CCI's fine may lead to consolidation in cement sector - Fitch

CCI's fine may lead to consolidation in cement sector - Fitch

Fitch Ratings said that the levy of Rs 6,300-crore penalty on 11 cement companies by the Competition Commission of India (CCI) will lead to further consolidation in the industry. Domestic cement industry is unique with 57 per cent of the capacity being consolidated with the top eight players.
The rest of the industry is highly fragmented with small-to-medium sized companies. They mostly have uneconomical scale of operations.
Smaller firms with uneconomic cost structures would become uncompetitive and face very significant deterioration in their credit profiles, said Fitch. As such the fragmentation level in the industry is expected to reduce. Larger and vertically integrated companies are likely to gain market share.
While the impacted companies are considering approaching the Competition Appellate Tribunal against the order, in the event the fine is imposed, the amount of penalty to be paid as a percentage of their year-end (FY12) EBITDA is significant and ranges between five per cent and 64 per cent.The impact on credit profiles of most of these entities is likely to be minimal given their relatively low financial leverage, except for Century Textiles and Industries and Jai Prakash Associates, Fitch Ratings said.

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