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Journalism of Courage
Steel
The short-term outlook of the Indian steel industry appears subdued. The industry has been reeling under the impact of slowdown in demand from the major end-user industries on one hand and increase in cost of production on the other hand due to the continued shortage of iron-ore and power impacting capacity utilisation. Though the industry as a whole has been affected,the effect has been more pronounced for the non-integrated players.
Owing to the continued oversupply situation in the global steel industry,prices of finished steel products are likely to remain under pressure. Margins are expected to be subdued owing to the time lag between corrections in raw material and finished steel prices.
While the demand outlook continues to remain highly uncertain,the domestic steel industry is witnessing a continuous rise in crude steel capacity. CARE Research expects domestic steel capacity to increase at a CAGR of about 7.3 per cent during the period FY12 to FY17,marginally at a faster pace than the increase in domestic steel demand.
Going forward favourable economic policy,prudent regulatory process,broad anti-dumping measures and increased investment in research and development are needed to provide impetus to the industry as a whole and fade away the short-term concerns.
Proposal and Impact
Budget proposals: Decrease in custom duty for bituminous coal from 5 per cent to 2 per cent and CVD from 6 per cent to 2 per cent along with increase in custom duty on steam coal from nil to 2 per cent and CVD from 1 per cent to 2 per cent.
IMPACT: While the reduction in customs duty and CVD on bituminous coal suggests encouragement of use of higher grade coal,the increase in custom duty and CVD on steam coal is likely to have a negative impact since it is largely used for power generation in companies with captive thermal power plants and as fuel in steel manufacturing.
Budget proposals: Flat rolled products of iron or non-alloy steel,plated or coated with zinc to be exempted from export duty retrospectively from March 1,2011.
IMPACT: The same will have a marginally positive impact on the companies exporting galvanized flat rolled products.
Impact on companies
SAIL Ltd. 7 Tata Steel Ltd. 7 JSW Steel Ltd. 7 Essar Steel Ltd. 7
Bhushan Steel Ltd. 7
Comment: Increase in customs duty and CVD on steam coal is likely to result in increase in cost of production.
HEALTHCARE
The Indian healthcare industry is seen to be less impacted by economic cyclicality. It is mainly driven by increasing per capita income leading to greater spending on healthcare; change in demographic profile; transition in disease profile,increase in health insurance penetration,and fast growing medical tourism market.
The hospital industry is the single largest segment,accounting for roughly 70 per cent of total healthcare market.
The Indian hospital industry can be broadly categorised as 1) highly fragmented in nature due to a large presence of unorganised players,2) capital-intensive with a long gestation period,3) positive supply-demand fundamentals,4) favourable government policies and 5) attractive business model for long-term investors with project IRR of 15-17 per cent.
The governments spending on healthcare as a per cent of GDP is lower than the emerging market countries average due to lower government expenditure on healthcare sector.
The government has targeted to increase the share of public expenditure on health to at least 2.0-2.5 per cent by the end of 12th Five Year Plan.
The current functioning of most of the public hospitals is not up to the expectation especially in relation to availability,accessibility and quality. Nearly 80 per cent of the hospitalised cases were treated by private institutions. Given limited room for significant increase in public spending and low faith in the public health system,private institutions are likely to be the major beneficiary of the growing healthcare market.
Duty structure
Budget proposals: Increase in outlay of Health Ministry (NHM,training,research,AYUSH,etc).
IMPACT: The money is to be spent on meeting various programmes and missions specifically targeted at vulnerable groups. Such spending would help the spread of health infrastructure in the under-served parts of the country.
Budget proposals: Establishing at least one office of public sector life/general insurer in every town with population higher than 10,000.
IMPACT: The best way to increase insurance penetration is to establish a sustainable distribution chain and make available insurance products to people across the country. This would be particularly positive for public sector insurers.
Budget proposals: Expansion of RSBY (Rashtriya Swasthiya Bima Yojana).
IMPACT: The inclusion of categories such as rickshaw,auto-rickshaw and taxi drivers,sanitation workers,rag pickers and mine workers in the scheme would increase the demand for healthcare facilities.
Education
The education sector in India is a mix of government-operated educational institutions and privately operated educational institutes and allied education products and services providers. Educational sector is highly impacted by the various government schemes to improve the quality of education and government planned expenditure to improve the literacy level in the country.
In the past,the government has initiated several schemes including the Sarva Shiksha Abhiyan (budgetary allocation of Rs25,555 crore in 2012) and Rashtriya Madhymik Shiksha Abhiyan (budgetary allocation of Rs3,124 crore in 2012) to improve the quality of education and eventually the literacy level in the country. The governments emphasis on the education sector has also provided increasing opportunities for private players engaged in providing education and related allied products/services.
In the last budget government had proposed to set-up 2,500 schools under the PPP model. The same has resulted in greater involvement of the private sector in this sector. The growth in the Indian Education sector would be driven by growing personal disposable incomes,increasing government spend and also efforts of government to improve the regulatory framework for the education sector.
Duty Structure (service tax)
before after impact
Service tax on vocational institutes 12 exempt 4
Proposal and Impact 110
Budget proposals: The budgetary allocation to Ministry of HRD for various schemes increased by 17% to Rs65,867 crore for the education sector.
* Budgetary allocation to Sarva Shiksha Abhiyan at Rs27,258 crore;
* Budgetary allocation to Madhyamik Siksha Abhiyan at Rs3,983 crore;
* Budgetary allocation to provide scholarship of Rs5,284 crore to SC,OT,OBC,Minorities and girl children
* Budgetary allocation of Rs13,215 crore for mid-day meal scheme
IMPACT: The government reemphasised its thrust on the education with the y-o-y increase in government expenditure on the education industry,upgrade of existing schools and universities,scholarships to lower income segment of the population,implementation of Right to Education Act. The increase in allocation along with other measures augurs well for the education industry and for private sector companies with increase in inflow of orders and more sources of revenues generation.
Impact on companies
Educomp 4 Everonn 4 Aptech 4 NIIT 4 Compucom Software 4
Comment: The increased budgetary allocation to the education sector opens new sources of revenues along-with increasing demand for upgrade of existing infrastructure. The increase in budgetary allocation to the education sector is expected to result in higher inflow of orders to the private sector players especially for companies engaged in Information and Communication Technology segment of education. Furthermore,with the increase in the budgetary,allocation to the mid-day meal scheme will also result in increased orders to players involved indirectly in the education sectors.
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