What is cement cartelisation issue all about?
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Cement stocks fell sharply Wednesday ahead of an order by India's competition watchdog in the alleged cartelisation case. According to sources, Competition Commission of India (CCI) is likely to come out with its order in the investigation soon.
Here is your five-point cheatsheet on the whole issue ahead of the announcement.
What
The CCI is likely to slap a penalty on 11 top cement companies for cartelisation to influence the price, sources told NDTV Profit. The cement companies allegedly decreased production in a bid to inflate prices. Competition commission of India ensures there is no monopoly in a sector. Domination by one or two large entities in the market leads to unfair pricing of products and services.
Cartelisation means a group of industry participants coming together to fix pricing of products and services. This can work against the interest of consumers.
When
The case goes back to 2007-08 when realtors' body Builders Association of India (BAI) had alleged that the retail prices fixed by 11 members of cement manufacturers association (CMA) were almost similar. The investigation was first handed to the Serious Fraud Investigation Office (SFIO) and later to CCI.
Who
Sources told NDTV that 11 cement companies are likely to be fined of the 39 investigated by CCI. UltraTech, Ambuja Cements, ACC, India Cements, Madras Cement, Jaypee Cement are among the companies found guilty, sources said. However, those found guilty have the option to challenge the order in the appellate tribunal.
UltraTech, Ambuja Cements and ACC together control a little over one-third of the country's total cement manufacturing capacity of 300 million tonnes.
How
Competition Commission of India (CCI) started Investigations into alleged cement caterlisation over a year back. Earlier, the SFIO was handling the investigation under the directions of the ministry of corporate affairs, which is its nodal ministry and help ACC, Gujarat Cements and Ultra Tech cements guilty of price manipulation and recommended action against them. But the ministry, in September, asked CCI to further probe the charges of cartelization as SFIO does not have jurisdiction to prove the charges.
The watchdog looked into the supply shortage issue and found that cement companies were running far below than their plant capacity at around 70 per cent.
Impact:
The penalty is likely to be in the range of 8-10 per cent of past three year's average turnover and may amount to Rs 3,000 crore, sources said. It may impact 40-100 per cent of FY13E earnings of the cement companies.