New Delhi: The Competition Commission of India’s penalty of over Rs 6,700 crore on 11 cement companies amounts to 20-75 per cent of the players’ 2015-16 operating profits, however, the move is credit neutral due to their low leverage levels, India Ratings and Research said on Thursday.
“Most of the companies (eight out of 11) maintain a low leverage and thus will be in a position to absorb the burden, in the event the penalty has to be paid. The penalty, however, will put pressure on the credit metrics for companies with relatively high levels of leverage,” the rating agency said in a statement.
Fair trade regulator CCI in its order dated August 31, 2016 imposed a penalty of Rs 6,700 crore on 11 cement companies.
The competition watchdog on Wednesday imposed a penalty of more than Rs 6,700 crore on 11 cement companies, including ACC and Binani, for cartelisation.
“Maintaining high prices in the face of declining capacity utilization has over the past few years allowed cement companies to contain decline in profits,” it said.
A fine of Rs 1,147.59 crore has been imposed on ACC, while penalties on Jaiprakash Associates Ltd and UltraTech are Rs 1,323.60 crore and Rs 1,175.49 crore, respectively.
The fines on other companies are: Rs 274.02 crore on Century, Rs 187.48 crore on India Cements, Rs 128.54 crore on J K Cements, Rs 490.01 crore on Lafarge, Rs 258.63 crore on Ramco, Rs 1,163.91 crore on ACL, and Rs 167.32 crore on Binani, according to the release.
The cement industry in India is unique, with around 60 per cent of the industry’s total capacity being controlled by the top eight players.
The rest of the industry is highly fragmented, with small-to-medium sized companies, mostly with uneconomical size of operations.
India Ratings said it maintains a stable outlook for cement manufacturers for 2016-17 and expects the cement industry to grow in the range of 4 per cent-6 per cent during 2016-17.
“A favourable monsoon after two consecutive bad years, can give a leg up to rural demand, and governments initiatives (such as ‘Housing for All’ and the thrust on infrastructure activities) are expected to improve overall cement demand with a lag and show signs after FY17,” the rating agency said.