CCI deals cement companies a Rs6,300 crore blow

Not Rs3,500 crore, Rs6,300 crore!

The Competition Commission of India (CCI) on Thursday asked 11 cement companies found guilty of cartelisation to pay penalty at 50% of the profits they logged during 2009-10 and 2010-11.

That’s way higher than the penalty of Rs3,500 crore the companies were expected to pay, at  the rate of 8% of their average turnovers in the last three years.

The 11 companies are ACC, Ambuja Cements, Ultratech Cements, Grasim Cements (now merged with Ultratech Cements), JK Cements, India Cements, Madras Cements, Century Cements, Binani Cements, Lafarge India and Jaypee Cements, the commission said.

They have been directed to deposit the penalty amount in the next three months.

At 50% of the profits during the two financial years, Jaypee Group’s Jaiprakash Associates will have to pay the highest penalty at Rs1,324 crore.

Holcim controlled ACC and Ambuja will take a hit of Rs1,147 crore and Rs1,163 crore, respectively, while Aditya Birla Group’s UltraTech has been directed to deposit a penalty of Rs1,175 crore.

The penalty could well have been higher as the commission is allowed to charge 10% of the turnover for each year under consideration or triple the net profit of each year, whichever is higher, as penalty.

Industry officials said they will seek legal remedies. “We have not indulged in any cartelisation and will approach the competition appellate tribunal and challenge the order,” said OP Puranmalka, whole-time director and head — cement business, UltraTech.
Similarly, the other cement companies named are also expected to challenge the order.

In a first, the commission has also penalised the Cement Manufacturers Association, or CMA. At 10% of its average turnover in three years, the penalty works out to Rs73 lakh.

The commission also directed the association to disengage from collecting wholesale and retail prices and circulating information on cement dispatch and production to its members.

Analysts see it as a major blow, more so as it comes at the start of a weak season.

Some also see prices stagnating or trending down going forward.
“The concern now is cement prices. With monsoons typically being a weak period, the slump in prices cannot be attributed to the latest order. However, going forward, one can expect cement prices to stagnate at the current levels, with some volatility, but no sharp improvement,” said Novonil Guha, analyst, BRICS.

“The cement companies will lose their pricing power as they would now be unable to control production in tune with the industry dynamics. It would be an individual call, so there would be a cement price correction,” said an industry source.