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After cartelization fines and demonetization, cement sector looks to Jaitley for growth push

From Budget 2017, cement companies will look for incentives and push for Housing for All and other infrastructure projects in the country.

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The Competition Commission of India's (CCI) Rs 200-crore plus fine on seven cement companies close to the heels of the government's demonetization move is going to have the sector keep a keen ear out for what Finance Minister Arun Jaitley says in the Union Budget 2017. 

First it was the government's move to de-legalise the use of high-denomination notes in November last year that shaved off nearly 200 basis points of estimated growth for cement companies in FY17. India Ratings lowered its growth outlook to 4% from the earlier 4-6%. 

Now, a Rs 206-crore fine on seven cement companies is likely to hit their earnings by up to 2%, another India Ratings report said. 

The CCI imposed a fine of Rs 206-crore, the second one in the fiscal, on cement companies accused rigging a tender bid floated by a Haryana agency in 2012, a report by PTI said. 

"CCI has imposed penalties on seven cement companies for bid rigging of the tender floated by the Director, Supplies and Disposals, Haryana, in the year 2012, for the procurement of cement to be supplied to Government Departments/ Boards/ Corporations in the State of Haryana," the India Ratings report said. 

Earlier in August 2016, a Rs 6,700-crore fine was imposed by the CCI on 12 cement companies but was later stayed on an appeal to the Competition Appellate Tribunal. 

The seven companies are Shree Cement, UltraTech Cement, JaiPrakash Associates, J K Cement, Ambuja Cements, ACC and J K Lakshmi Cement. 

At Rs 206-crore, individual penalties on each of the seven companies were imposed to the extent of 0.3% of the average turnover for three financial years. This would shave off around 2% of their operating profits. 


Image Source: India Ratings

"The Competition Commission of India’s (CCI) penalty of Rs 206 crore on seven cement companies to shave off under 2% of the players operating profits," the India Ratings report said. 

On Friday, the shares of the seven companies closed down  

Cement Company Share Price
Shree Cement Rs 15,396.65, down 1.16%
UltraTech Cement Rs 3,470.20, up 0.44% (offset by 7% increase in Q3 PAT)
JaiPrakash Associates Rs 9.89, down 3.70%
JK Cement Rs 710.55, up 0.44% 
Ambuja Cements Rs 217.50, down 1.34%
ACC  Rs 1,326.65, down 2.57% 
J K Lakshmi Cement Rs 359.20, down 2.22%


Source: BSE

With the Union Budget just around the corner, all eyes and ears of the beleaguered sector will now be on Jaitley to see what he announces for cement companies and for the infrastructure sector. 

According to the India Brand Equity Foundation, "the housing sector is the biggest demand driver of cement accounting for about 67% of the total consumption in India. The other major consumers of cement include infrastructure at 13%, commercial construction at 11% and industrial construction at 9%."

...Cement players are expecting some respite from the budget in the form of excise duty reduction and a boost to the Housing for All initiative and higher overall infrastructure spending of the government. 

"Housing for All schemes is one of the pet projects of the Government with a focus on rural housing. The Government has already announced interest subvention and additional sops towards this initiative will help revive cement demand in the medium term. 

The total tax paid or payable on cement by end customer ranges between 24.5%-27.5% and with the proposed GST rate of 18% cement manufacturers will get some relief on margins.

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