New Delhi: The Competition Commission of India (CCI) has severely censured cartelization in the cement industry by imposing a penalty of at least Rs 6,300 crore on the top 11 makers of the material.
Among these, the worst-hit are ACC Ltd, Ambuja Cements Ltd, UltraTech Cement Ltd and Jaiprakash Associates Ltd, which have been fined in excess of Rs 1,000 crore each.
All the 11 firms were fined 50% of their average profit for fiscal years 2010 and 2011, the period for which they were investigated.
The antitrust watchdog, in its unanimous decision by all six members and chairman Ashok Chawla in a 258-page order, also fined lobby group Cement Manufacturers’ Association (CMA) a token amount.
The commission investigated 39 cement companies on a complaint filed by the Builders Association of India (BAI), a lobby group of engineering and construction contractors.
According to the order posted on the competition regulator’s website on Thursday, the builder group had argued that the cement companies had been indulging in “collusive price fixing” in 2009-10 and 2010-11.
The order said the watchdog had “considered the parallel and coordinated behaviour of cement companies on price, dispatch and supplies in the market”. After its investigation, CCI had also found that the cement companies had underutilized available production capacity “to reduce supplies and raise prices in times of higher demand”.
CCI has asked the cement companies to “cease and desist” from indulging in any activity relating to agreement, understanding or arrangement on prices, production and supply of cement in the market.
The 11 companies penalized also include Grasim Cements Ltd (now merged with UltraTech), JK Cement Ltd, India Cements Ltd, Madras Cements Ltd, Century Cement, Binani Cement Ltd and Lafarge India.
The order added that CMA had been asked to “disengage and disassociate itself from collecting wholesale and retail prices through the member cement companies and also from circulating the details on production and dispatches of cement companies to its members”.
The amount of Rs 6,300 crore is the highest total penalty CCI has imposed since it started functioning in 2009. In August 2011, CCI had held real estate firm DLF Ltd guilty of “abusing its dominant position” in the real estate market, and had imposed a Rs 630 crore fine on the company.
Advocate O.P. Dua, who argued on behalf of the builders’ association, said that following the order, each BAI member will have the right to claim individual compensation from the Competition Appellate Tribunal (Compat). “CCI cannot grant compensation to complainants. For that, they would have to approach Compat,” Dua said.
Anand Gupta, secretary general, BAI, said the penalty is “absolutely insufficient and no deterrent at all”.
UltraTech denied it had been involved in any wrongdoing.
“We have not indulged in any cartelization. We will approach the Competition Appellate Tribunal and challenge the order,” said O.P. Puranmalka, whole-time director, UltraTech, and head of the cement business, said in a company release.
“Lafarge takes note of the decision of CCI. We are reviewing the detailed reports to take the suitable actions. Lafarge has a strict policy in place to fully comply with competition laws. All units operate under the group’s code of business conduct,” said Camille M. Gonsalves, senior vice-president, corporate affairs and corporate social responsibility, Lafarge India, in an emailed response to a query seeking comment.
Switzerland-based Holcim Ltd, which owns ACC and Ambuja, said the units will contest the allegations against them. “The companies will pursue all available legal steps to defend their respective position,” Holcim said in an emailed statement.
CMA and Jaiprakash Associates declined to comment on the development. Spokespersons at Madras Cements, Century Cement, India Cements and JK Cement could not be immediately reached for comment.
Emails sent to a spokesperson at Binani remained unanswered.
A 20 June “private client report” by Kotak Securities had said that if CCI goes against cement companies, it “would result in de-rating of the sector” and cement prices “would likely come under pressure”.
Rajesh Kumar Ravi, an analyst at Karvy Stock Broking, said, “The actual penalty amount is 30-40% higher than what we were expecting. Till yesterday, the markets were expecting CCI to impose a penalty of 8-9% of average turnover (sales) for the past three years.”
“While the cement companies are expected to challenge the order, the immediate cash outgo can have huge financial implications for the companies,” he said. “If the cement companies have to deposit the penalty amount, there will be a huge cash outgo. For some companies, the penalty amount is as high as 60% of last year’s profits. If the cash outflow is not there, there wouldn’t have been any immediate impact.”
Despite speculation about the impending CCI order, stocks of ACC, Ambuja Cements, UltraTech and Jaiprakash Associates on an average gained 1-7%. The order was posted on the website Thursday after markets closed.
Bhuma Srivastava and Joel Rebello in Mumbai and Bloomberg contributed to this story.