CCI levies Rs 752-cr penalty on United Breweries; stock declines 4%

CCI found that the company was engaged in price co-ordination in contravention of the provisions of Sections 3(3) (a) & (b) of the Competition Act, 2002 in certain states & indulging in cartelization

Shares of United Breweries (UBL) dipped 4 per cent to Rs 1,536.75 on the BSE in Monday’s intra-day trade after Competition Commission of India (CCI) imposed penalties of Rs 752 crore on the company for cartelisation in the sale and supply of beer.

"This is to inform you that the CCI has now passed an Order under section 3 read with section 27 of the Competition Act, 2002, inter alia against United Breweries Limited imposing a penalty of Rs 751.83 crore besides imposing penalty on certain individuals and a ceaseand-desist order,” UBL said in exchange filing on Friday, September 24.

CCI found that the company was engaged in price co-ordination in contravention of the provisions of Sections 3(3) (a) & (b) of the Competition Act, 2002 in certain states and indulging in cartelization, it added.

“We are reviewing the order in consultation with our Legal Advisors, and will evaluate further legal options, as may be available under applicable law”, UBL said.

According to ICICI Securities, UBL would have to shore up further debt (Rs115 crore LTD in FY21) to deposit the penalty. "The scenario if undertaken, is expected to create near and medium term challenges for the company. UBL can however, appeal to the Supreme Court of India within 60 days from the date of communication of CCI decision," it said.

“There are no changes to our forecasts as we await clarity on the timeline for penalty payment as well as the management’s eventual decision on whether to appeal against the penalty,” Motilal Oswal Securities said stock update. “The historical pre-COVID PBT CAGR in the five years ended FY20 was around 8.5 per cent. Even post normalcy, earnings are unlikely to witness strong growth. Return ratios even in UBBL’s best year (FY19) were at 18-19 per cent levels, much lower than the average of its Consumer peers of over 30 per cent,” the brokerage firm said.

However, despite today’s decline, the stock's performance inthe  past one month (up 7 per cent), three months (up 12 per cent), six months (25 per cent) and one year (63 per cent) has been in line-with the market.