Auto Sector Budget Preview

Reduction in Goods, Service Tax (GST) Rates: Topping the expectation list is the reduction in GST rates from 28% to 18% on vehicles. Apart from reducing the GST on vehicles, the auto inc is also requesting the government to reduce GST on auto parts from 28% to 18%.

Scrappage Policy: One of the key demands of auto inc is the implementation of scrappage policy as it will spur demand without putting any additional burden on the government exchequer. It will also help remove old vehicles which are causing major pollution problems. SIAM has urged the Finance Ministry to consider announcing an incentive-based scrappage policy.

Incentivising R&D Spend: To encourage domestic R&D and testing, it is important to provide exemption on import duty on auto component prototypes. Also retaining of a weighted tax deduction on R&D expenditure is critical.

MSME Definition: Include Wholesale and Retail Trade and Repair of Motor. Vehicles and Motorcycles in the MSMED Act. The subsidies and incentives received under the MSME division will provide much-needed relief to automobile Dealerships which provide 25 lakh direct employment to people near their homes without displacing them.

Reduce GST on EVs and custom duty on lithium-ion batteries: From the Electric Vehicles sector point of view, the previous budget announced was positive for the electric vehicle industry. Players in the electric vehicle space are expecting to see further reforms, incentives, and infrastructure that will drive EV consumption in India.

Technology Development & Acquisition Fund: To face headwinds of changing vehicle norms and to match international standards, a fund needs to be created for supporting R&D and indigenous technology development, especially in light of the technological disruptions in the automotive industry, is witnessing.

Reduction in GST Rates for Used Cars To 5%: The used car business occupies 1.4 times the size of the new car market, accounting for 5-5.5 million cars per annum with a turnover of over Rs. 1.75 Trillion. According to the Federation of Automobile Dealers Association (FADA), authorized dealers account for only 10-15% of this trade, which is also the organized sector thus paying taxes.

GST Refunds and Repayments process: Huge funds of the corporate sector are blocked in tax refunds such as GST refunds, or pre-GST CENVAT credit, or earlier sales tax regime.

Latin Manharlal Group

Cement Sector – Budget Expectations

Here’s an overview of the Cement sector and its wishlist for Union Budget FY2020-21.

India is not just the second largest manufacturer of cement world over, but also the second largest consumer of it. This certainly makes the sector crucial for the India growth story. Its growth is derived from the housing sector’s growth and the sector is also an indirect beneficiary of the government public spending on infrastructure. While the government has been consistently working to revive the realty (housing) and infrastructure sectors – it has not yielded much returns till date. This is despite an increase in the budget allocation for infrastructure projects and Pradhan Mantri Aawas Yojana (PMAY). With the Housing for All target by 2022 coming closer, growth in the sector is yet to pick up pace. And, this background brings with it a wishlist for the Union Budget FY2020-21.

With government efforts yet to get materialised, some earlier indicators of growth are visible for the cement sector. Some revival visible in public infrastructure has resulted in some green shoots and this is likely to boost cement demand growth for FY2021 to 6-7% against 1-2% for FY20.

As stated earlier, the cement sector is an indirect beneficiary of higher government spending and any measures in the budget to improve the spending augurs well for the sector. However, a mere increase in budgetary allocation for the road and railway sector is not enough to boost cement consumption. Prior experience suggests that the government, despite allocating higher budgetary resources, has cut the spending to accommodate the fiscal deficit math. As a result, going by industry expectations – what will sustainably lead to higher cement consumption is higher private sector participation along with improved terms under the BOT model.

The industry also expects that various measures already taken for the real estate sector are likely to benefit cement consumption. But this needs to be monitored consistently. Broadly, cement manufacturers expect around 10-15% increase in budgetary allocation for key ministries such as roads and railways. However, cement players opine that the overall spending might be higher as these ministries have resorted to higher borrowings (EBR) to support its CAPEX programme.

Also, an increase in budgetary support to the transport ministry and NHAI is expected to Rs 940 billion and Rs 450 billion, respectively.

At present, customs duty on packaging for use in bagging cement is 10% and the industry is expecting reduction in customs duty to 5%.  This will help the cement companies benefit from lower packaging cost aiding in improvement in operating margins.

Latin Manharlal Group

Budget 2020: Infrastructure Boost

•           Ms Sitharaman is expected to announce a plan in the budget to invest Rs 105 lakh crore in infrastructure over the next five years. By then it hopes to make India a $5 trillion economy, compared with $2.8 trillion now, government sources have said.

•      To boost domestic manufacturing, the budget is also expected to increase import duties on more than 50 items, including electronics, electrical goods, chemicals and handicrafts, targeting about $56 billion worth of imports from China and elsewhere.

•          The infrastructure companies sought finance from the Centre for affordable housing and real estate sectors. They claimed that any funds allocated to these sectors in the upcoming Budget 2020 would spur the consumption of cement and steel.

•          Increase in allocation towards schemes such as Pradhan Mantri Gram Sadak Yojana (PMGSY), Pradhan Mantri Awas Yojana – Gramin and  Atal Mission for Rejuvenation and Urban Transformation (AMRUT) will be positive for the infrastructure sector (Roads, Cement; etc.)

•          Increasing allocation to defence shall also boost order books of the infrastructure and capital goods companies. Moreover, the increase in allocations towards large infrastructure projects such as bullet trains, Bharatamala, Sagarmala, Smart Cities, Inland Waterways development, etc will be positive for the infrastructure players.

•          In Budget 2020, the central government should release stuck up funds which were meant for infrastructure sectors to bring back ‘buoyancy’ in the economy, the infra players told FM Sitharaman.

•          Terming the cross-subsidy and transmission charges as deterrents, infra players said that these have been making renewable energy more expensive than thermal power. They suggested that in Budget 2020, the central government should provide exemptions so that cement and other core sectors can play a pivotal part in boosting renewable energy.

•          The centre should also provide exemptions from cross-subsidy as well as transmission charges for clean energy units to be set up beyond factory boundaries.

•          The cement players have asserted that they can even set up 12GW to 15 GW of renewable energy projects provided there is a positive ambience in the country.

•          Infra players have also recommended that the centre must further fine-tune the Income Tax Act, duties and lending rates.

Real Estate Wishlist for Forthcoming Budget 2020-21

·         A fiscal stimulus to the real estate sector will have manifold affect on 269 allied industries.

·         Liquidity issue, Industry status, Extension of the Sunset Clause of SEZ and restructuring of realty sector loans amongst other policy changes, the real estate leaders list down their expectations that can help boost the real estate sector.

·         The industry has been demanding a restructuring of loans or a one-time roll-over in case of the stressed assets at the options of banks.

·         The sector needs a one-time subvention scheme and restructuring of realty sector loans

·         The sector has long been demanding a single window clearance mechanism

·         The government had introduced a sunset clause for SEZs in 2016. According to the clause, only an SEZ unit that commences operations on or before March 31, 2020, shall be eligible for an income tax holiday. Considering the challenges faced by the real estate sector in the last couple of years, there is a need for the government to extend the date and provide the required relief to SEZ units and developers

·         The government needs to push the well-capitalized NBFC’s to extend liquidity to the sector and look at a resolution mechanism for the stressed NBFC’s and banks to enable seamless credit flow for developers and homebuyers.

·         The additional tax benefit for home loan interest announced in the previous budget now takes the tally to 3.5 lacs (Section 24 (b) & 80 EEA) for homes worth 45 lacs circle value. The same needs to be extended for homes costing upto Rs.1 crore to benefit the middle-class families residing in Metro cities

·         The additional income tax benefit for home loan interest which was announced for home loans sanctioned between Apr 19 – Mar 20 needs to be extended for a minimum of 3 more years.

·         he period of exemption from levy of tax on notional rent, on unsold inventories, needs to be extended to 3 years from 2 after receiving the Occupation Certificate. This is keeping in mind the slow reduction in unsold inventory levels and lackluster demand for real estate assets.

Latin Manharlal Group

Importance of Asset Allocation

Market participants have seen extreme volatility in Indian capital markets. There have been many incidents both global and domestic which have led to a fall in the indices. At this point, we are facing a Nationwide Contagion Effect.

Some of the factors contributing to the market turbulence are as follows

• US-China Trade War

• NBFC Crisis following the IL&FS fiasco in domestic market

• Prolonged slowdown in critical sectors of the economy like Auto and Realty

• Asset quality issues, NPA’s which haunt Public Sector Banks

• Corporate governance issues, Audit failures and credit rating agencies failure to red flag critical issues

In this era of VUCA – Volatility, Uncertainty, Complexity and Ambiguity, our main focus is on risk mitigation and protection of principal. Return Of Capital rather than Return On Capital is the underlying motive. We will be exposed to Market Risk at all times, however Individual Company Risk can be Mitigated by Diversification & Asset Allocation.

The two main traditional assets are Debt and Equity. The asset classes are evaluated with respect to liquidity, safety, yield, image, appreciation and growth. Equity asset class is high risk high reward where there is possibility of high appreciation. In the case of debt returns are stable and tend to be lower with high degree of safety

A proper Asset Allocation based on the clients Risk profile is the most suitable and apt method.

Our Aim is to allocate risk to different Instruments / Assets.

Based on our research, The following Data shows us how diversification and Strategic Asset Allocation would have benefited the client. (All data shown below are as on 30 October 2019)

Market has shown a positive trend in the recent Months. There have been many positive aspects as well like Reduction in tax rates for Corporate Firms (22% for Domestic Companies & 15% for new manufacturing companies).The central bank cut the repo rate by 25 bps  to 5.15% and the reverse repo by 25 bps to 4.90% (100 bps = 1 per cent).

Based on this Allocation, the Investor has managed to diversify his risk to different categories of Asset Classes. There is equal Allocation to each Asset Class.

Based on this Allocation, The investor has been aggressive and is willing to withstand the Risk of Market Volatility. He has been able to generate Positive returns in all Periods.

Gold acts as a Hedge during Uncertain events. Gold has a negative Correlation with the traditional Asset Classes (Debt & Equity).The demand for gold increases during inflationary times due to its inherent value and limited supply.

Increased Allocation towards Debt helps the Investor earn Stable Return as compared to Equity & Gold. Returns maybe lower due to lower Returns.

Conclusion: Asset Allocation is Important for every Individual. Market Risk & Business Risk is something which every Investor goes through. Thus our main aim is Capital Protection and Risk Aversion. During Volatile Periods like now, we fear about Capital Erosion. Thus a hedge can be done via investing in different Asset Classes with low Correlation with each Other.

Latin Manharlal Group

Sweet Smell of Success in Floriculture

With the domestic demand for flowers growing at 25% annually and offshore demand rising as fast, theres a great need for qualified individuals in this high potential agri-industry. It could be roses all the way for youth who opt for careers in floriculture. Incrementally people — especially within Indias expanding middle class — are saying what they have to say with flowers on birthdays, anniversaries, Valentines Day, Mothers Day etc. Little wonder, the floriculture industry, one of the most high-potential sectors in Indian agriculture, is in full bloom.

Floriculture, the art and knowledge of growing flora or flowers, is no longer the preferred hobby of retirees; its a fast growing sunrise industry. With the domestic demand for flowers of all shapes and hues growing at 25% annually and offshore demand rising as fast, even the somnolent government of India has woken up and accorded the floriculture industry 100 percent export-oriented status to help develop the country into an international hub of flower production, auction, distribution, and retailing.

However, despite being blessed with a facilitating agro-climatic profile, vast land resources, and availability of abundant labour and agricultural scientists, Indias share of the global floriculture market is a negligible 0.19%. But with several brave entrepreneurs establishing export-oriented floriculture units under controlled climatic (i.e greenhouse) conditions, India is slowly but surely making an impact in the international floriculture market centred in Netherlands.

Currently the states of Maharashtra, Karnataka, Andhra Pradesh, and Haryana are in the vanguard, with Kerala producing cut flowers and ornamental plants for domestic consumption. Fortuitously, India hosts many exclusive varieties of ornamental flowers, usually exported in the form of seeds or capsules. Roses, marigolds, chrysanthemum, and jasmine are among the popular varieties and about 10,000 hectares of total cultivated area in the country is devoted to growing them.

MARIGOLD BLOOMS. A typical example of a successful new genre of floriculturist is Megha Borse, a pioneer woman entrepreneur who has transformed her five-acre farm on the Nasik-Indore road into an export-oriented floriculture unit. Known as the ‘flower power woman of Nasik, Borses farm — Sheelman Flora — which blooms with marigolds the year round, attracts hundreds of visitors from around the country.

In 2004, there were only 10 flora farms in Nasik. Since then, 10–15 are being promoted every year.  Farmers here are being motivated to grow flowers on part of their land and have promised to take charge of marketing their produce.

Starting with a 1,008 sq mt poly-house in 2004 with an investment of Rs.10 lakh, Borse now has three greenhouses yielding 600,000 flowers per year and has acquired the reputation of a knowledgeable floriculture consultant. Borse also represents Maharashtra in an apex committee constituted by the Union ministry of agriculture, and with the floriculture industry all set to bloom, she believes theres growing demand for qualified individuals in this high-potential agri-industry. This is one of the best career options for graduates who dont necessarily have to be highly qualified horticulturists to enter this field. Practical experience of a greenhouse and enthusiasm for the subject is good enough for starters. The Horticultural Training Centre near Talegaon set up with Dutch collaboration imparts an excellent five-day training programme in greenhouse management. If several such training centres are provided, establishing floriculture units will become much easier. That is one way to enjoy the sweet smell of success.

Image Courtesy: Google

Latin Manharlal Group

Story of Taneira - A Tata Product

Taneira, the youngest brand of Titan Company Limited was conceived during internal crowdsourcing of ideas around 2015. Multiple teams suggested sarees as a product category and rigorous rounds of evaluation finally resulted in sarees as the winner for a pilot project. Sarees was a natural extension of Titan's value proposition: design-led lifestyle brands that enable self-expression - Titan, Tanishq, Raga, Fastrack among others and now Taneira.

Derived from the word 'tan' meaning body and 'Eira', the Sanskrit name for Goddess Saraswathi (Patron God of art, music, craft, and knowledge) and meaning 'earth' in Greek, Taneira aims to provide the rooted yet progressive Indian woman with exclusive design, diverse workmanship, the authenticity of handcraft, pure and natural fibers: the best of India under one roof.

There's something about Titan Company that refuses to let it rest on retail laurels secured. The urge to expand into and explore new terrain, with due diligence and without undue complications, typifies an enterprise that has established its presence in watches, jewelry, accessories, and eyewear. Titan has now made time to take a taste of the ethnic-wear business. 

Tapping into India’s rich traditions in ethnic weaves and clothes appears to be a natural progression for Titan. It is the basis for its latest venture, Taneira, which is all about garments sourced from the cultural heartlands of the country. The jewel in this collection is the saree—that enduring and exquisite icon of grace and elegance.

Titan is looking to turn the largely unorganized saree business into an organized one by catering to the mid-premium to the premium segment of the market with a starting price of Rs 2,000, which can go up to Rs 2 lakh. The brand competes with organized saree retail chains such as Nalli Silk as well as Meena Bazaar. Sarees—as a category—is exciting but equally challenging because it is stock keeping unit (SKU) intensive, assortment sensitive and has design complexity.

The first Taneira store, housed in a remodeled villa in Bengaluru's Indira Nagar, recently opened its doors to business. Sarees are the main draw here. They come from 20 different states of the country, each of them handwoven, and made from natural fibers such as cotton, silk, and linen.

The Taneira team traveled the length and breadth of India to bring under one roof a fabulous collection that includes mugas from Assam; cotton from Chettinad; tussars from Bhagalpur; ikats from Gujarat; Andhra Pradesh and Orissa; chikankari from Lucknow; classical Banarasi silks and kanjeevarams; and heirloom pieces like Patan patolas from Gujarat and muslin jamdanis from Bengal.

Attractive prices

The store also sells lehengas, stoles, ready-to-wear blouses and exclusive yardage that can be converted into any kind of garment. Prices have been calibrated to attract the widest possible base of consumers, with the cost of a saree ranging from Rs 2,000 to ₹250,000 (this for the stunning Patan patola version).

A second Taneira store is set to open soon — in Bengaluru's Jayanagar area — and the company is in the process of unrolling exhibitions all over the country to spread the message of the new brand among consumers.

Taneira aims to deliver a differentiated retail experience. It's a place where customers can touch and feel the purity of the fabric and admire the craft that goes into their making. Taneira offers is unique in many ways. Take, for instance, those who may not buy a piece at first chance, but then change their mind and return, only to find it gone. 

Taneira is aiming to double its existing business to touch Rs 40-45 crore in revenue in 2019, said the company’s managing director Bhaskar Bhat at the launch of brand’s biggest flagship store in New Delhi. Our primary target is to open 10 stores in the next 12-18 months in the top 15 cities of the country. Currently, we are doing between Rs 30 lakh and Rs 70 lakh a month per store. The company will end this year with Rs 20 crore in revenue, which we want to more than double and take it to Rs 45 crore by next year

Titan wants to reach not just the metros but also Tier I cities where demand for high-quality branded sarees is increasing. The company is looking to open stores in cities such as Mumbai, Hyderabad, Chennai, Patna, Lucknow and Indore.

Similar to the jewelry market, when Titan began, The 5,000-year-old category is a large, unorganized market and underserved in terms of the authenticity of the product. With an average ticket size of Rs 8,000, Kanchipuram (handwoven silk sarees from Tamil Nadu), Benarasi (silk sarees from Varanasi), Bhagalpur (silk sarees from Bihar) and south silks are the top-selling varieties of sarees at Taneira. The brand is sourcing its products from over 400 weavers’ communities and cooperative societies across India.

Latin Manharlal Group