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SFIO probe
Media reports suggest that the Serious Fraud Investigation Office (SFIO) is
planning to investigate allegations of cartelisation against cement majors
UltraTech, Ambuja and ACC, examining the conduct of the firms over a ten
year period. There has been a history of government intervention in the sector
and the overhang on stock performance was evident during 2007-08. If the
investigation is indeed looking at a ten-year period, there is little likelihood of
any judgement coming through in the near-term; industry fundamentals will
remain the principal driver of stock performance, in our view.
Media reports indicate SFIO to investigate allegations of cartalisation
q Media reports indicate that The Serious Fraud Investigation Office (SFIO) is
planning to investigate allegations of cartelisation against cement majors,
UltraTech, Ambuja and ACC.
q SFIO is a multidisciplinary organisation under the Ministry of Corporate Affairs.
q SFIO takes up investigations only in cases characterised by: a) complexity and
having inter-departmental and multi-disciplinary ramifications; b) substantial
involvement of public interest to be judged by size, either in terms of
monetary misappropriation or in terms of persons affected; c) possibility of
investigation leading towards a clear improvement in systems, laws etc.
q SFIO would examine conduct if the cement companies over a 10-year period.
q If the investigation is indeed looking at a ten-year period, there is little
likelihood of any judgement coming through in the near-term.
Similar newsflow in the recent past as well (probe by CCI)
q We note that, in Feb-11, media reported that a parliamentary panel reviewing
performance of the industry had suggested government to set up regulatory
body to find out reasons for price hikes and possibility of cartelisation.
q Competition Commission of India (CCI) was also asked to look into the matter.
There have been builder concerns on rise in cement prices
q There have been media articles last year on concerns expressed by builders
over sharp rise in cement prices.
q In fact, builders in south India had made representation to Tamil Nadu
government to take action against the cement industry.
History of government intervention in the past as well
q We note that there had been various government interventions in the past as
well in order to control cement prices.
q During 2007-08, to control prices, the government introduced various
measures like cut in import duties, increase in excise duties, export ban etc.
q These intervention discouraged industry from raising price to pass on costs.
ACC, for example, implemented voluntary 3 month price freeze in May 2008.
Some weakness seen in cement prices, though prices remain high
q We note that cement prices in south India particularly have moved up sharply
in the last few quarters following the production discipline.
q Cement price in Hyderabad for example are up ~60% from the bottom
(Rs250/bag now), almost close to all time high despite weak operating rates.
q We however note that there have been recent price cut newsflow in north,
central and west, which could be due to seasonal factors (monsoons).
While players blame higher costs, sharp rise in margins led by discipline
q Our recent interactions with the cement players indicate that the price hikes
have been consequent to rise in input costs (imported coal, domestic coal etc.)
q We however note that, led by producer discipline, there was a sharp
improvement in sector margins in 2HFY11 even while volumes were lower. For
e.g. India Cements’ Ebitda/t in 4QFY11 rose 54% YoY while volumes were
down 14%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
SFIO probe
Media reports suggest that the Serious Fraud Investigation Office (SFIO) is
planning to investigate allegations of cartelisation against cement majors
UltraTech, Ambuja and ACC, examining the conduct of the firms over a ten
year period. There has been a history of government intervention in the sector
and the overhang on stock performance was evident during 2007-08. If the
investigation is indeed looking at a ten-year period, there is little likelihood of
any judgement coming through in the near-term; industry fundamentals will
remain the principal driver of stock performance, in our view.
Media reports indicate SFIO to investigate allegations of cartalisation
q Media reports indicate that The Serious Fraud Investigation Office (SFIO) is
planning to investigate allegations of cartelisation against cement majors,
UltraTech, Ambuja and ACC.
q SFIO is a multidisciplinary organisation under the Ministry of Corporate Affairs.
q SFIO takes up investigations only in cases characterised by: a) complexity and
having inter-departmental and multi-disciplinary ramifications; b) substantial
involvement of public interest to be judged by size, either in terms of
monetary misappropriation or in terms of persons affected; c) possibility of
investigation leading towards a clear improvement in systems, laws etc.
q SFIO would examine conduct if the cement companies over a 10-year period.
q If the investigation is indeed looking at a ten-year period, there is little
likelihood of any judgement coming through in the near-term.
Similar newsflow in the recent past as well (probe by CCI)
q We note that, in Feb-11, media reported that a parliamentary panel reviewing
performance of the industry had suggested government to set up regulatory
body to find out reasons for price hikes and possibility of cartelisation.
q Competition Commission of India (CCI) was also asked to look into the matter.
There have been builder concerns on rise in cement prices
q There have been media articles last year on concerns expressed by builders
over sharp rise in cement prices.
q In fact, builders in south India had made representation to Tamil Nadu
government to take action against the cement industry.
History of government intervention in the past as well
q We note that there had been various government interventions in the past as
well in order to control cement prices.
q During 2007-08, to control prices, the government introduced various
measures like cut in import duties, increase in excise duties, export ban etc.
q These intervention discouraged industry from raising price to pass on costs.
ACC, for example, implemented voluntary 3 month price freeze in May 2008.
Some weakness seen in cement prices, though prices remain high
q We note that cement prices in south India particularly have moved up sharply
in the last few quarters following the production discipline.
q Cement price in Hyderabad for example are up ~60% from the bottom
(Rs250/bag now), almost close to all time high despite weak operating rates.
q We however note that there have been recent price cut newsflow in north,
central and west, which could be due to seasonal factors (monsoons).
While players blame higher costs, sharp rise in margins led by discipline
q Our recent interactions with the cement players indicate that the price hikes
have been consequent to rise in input costs (imported coal, domestic coal etc.)
q We however note that, led by producer discipline, there was a sharp
improvement in sector margins in 2HFY11 even while volumes were lower. For
e.g. India Cements’ Ebitda/t in 4QFY11 rose 54% YoY while volumes were
down 14%.
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