CCI's penalty on cement companies to impact their profits

Competition Commission of India (CCI) has imposed a hefty penalty on a few cement makers in India that could hit their operating profits by up to 2%, a research said. 

India Ratings on Friday said, “CCI's penalty on seven major cement companies will shave off under 2% of the players operating profits ahead.”

On January 19,2017, the CCI imposed penalties worth Rs 206 crore on seven companies, accusing them for bid rigging of a tender floated by the Director, Supplies & Disposals, Haryana, in the year 2012. 

The penalty has been levied @ 0.3% of the average turnover of the cement companies of preceding three years.

Companies which are imposed with penalty are – Ultratech Cement with Rs 68.30 crore which was highest among all. This was followed by Jaiprakash Associates (Rs 38.02 crore),  ACC (Rs 35.32 crore), Ambuja Cement (Rs 29.84 crore), Shree Cement (Rs 18.44 crore), J.K Cement (Rs 9.26 crore) and lastly J.K Lakshmi Cement with Rs 6.55 crore. 

Together top eight companies account 60% of India's total cement capacity.

The rest of the industry is highly fragmented, with small- to medium-sized companies, mostly with uneconomical size of operations. 

Ind-Ra said, "The cement industry in India is unique, with around 60% of the industry’s total capacity being controlled with the top eight players. The rest of the industry is highly fragmented, with small- to medium-sized companies, mostly with uneconomical size of operations."

Although none of these companies are taking the penalty sitting down. On Friday, cement makers said that they will challenge the order of CCI for which they have decided to file a case before Competition Appellate Tribunal (COMPAT). 

ALSO READ: ACC, Ambuja, Shree Cement to file case against CCI's order

This isn't the first time cement makers in India have been penalised this year. India Ratings said, "This is the second penalty this fiscal over and above the Rs 6700 crore penalty imposed by CCI in August 2016 on 11 cement companies."

This penalty was then stayed on an appeal to the Competition Appellate Tribunal. Cement makers are hoping that COMPAT will again come to their rescue against this CCI order. 

Ind-Ra said, "Cement players are expecting some respite from the budget in the form of excise duty reduction and a boost to the Housing for All initiative and higher overall infrastructure spending of the government."