What the Budget does

• Foreign investment of US$ 3.5 to 8 bn expected for exploration of new blocks under NELP VII.
• Customs duty exemption withdrawn on naphtha used in the manufacture of polymers. It will be taxed @ 5 %. Naphtha imported for the production of fertilisers will remain exempt.
• Ad valorem excise duty on unbranded petrol and unbranded diesel replaced by an equivalent specific duty of Rs.1.35 per litre. There will be only a specific duty of Rs 14.35 per litre on unbranded petrol and Rs 4.60 per litre on unbranded diesel.
• Central Sales Tax reduced from 3% to 2% from April 1, 2008.
• Dividend tax paid by parent company allowed to be set off against the same paid by its subsidiary

Also read: How Budget affects your stocks

Impact on sector

• Polymer industry will be negatively impacted, as costlier Naphtha will push its cost structure upwards.
• Polymer in turn is used in a host of downstream sectors such as plastics and paints, which will face margin pressures.
• Oil downstream segment will continue to suffer under recoveries from petroleum products as the budget does not address either product prices or the excise duties.

Impact on companies

• The polymer segment of RIL [Get Quote] and GAIL will be adversely impacted, as the raw material costs will go up. Given that the petrochemical segments had a bad 3QFY07, this development comes at a bad time.
• No respite for PSU oil marketing companies-IOC, HPCL [Get Quote], BPCL [Get Quote].
• The announcement on dividend tax will benefit IOC, HPCL and BPCL as they have refineries as subsidiaries.
• GAIL will benefit from the reduction in CST as natural gas falls under inter state trade.

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