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CCI action against majors?
Media reports suggest that the Ministry of Corporate Affairs has finalised its
report on cement price manipulation based on investigation done by Serious
Fraud Investigation Office (SFIO). The media reports also indicate that the
ministry is likely to direct the Competition Commission of India (CCI) to
initiate action against ACC, Ambuja and UltraTech which it has found guilty for
cement price manipulation. The recent imposition of penalty on DLF indicates
that regulatory risks are for real and could weigh on the stock price
performances. We maintain our cautious sector stance.
Ministry of Corporate Affairs has finalized the report on cement pricing…
q Media reports suggest that the Ministry of Corporate Affairs has finalised its
report on cement price manipulation based on investigation done by SFIO.
q SFIO, which is a multidisciplinary organisation under the Ministry of Corporate
Affairs, had begun its probe in Jun-11.
… and is planning to direct CCI to take action against cement majors
q Media reports also indicate that the ministry is likely to direct the Competition
Commission of India (CCI) to initiate action against ACC, Ambuja, UltraTech…
q … who have been found guilty for cement price manipulation.
q It is however not clear as to whether the action would be limited to the top
three or would eventually be against other manufacturers as well.
There is a history of government intervention in the past…
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.
… but this time regulatory risks are for real
q In end-2007, the MRTPC had ruled that 45 cement firms were acting in a cartel
in respect to price hikes during 1990s and directed the companies to refrain
from such arrangement but did not levy any penalty.
q This time around, media (as well as our informal interactions with the industry)
indicates that CCI could levy a penalty on the cement firms.
q As per the Competition Act, penalty could be higher of 3x of profits or 10% of
turnover for every year of the continuance of the arrangement.
q In this context, we note that CCI has recently imposed Rs6.3bn penalty on real
estate firm, DFL for abuse of market dominance and unfair trade practices.
Recent discipline was particularly visible in south; watch for further hikes
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 50-60% from the bottom
(Rs260/bag now), almost close to all time high despite weak operating rates.
q Post the sharp correction in prices in north, east and west there have been
some price hikes recently in these regions driven by discipline and seasonality.
Remain cautious on the sector; govt intervention to weigh on stock price
q Further actions by CCI (penalty) could have severe impact on the industry
pricing power in the medium term, in our view.
q The newsflow is clearly a negative for the stocks; further government action,
which has also been one of our key concerns, would potentially weigh on the
stock performances.
q We retain cautious sector stance and are negative on Ambuja, ACC, UltraTech,
Shree; even for our positive recs (Grasim, India), we would wait for clarity on
CCI action before accumulating the names, despite reasonable valuations.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
CCI action against majors?
Media reports suggest that the Ministry of Corporate Affairs has finalised its
report on cement price manipulation based on investigation done by Serious
Fraud Investigation Office (SFIO). The media reports also indicate that the
ministry is likely to direct the Competition Commission of India (CCI) to
initiate action against ACC, Ambuja and UltraTech which it has found guilty for
cement price manipulation. The recent imposition of penalty on DLF indicates
that regulatory risks are for real and could weigh on the stock price
performances. We maintain our cautious sector stance.
Ministry of Corporate Affairs has finalized the report on cement pricing…
q Media reports suggest that the Ministry of Corporate Affairs has finalised its
report on cement price manipulation based on investigation done by SFIO.
q SFIO, which is a multidisciplinary organisation under the Ministry of Corporate
Affairs, had begun its probe in Jun-11.
… and is planning to direct CCI to take action against cement majors
q Media reports also indicate that the ministry is likely to direct the Competition
Commission of India (CCI) to initiate action against ACC, Ambuja, UltraTech…
q … who have been found guilty for cement price manipulation.
q It is however not clear as to whether the action would be limited to the top
three or would eventually be against other manufacturers as well.
There is a history of government intervention in the past…
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.
… but this time regulatory risks are for real
q In end-2007, the MRTPC had ruled that 45 cement firms were acting in a cartel
in respect to price hikes during 1990s and directed the companies to refrain
from such arrangement but did not levy any penalty.
q This time around, media (as well as our informal interactions with the industry)
indicates that CCI could levy a penalty on the cement firms.
q As per the Competition Act, penalty could be higher of 3x of profits or 10% of
turnover for every year of the continuance of the arrangement.
q In this context, we note that CCI has recently imposed Rs6.3bn penalty on real
estate firm, DFL for abuse of market dominance and unfair trade practices.
Recent discipline was particularly visible in south; watch for further hikes
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 50-60% from the bottom
(Rs260/bag now), almost close to all time high despite weak operating rates.
q Post the sharp correction in prices in north, east and west there have been
some price hikes recently in these regions driven by discipline and seasonality.
Remain cautious on the sector; govt intervention to weigh on stock price
q Further actions by CCI (penalty) could have severe impact on the industry
pricing power in the medium term, in our view.
q The newsflow is clearly a negative for the stocks; further government action,
which has also been one of our key concerns, would potentially weigh on the
stock performances.
q We retain cautious sector stance and are negative on Ambuja, ACC, UltraTech,
Shree; even for our positive recs (Grasim, India), we would wait for clarity on
CCI action before accumulating the names, despite reasonable valuations.
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