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Noise on potential CCI investigation picks up: As per CNBC, The Ministry
of Corporate Affairs (MCA) has ‘finalized a report on cement price
manipulation’. The media report (http://www.moneycontrol.com/news/cnbctv18-
comments/cca-may-pullguj-ambuja-ultratech-acc-cartel_584524.html)
says that as per sources the MCA is ‘likely to direct CCI to initiate action
against 3 cement companies which are ACC, ACEM and UTCEM’. As of now
there is no official communication from either of the parties named in the media
report (MCA, CCI or the cement companies) on any such investigation. Over
the past 2 weeks, various other media reports
(http://www.thehindubusinessline.com/industry-andeconomy/
article2418605.ece and http://www.mydigitalfc.com/news/25-cementfirms-
under-cci-lens-585) have carried reports about a possible CCI
investigation into cement companies. Cement stocks have corrected by 2-5%
today after the media report came through.
Implications for cement companies: In our view any investigation/penalty is
difficult to quantify for the cement companies. The necessary steps in our view
are a) launch of an official investigation; b) proving allegations of ‘price
manipulation’; c) imposing penalty; d) cement companies losing the penalty
case in higher court. CCI has recently imposed penalties on real estate major-
DLF (covered by JPM Analyst Saurabh Kumar). The CCI Act lays out
maximum penalty of 10% of average turnover of last 3 years. In our view,
while the NOISE has increased on CCI investigation, we believe the real issue is
the possibility of cement price hikes not taking place over the next few months
as we enter seasonally strong demand phase, given a possibility of CCI
investigation. Given the lack of clarity on potential CCI investigation, we would
refrain from quantifying any financial impact on cement companies.
Cement stocks have rallied sharply over last few weeks as price increases
started post rains: Cement stocks before today’s correction outperformed
markets (ACC+10%; ACEM+19% and UTCEM+16%) on cement price increase
news flow in Northern/Central India markets, combined with seasonal weak
period of demand getting over. Valuations for the front line majors are not
cheap, and the CCI investigation remains a very real overhang on the
sector. ACC at $138/MT; ACEM at $146/MT and UTCEM at $122/MT on
today’s stock prices, do not offer value in our view. We believe the overhang of
CCI investigation will possibly limit stock price upside in the near term.
Admittedly balance sheets are very strong across the majors, with net cash
positive, however we are not believers of sharp on the ground demand recovery
given the economic outlook.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Noise on potential CCI investigation picks up: As per CNBC, The Ministry
of Corporate Affairs (MCA) has ‘finalized a report on cement price
manipulation’. The media report (http://www.moneycontrol.com/news/cnbctv18-
comments/cca-may-pullguj-ambuja-ultratech-acc-cartel_584524.html)
says that as per sources the MCA is ‘likely to direct CCI to initiate action
against 3 cement companies which are ACC, ACEM and UTCEM’. As of now
there is no official communication from either of the parties named in the media
report (MCA, CCI or the cement companies) on any such investigation. Over
the past 2 weeks, various other media reports
(http://www.thehindubusinessline.com/industry-andeconomy/
article2418605.ece and http://www.mydigitalfc.com/news/25-cementfirms-
under-cci-lens-585) have carried reports about a possible CCI
investigation into cement companies. Cement stocks have corrected by 2-5%
today after the media report came through.
Implications for cement companies: In our view any investigation/penalty is
difficult to quantify for the cement companies. The necessary steps in our view
are a) launch of an official investigation; b) proving allegations of ‘price
manipulation’; c) imposing penalty; d) cement companies losing the penalty
case in higher court. CCI has recently imposed penalties on real estate major-
DLF (covered by JPM Analyst Saurabh Kumar). The CCI Act lays out
maximum penalty of 10% of average turnover of last 3 years. In our view,
while the NOISE has increased on CCI investigation, we believe the real issue is
the possibility of cement price hikes not taking place over the next few months
as we enter seasonally strong demand phase, given a possibility of CCI
investigation. Given the lack of clarity on potential CCI investigation, we would
refrain from quantifying any financial impact on cement companies.
Cement stocks have rallied sharply over last few weeks as price increases
started post rains: Cement stocks before today’s correction outperformed
markets (ACC+10%; ACEM+19% and UTCEM+16%) on cement price increase
news flow in Northern/Central India markets, combined with seasonal weak
period of demand getting over. Valuations for the front line majors are not
cheap, and the CCI investigation remains a very real overhang on the
sector. ACC at $138/MT; ACEM at $146/MT and UTCEM at $122/MT on
today’s stock prices, do not offer value in our view. We believe the overhang of
CCI investigation will possibly limit stock price upside in the near term.
Admittedly balance sheets are very strong across the majors, with net cash
positive, however we are not believers of sharp on the ground demand recovery
given the economic outlook.
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