More funds for infrastructure

Engineering is a diverse industry with a number of segments. A company from this sector can be a power equipment manufacturer (like transformers and boilers), execution specialist or a niche player (like providing environment friendly solutions).

Budget Measures

	Government's stress on infrastructure spending, in areas like power, construction, ports, and civil aviation
	Specified raw materials for manufacture of parts of cathode ray tubes and specified capital goods for manufacture of mobile handsets, plasma display panels exempted
	10% rebate on railway freight rates for heavy machinery
	2% education cess on all taxes

Budget Impact

	Power accounts for around 60% of revenues of engineering majors like BHEL and L&T. Increase in the country's power generation capacity will definitely have a positive impact on the engineering companies that are involved in power generation, as well as T&D (transmission and distribution) equipment companies. The companies to benefit include BHEL and ABB.
	The government's willingness to create a pool of Rs 400 bn to fund the projects, will boost the private sector participation as well. Also, higher spending on infrastructure projects like roads, railways and ports will give an impetus to the orderbook of engineering companies like L&T.
	Reduction in the custom duty for equipments used in mobile handsets and medical equipments will help engineering majors like Siemens to bring down the cost of their products.

Sector Outlook

Considering the high transmission and distribution losses (around 45%), the government initiated the APDRP scheme. Under this scheme, an expenditure of Rs 400 bn on behalf of central government has been planned. Central government will provide Rs 200 bn to state governments for implementation and upgradation of T&D network (up to 50% of the total project cost will be funded out of Rs 200 bn). And remaining Rs 200 bn will be provided as an incentive to SEBs to reduce the cash losses. Moreover, the government has plans to add another 150,000 MW of power by 2017. In this backdrop we expect the orderbook of engineering majors to grow at a healthy rate. Considering the government's focus on the power and infrastructure spending, we remain positive on the engineering sector over long term.

Industry Wish List

	Custom duty on certain key raw materials should be reduced, as the industry is already hit severely by increase in metal prices. VAT should be implemented as soon as possible in order to curb tax fraud and simplifying the tax structure.
	Excise duty on A/C should be brought in line with others like refrigerators to 16%. Duty on refrigeration cooling equipments should be reduced to 16%.
	Custom duty on the electronic equipments and T&D equipments should not be removed.

Budget over the years

Budget 2001-02	Budget 2002-03	Budget 2003-04

Total rural electrification in the next 6 years requiring additional investment in T&D. The government has earmarked Rs 7.5 bn for the same. Installation of 100% metering by December 2001 to be done. Planned outlay for roads being enhanced to Rs. 87 bn. Custom duty reduced and import of capital goods freed.	Allocation of Rs 2,500 crore for the Pradhan Mantri Gram Sadak Yojana (PMGSY). Private sector participation in Greenfield airport projects will be encouraged through a package of concessions.	48 new road projects with an estimated cost of Rs 400 bn to be initiated. Renovation of two air ports at an estimated cost of around Rs 110 bn.

Key Positives

	Since power utilities are one of the biggest consumers (generation, transmission and distribution), reforms introduced in the power sector like privatisation of SEBs will help in strengthening the orderbook size.
	Huge addition in power generation capacity (150,000 MW by 2017), in order to meet the demand supply gap will be a big positive for engineering companies.
	Government is focusing on development of infrastructure like roads, ports etc. This will be big positive for engineering and construction companies.
	Industrial divisions of engineering companies are likely to benefit from the increased focus on automation and capacity addition plans drawn by the India Inc.

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