructure spending and affordable housing bodes well for cement demand and India’s largest cement maker UltraTech.
• UltraTech Cement’s strong pan-Indian distribution network and preferred supplier status for key infrastructure projects place it well to tap into expected growth in both retail and institutional (non-trade) cement demand in India, said an analyst at Motilal Oswal Securities.
• Improvement in demand and capacity utilisation should lend more pricing power to cement players, thereby helping maintain profitability.

Motilal Oswal, MD & CEO, Motilal Oswal Financial Services

“Absence of negative news is a big positive, and so is the Budget's focus on infrastructure and capex-led economic recovery. The Centre has made considerable progress in formalising the strategic path for disinvestment and privatisation. While 

it seems to have the right intentions, execution will be key. Overall, it has succeeded in laying out a strategic growth path for the economy. Successful implementation of the measures will help in keeping equity markets buoyant,” says Motilal Oswal, MD & CEO, Motilal Oswal Financial Services.

ICICI Prudential Life Insurance

• Withdrawal of tax incentives on unit-linked insurance plans with premium of over Rs 2.5 lakh pa may impact near-term inflows.
• While overall premium growth is yet to rebound, what’s working for the life insurer is the ability to grow its protection and savings product and reduce its dependence on ULIPs.
• This strategy has helped the life insurer improve its value of new business (VNB) margin significantly to 26 per cent in December quarter, up over 450 basis points year-on-year, placing it as the most profitable business among peers.

Indraprastha Gas

• The Budget focuses on creating gas economies to reduce air pollution, which has a huge health implication in India, in line with Vision 2030, which aims to boost the gas mix to 15 per cent from 6- 7 per cent.
• Extension of the PM Ujjwala Yojana to another 10 million beneficiaries along with the addition of 100 more districts to the city gas distribution network is seen boosting gas demand over the long term.
• A V-shaped recovery, best in class track record, steady margin improvement and healthy balance sheet are the key factors analysts remain positive on the company.

Prestige Estates Projects

• The extension of tax holiday for developers of affordable housing projects by one year will be positive for the company.
• Additional interest deduction of Rs 1.5 lakh available currently on affordable housing loans has been extended by one more year.
• Debt financing of real estate investment trusts (REIT) by foreign portfolio investors (FPIs) improves the funding options and could help raise funds at lower rates. This coupled with clarification on dividend income of FPIs are positive.

Titan Co

• The custom duty cut on gold and silver from 12.5 per cent to 10 per cent will reduce gold prices, and thereby spur fresh gold/jewellery purchases.
• This is a welcome change for an industry, which has seen two years of back-to-back volume declines, courtesy spiralling gold prices (30 per cent year-on-year), said HDFC Securities in a recent note.

• The duty cut is also likely to dissuade smuggling of gold and also makes organised jewellery retailers more competitive versus their unorganised counterparts.

Net sales and net profit are for trailing 12 months ; Price, market cap, P/E (price-earnings ratio), dividend yield as of Feb 01, 2020.Source: Capitaline; Compiled by BS Research Bureau