Cement stocks shrug off CCI penalty, fall marginally

Jaiprakash Associates and Madras Cements worst hit

Cement stocks once again managed to surprise market participants, by not cracking much a day after the Competition Commission of India (CCI) slapped a hefty penalty of Rs 6,300 crore on India’s 11 major cement manufacturers.

Shares of the penalised companies did not witness a knee-jerk reaction and declined in the range of only 0.5 per cent to 4.5 per cent on Friday.

“While manufacturers prepare for tedious litigation to defend their action and the street remains divided on the potential impact of the ruling, we remain concerned about the ramifications of the ruling on the pricing power so far enjoyed by the sector and its corresponding ability to sustain profitability in the face of rising cost pressure,” said a report from Kotak Institutional Equities.
 

MAKING LIGHT OF THE BURDEN
Company	Closing price (Rs)*	Change (%)
Shree Cement	2,924.55	7.82
JK Cement	147.00	0.34
UltraTech	1,455.20	-0.57
India Cements	82.85	-1.84
Ambuja	167.05	-2.65
ACC	1,214.50	-3.30
Madras Cements	149.70	-4.07
JP Associates	71.30	-4.36
* As on June 22                                                                   Source : BSE

Since the penalty was more than anticipated and came after market hours yesterday, industry analysts had predicted sharp cuts in share prices. For instance, the Aditya Birla Group’s UltraTech stocks declined only 0.57 per cent or Rs 8.35 to close at Rs 1,455.2 while those of India Cements and Ambuja softened 1.85 per cent and 2.65 per cent, respectively. Shares of ACC closed 3.3 per cent down to close at Rs 1,214.5 on the Bombay Stock Exchange.

Shares of only two companies declined the most. Stocks of Jaiprakash Associates were down 4.36 per cent, while Madras Cements lost 4.07 per cent. Jaiprakash was the worst hit in terms of penalty, as it was fined Rs 1,323.6 crore for the alleged cartelisation. Since all affected companies have said they would challenge the order, it did not let the counter crack. “Fundamentally, too, the cement sector is poised for better growth in the coming years,” said the research head of a Mumbai-based brokerage firm.

Some analysts say since fear of a CCI penalty has long been hovering, cement stocks had discounted it in the prices. The all-India average price of a cement bag of 50 kg had touched an all-time high of Rs 306 earlier this year. India has 45 players, with overall capacity of 330 million tonnes a year.