Cement stocks fall after CCI raids on allegations of price cartelisation

This will not impact positive sentiment in the sector, say analysts

Shares of large cement players such as UltraTech Cement, The Ramco Cement, Shree Cement, and Ambuja Cements tumbled 2-5 per cent on Thursday following news that the Competition Commission of India (CCI) conducted searches at the companies on allegations of price cartelisation.

“Raid is a very harsh word. The CCI officials had come yesterday (Wednesday) for an enquiry related to pricing. They met our marketing officials along with other team members involved in pricing of cement. There was nothing unfriendly about their visit,” Hari Mohan Bangur, managing director of Shree Cement, told Business Standard.

The searches have come amid strong demand recovery in the sector after the Covid-19 induced nationwide lockdown was lifted. 

While UltraTech Cement remained unreachable for comment, Ambuja Cements via an exchange filing clarified its stance. “Ambuja Cements is of the firm view that it has acted and continues to act in compliance with competition laws and is fully cooperating with the investigation and providing all necessary information to the authorities. Ambuja Cements has a long-standing commitment to fair competition as reflected in its code of business conduct and ethics,” it said.

Industry officials said CCI has visited only large players, those with over 30 million tonne (MT) capacity. “We do not know if they (CCI officials) will come back for another round of enquiry. But as of now seem satisfied with information provided. Their visit will not have any impact on company’s brand image or operations,” said Bangur.

The domestic cement industry is gearing up for a strong consumption uptrend in the coming months and recently some players announced expansion plans to meet the demand.

Earlier this month, in a bid to capture the rising demand for cement, Aditya Birla Group firm UltraTech Cement approved an investment of Rs 5,477 crore for raising capacity by 12.8 MT. The current approved investment amount will be above the planned Rs 1,500 crore capex for FY21, the company said.

Shiva Cement, an arm of unlisted JSW Cement, is also investing Rs 1,500 crore in a new plant in Odisha. JSW Cement, with a capacity of 14 MT, is among those that did not see any CCI enquiry. Brokerages remain positive on the domestic cement sector despite the raids.

“Cement companies have raised prices a couple of times in the last two months on the back of increased volume growth. Even if the CCI raids have taken place, we do not see the sentiment getting impacted significantly. Players remain positive,” said Hemang Jani, head of equity strategy, broking and distribution at Motilal Oswal Financial Services.

After registering contraction between April-October, cement production increased by 2.8 percent in October, CARE Ratings said in its report. Growth in production could be attributed to the increase in demand with the pickup in infrastructure projects, which had been stalled for a while. The end of the monsoons and return of migrant workers, too, have contributed to higher production, said the CARE Report.

Meanwhile, ICRA expects cement demand to decline by 14-17 per cent in FY21 as against the earlier estimate of 22-25 per cent.