CCI finds cement firms guilty of forming cartel

Bindu D. MenonSuresh P. Iyengar Updated - November 17, 2017 at 04:17 PM.

Anti-monopoly watchdog Competition Commission of India is understood to have slapped penalties on 11 leading cement manufacturers for alleged cartelisation.

Cement companies, which have been under scrutiny since past one year, had been allegedly inflating prices and decreasing production.

Sources close to the development said that CCI on investigation found that the companies were under reporting production and colluding to form a cartel.

While the quantum of penalty was not known, brokerage firm Macquarie, in an March-end report, said it expects penalties of about seven per cent of total revenue (last three years' average), which equals 5-6 per cent of market capitalisation for each year of investigation.

They said there were allegations of cartelisation against 39 cement makers. The Indian cement industry comprises 183 large cement plants and more than 360 mini cement plants. Large producers, around 40 in number, contribute 97 per cent of the installed capacity, which now stands at around 330 million tonnes a year.

According to reports, the cumulative turnover of the cement companies is around Rs 37,500 crore.

Sources said cement companies can move the Competition Appellate Tribunal if the decision is against them.

CCI was probing the cartelisation charges based on complaints from realtors’ body, Builders Association of India (BAI). Cement companies were allegedly forming cartels on various fronts like retail sales price of the building materials and creation of the artificial shortage scenario by producing less than their capacity.

Meanwhile, cement companies declined to comment saying they have not seen the order.

“We are not in a position to react as we have not received the CCI order,” said an ACC spokesperson. An UltraTech Cement official declined to comment.

Mr Basanth Patil, Senior Research Analyst, Dalmia Securities, said a penalty of eight per cent of the last three years’ cement prices works out to about 40 per cent of cement companies’ profit.

“If implemented, it will be a big negative for cement companies, particularly when the demand is sluggish ahead of monsoon. I strongly believe that companies will go for an appeal to the Competition Apellate Tribunal,” he added.

Mr Jignesh K. Gandhi, Research Analyst, Motilal Oswal, said “while the CCI penalty could be a near-term headwind, our interactions with cement companies suggest that CCI’s claims are untenable and would be challenged.”

Cement stocks have already dipped by 10-15 per cent in the last one month factoring in the possible penalty. However, on Tuesday most cement company stocks gained on value buying.

ACC and Ambuja Cement rose 0.47 per cent and three per cent to Rs 1,228 and Rs 171. UltraTech Cement was up marginally by 0.11 per cent at Rs 1,445, while Jaiprakash Associate increased one per cent to Rs 70.

>bindu.menon@thehindu.co.in

Published on June 19, 2012 16:31