L&T, Adani Ports, Adani Enterprises & IRB Infrastructure top bets post Budget: CLSA

NEW DELHI: A 75% rise in roads, 33% rise in rail and 25% in PSU capex were the corner stone of the Arun Jaitley's FY16 budget, while capex on defence and no reduction in MAT for manufacturing SEZ disappointed, CLSA said in a note.

However, key is to watch execution of these plans, which faltered in FY15. Medium term positives: 1) Rs200bn contribution to National Investment & Infra fund, which can be leveraged, 2) tax free bonds for road, railway & irrigation sector, 3) Change in PPP format to reduce traffic risk, and 4) 5 x 4GW UMPP projects with plug-n-play execution.

Corporatization of ports is a long-term positive, while likely withdrawal of incentives for Infra sectors, a structural negative. We maintain buy on L&T, Adani Ports, Adani Enterprises, and IRB Infrastructure.

Increase in NHAI capex by 148%YoY is positive for all E&C companies in our coverage universe like L&T, IRB and uncovered companies such as Sadbhav Engineering, HCC, Gammon, NCC and IVRCL.

Railways capex is +33%YoY (Rs100bn). Positive for L&T, Texmaco, Titagarh Wagons etc…

Defence spends for FY16E at Rs2.4tn +11% was disappointing given the significant ramp-up expected in ordering / execution and past track-record of missing targets.

FY15RE Public sector capex missed targets by 6%. The budgeted capex for FY16E is +25%yoy to Rs3.8tn, which we believe is ambitious until execution picks-up.

Proposal for Corporate tax rate to cut to 25% from 30% over 4 years accompanied by rationalisation and removal of tax exemptions / other incentives. L&T, BHEL and most capital goods companies pay full tax hence are biggest beneficiaries.

100% tax exemption in CSR activities for Clean Ganga Fund and Swachh Bharat.

Proposal for Tax free infrastructure bonds for the projects in the rail, road and irrigation sectors.

Rs12bn allocated for DMIC - Ahmedabad-Dholera Investment Region,Gujarat, and the Shendra-Bidkin Industrial Park, in Maharashtra to start the basic infrastructure.

To introduce Regulatory Reform Law for Infrastructure.