Probe by CCI director-general finds most of them guilty of cutting production to raise price, reports Jharna Mazumdar
DG-level probe finds these firms guilty of cartelisation over 4 years
IN A crackdown on cartelisation of cement manufacturers, Competition Commission of India's director general has conducted a detailed investigation on over two dozen companies, including leading players such as ACC, Ambuja Cement and UltraTech.
The report submitted to the CCI chairman HC Gupta has held most of the companies guilty of cutting production to raise cement price.
CCI is now seeking a response from these companies on the DG report.
CCI chairman HC Gupta told that the director general investigated the matter for the past six to eight months, and that a detailed report is ready. “We are sending letters to the companies in next 10 days, in which we will attach the report submitted by the DG, and seek responses from these companies,“ said Gupta.
A week ago, CCI had sent letters to all these companies, but withdrew them, citing some errors.
The companies will be given three to four weeks time to submit their responses or explain their stand to the commission, Gupta said.
Minimium 25 cement companies were found guilty of cartelisation for the four years under assessment between 2007 and 2011.
“ACC, UltraTech, JP Associates, Ambuja, Lafarge and many other companies have been found guilty under Section 3 of the Competition Act, and were named in the report,“ one official said. Section 3 of the Act refers to cartel and anti competitive acts.
He said the investigation was initiated on the basis of two complaints one filed by the Builders' Association of India and the other, transferred from Monopolies and Restrictive Trade Practices Commission (MRTPC).
A spokesperson from Ambuja said, “We have got a letter from CCI and are going through it..“
An Aditya Birla Group associate said, “A letter was sent to us, but that has been withdrawn. Only after we get the new letter, we can comment on it.“ Group executive president Pragnya Ram claimed that “the company has not done any cartelisation to inflate cement prices.“
Cement analysts said if the companies are found guilty, they would have to pay a significant fine. Independent analyst SP Tulsian said, “If proved guilty, the fine on cement companies can be between Rs 100 crore to Rs 1,500 crore, depending on the turnover and production capacity.“
Rajesh Kumar Ravi, an analyst with Karvy Stock Broking, said the present utilisation capacity of cement companies varies from 50 to 70 per cent. “The companies have brought down production as demand fell significantly due to the slow down in the realty sector,“ he said. Demand started slowing down since June 2010 after several scams were unearthed in the realty sector.
Already, profits of cement companies had declined significantly compared with the past three years and by maintaining a production discipline, they were trying to save themselves from incurring huge losses, Ravi pointed out.
Due to the decline in demand, the companies failed to pass on the rise in input cost and were left with no other option except for production discipline, he added.
A CRISIL Research report on cement sector said it expects profitability of cement firms to decline to its lowest level in the past 10 years by 2012-13. A huge demandsupply imbalance, fuelled by supply glut, will drive prof itability down for cement firms. The supply glut will slacken cement manufac turers' operating rates, re stricting their ability to pass on a sharp rise in power and fuel costs to consumers, it said. The report said over the next two years, while cement capacities will rise by 60 mil lion tonnes per annum (MTPA), demand will in crease by a mere 30 MTPA.
Operating rates of cement manufacturers will, there fore, plunge to around 72% per cent in 2012-13 from an already subdued 78% in 2010-11.
Cost of power and fuel, a major input for cement, will increase by around 18 per cent in 2011-12, given the steep increase in coal prices by the industry's dominant supplier, Coal India. In addiBloomberg tion, an increase in effective excise duty rates will lower net price realisations of cement manufacturers by 2-4 per cent.
“The magnitude of the demand-supply imbalance and cost escalation will halve the cement industry's operating profit (Ebitda) margins from 20% per cent at present to around 10 per cent in 2012-13 -the low est level in the past 10 years,“ Prasad Koparkar, head of industry and customised research, Crisil Research, said in the report.
Small-sized cement manufacturers with capacities of less than 2 MTPA are likely to post losses of about 2% per cent at Ebitda level in 2012-13. Large ce ment manufacturers --capacities of 1 crore tonnes per annum or higher however, will fare better than the industry average, with Ebitda margins of about 12%, the report added.
Source: mydigitalfc.com
DG-level probe finds these firms guilty of cartelisation over 4 years
IN A crackdown on cartelisation of cement manufacturers, Competition Commission of India's director general has conducted a detailed investigation on over two dozen companies, including leading players such as ACC, Ambuja Cement and UltraTech.
The report submitted to the CCI chairman HC Gupta has held most of the companies guilty of cutting production to raise cement price.
CCI is now seeking a response from these companies on the DG report.
CCI chairman HC Gupta told that the director general investigated the matter for the past six to eight months, and that a detailed report is ready. “We are sending letters to the companies in next 10 days, in which we will attach the report submitted by the DG, and seek responses from these companies,“ said Gupta.
A week ago, CCI had sent letters to all these companies, but withdrew them, citing some errors.
The companies will be given three to four weeks time to submit their responses or explain their stand to the commission, Gupta said.
Minimium 25 cement companies were found guilty of cartelisation for the four years under assessment between 2007 and 2011.
“ACC, UltraTech, JP Associates, Ambuja, Lafarge and many other companies have been found guilty under Section 3 of the Competition Act, and were named in the report,“ one official said. Section 3 of the Act refers to cartel and anti competitive acts.
He said the investigation was initiated on the basis of two complaints one filed by the Builders' Association of India and the other, transferred from Monopolies and Restrictive Trade Practices Commission (MRTPC).
A spokesperson from Ambuja said, “We have got a letter from CCI and are going through it..“
An Aditya Birla Group associate said, “A letter was sent to us, but that has been withdrawn. Only after we get the new letter, we can comment on it.“ Group executive president Pragnya Ram claimed that “the company has not done any cartelisation to inflate cement prices.“
Cement analysts said if the companies are found guilty, they would have to pay a significant fine. Independent analyst SP Tulsian said, “If proved guilty, the fine on cement companies can be between Rs 100 crore to Rs 1,500 crore, depending on the turnover and production capacity.“
Rajesh Kumar Ravi, an analyst with Karvy Stock Broking, said the present utilisation capacity of cement companies varies from 50 to 70 per cent. “The companies have brought down production as demand fell significantly due to the slow down in the realty sector,“ he said. Demand started slowing down since June 2010 after several scams were unearthed in the realty sector.
Already, profits of cement companies had declined significantly compared with the past three years and by maintaining a production discipline, they were trying to save themselves from incurring huge losses, Ravi pointed out.
Due to the decline in demand, the companies failed to pass on the rise in input cost and were left with no other option except for production discipline, he added.
A CRISIL Research report on cement sector said it expects profitability of cement firms to decline to its lowest level in the past 10 years by 2012-13. A huge demandsupply imbalance, fuelled by supply glut, will drive prof itability down for cement firms. The supply glut will slacken cement manufac turers' operating rates, re stricting their ability to pass on a sharp rise in power and fuel costs to consumers, it said. The report said over the next two years, while cement capacities will rise by 60 mil lion tonnes per annum (MTPA), demand will in crease by a mere 30 MTPA.
Operating rates of cement manufacturers will, there fore, plunge to around 72% per cent in 2012-13 from an already subdued 78% in 2010-11.
Cost of power and fuel, a major input for cement, will increase by around 18 per cent in 2011-12, given the steep increase in coal prices by the industry's dominant supplier, Coal India. In addiBloomberg tion, an increase in effective excise duty rates will lower net price realisations of cement manufacturers by 2-4 per cent.
“The magnitude of the demand-supply imbalance and cost escalation will halve the cement industry's operating profit (Ebitda) margins from 20% per cent at present to around 10 per cent in 2012-13 -the low est level in the past 10 years,“ Prasad Koparkar, head of industry and customised research, Crisil Research, said in the report.
Small-sized cement manufacturers with capacities of less than 2 MTPA are likely to post losses of about 2% per cent at Ebitda level in 2012-13. Large ce ment manufacturers --capacities of 1 crore tonnes per annum or higher however, will fare better than the industry average, with Ebitda margins of about 12%, the report added.
Source: mydigitalfc.com
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