Harsh CCI order: Meaningful book value impact

India Infoline News Service | Mumbai |

CCI has found 11 cement companies guilty of price rigging by creating an artificial shortage through underutilization of plant capacity.

Competition Commission of India (CCI) has found 11 cement companies (including the three big players Ultratech, ACC, Ambuja Cement) guilty of price rigging by creating an artificial shortage through underutilization of plant capacity. CCI has imposed Rs63bn (0.5x of FY10 and FY11 profits) penalty on the companies under scrutiny. Companies like ACC and Ambuja Cement plan to appeal against the order in Competition Appellate Tribunal. We expect other companies to follow soon.


Company Penalty (bn)
JP Associates 13.2
Ultratech Cement 11.7
Ambuja Cement 11.6
ACC 11.5
Lafarge India 4.8
Century Textile 2.7
Madras Cement 2.6
India Cement 1.9
Binani Cement 1.7
JK Cement 1.3
CMA 0.0
Total 63.0

Impact on our coverage universe

We don’t factor in any drop in cement realisation on the back of CCI order; therefore, maintain earning estimates of the companies under coverage. In a scenario of the CCI penalty being upheld, FY13 book value of our coverage universe will take a hit by 4-13%. We maintain our BUY rating on India Cement and Market performer rating on ACC, Ambuja and Ultratech Cement.


Company Penalty per share (Rs) Impact on FY13 BV (%)
Ultratech Cement 42 7.5
ACC 61 13.1
Ambuja Cement 7 12.7
India Cement 6 4.3

 

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