Published on 19/02/2020 2:59:57 PM | Source: ICICI Securities Ltd

Engineering & Capital Goods Sector - Budget FY21: Infra push and thrust on Make in India By ICICI Securities

Posted in Broking Firm Views - Sector Report| #Engineering Sector #Capital Goods Sector #Sector Report #ICICI Securities

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Budget FY21: Infra push and thrust on Make in India

How the government will be able to mobilise funds, especially from non-tax receipts, continues to be a major uncertainty in the FY21 Budget proposals. However, the intention towards infrastructure investments, especially metro, road, oil & gas, and Railways, is evident given that FY20RE has not been cut vs FY20BE. Additionally, we see generous allocation in FY21BE under roads (up 13.6%), metro (up 8%) and renewables (up 10%). We see a push to Make in India initiative given the hike in customs duty under compressors used for refrigerators/ACs, commercial refrigeration, motors, electrical equipment used in high voltage transmission, etc. Our top picks are: Larsen and Toubro, Engineers India, Kalpataru power, and GE power India.


* Focus on infrastructure investments continue: There is no curtailment in FY20RE despite the challenging environment. Rather, FY21BE for infrastructure spending is higher than the FY20RE. There is significant growth in allocation under roads (up 13.6%), metro (up 8%), renewables (up 10%), oil&gas PSUs for exploration (up 7%) and petchem (up 31%) in FY21BE. However, the outlay towards Railways and defence has been increased by only 3% vs FY20RE given the high base. 


* Thrust on Make in India: The government has made amply clear its intent to incentivise the Make in India initiative by increasing customs duty on various products under commercial refrigeration, compressors used in refrigerators and room ACs, etc. Duty has been increased on equipment used in high voltage transmission, AC motors, static convertors, rectifiers, etc. We believe, these actions will adversely impact Chinese and Korean companies and will be a mixed bag for Indian companies like Siemens, ABB, etc. There will be a marginal impact on the margins of Voltas and Blue Star due to higher customs duty on compressors.

* Oil & gas sector to witness growth: Government capex outlay through extrabudgetary support for exploration and production by PSUs has been increased by 7%, while that for petrochemicals has been upped 31% vs FY20RE. On a high base, refinery capex has marginally declined by 2%.


* Encouragement towards latest technologies: Government has proposed an outlay of Rs80bn over a period of five years for National Mission on Quantum Technologies and Applications. Finance minister is planning to bring out a policy to enable the private sector to build data centre parks throughout the country. This collaborates our report dated 4 th Oct’19 regarding automation and digitisation.


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