Cement cos wait for stay on CCI penalty to avoid provisioning

Our Bureau Mumbai | Updated on March 12, 2018 Published on July 09, 2012

Cement companies may have to soon provision for the Competition Commission of India (CCI) penalty in the price cartelisation case. The CCI order last month gave companies 90 days to pay a Rs 6,300-crore penalty.

The eleven companies that were penalised for price cartelisation have moved the Competition Appellate Tribunal against the order.

Mr Vinod Juneja, Managing Director, Binani Cement, said much will depend on the outcome of the appeal filed against the order. All the companies have appealed against the penalty and if it is stayed then there is no need for provisioning, he added.

The companies are ACC, Ambuja Cement, UltraTech Cement, Grasim Industries (now merged with UltraTech), Lafarge India, JP Associate, Century Textile and Industry, Madras Cements, Binani Cements, India Cements and JK Cement.

Mr Sudip Bandyopadhyay, Managing Director, Destimoney Securities, said the penalty on a core sector such as the cement industry will weaken the foreign and domestic investor confidence, which is already hit by the retrospective tax amendment and the 2G scam.

“In some cases the penalty imposed on cement companies is higher than a year’s earning. This could negatively affect the health of the company and jeopardise shareholder interest,” he said.

While cement manufacturers prepare for tedious litigation to defend their action, the stock market remains divided on the potential impact of the ruling, said Mr Murtuza Arsiwalla, Research Analyst, Kotak Institutional Equities.

“We remain concerned about the ramifications of the ruling on the pricing power so far enjoyed by the sector and its ability to sustain profitability in the face of rising cost pressure,” he added.

Though it is not a pre-requisite under competition law, CCI has no direct evidence on price cartelisation. It is relying on circumstantial evidence such as sharing pricing information, dissemination of plant-wise production and dispatches and representation of ACC and Ambuja Cement at high-powered committee meetings of the Cement Manufacturers Association even after the Holcim group companies ceased to be members of the Association.

Mr Basanth Patil, Senior Research Analyst, Dalmia Securities, said even if companies have to make provision it will not happen before the third quarter of this fiscal.

“However, we feel that all the companies will secure a stay order to avoid provisioning. The industry obviously does not want to be penalised for building huge capacity, particularly when the demand is not matching the capacity addition,” he said.


Published on July 09, 2012

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