Press Trust of India reported that smaller companies in the cement sector will find it difficult to maintain their market shares in the wake of competition watchdog CCI imposing penalty on major players for forming price cartel.

Ratings agency Fitch said that "To the extent regulatory intervention limits coordinated supplier actions with respect to price and quantity, smaller firms with uneconomic cost structures would become uncompetitive and face very significant deterioration in their credit profiles.”

Fitch said that "As such the fragmentation level in the industry is expected to reduce and larger and vertically integrated companies are likely to gain market share.”

Top eight players account for 57% of the cement production capacity, the rest of the industry is highly fragmented, with small to medium sized companies mostly with uneconomical size of operations.

Last week, the Competition Commission of India imposed penalty of INR 6,307-crore on 11 cement companies, including ACC, UltraTech Cement, Grasim Cement (now a part of Ultratech) Jaypee Cements, Lafarge India, JK Cements, India Cement, Madras Cement, Century Cement, Binani Cement and Ambuja Cements.

It said that "The top five companies (Ultratech Cement Limited, ACL, ACC, ICL and Madras Cements Limited, constituting around 50 per cent of the industry capacity) enjoy a better cost structure, driven by higher level of vertical integration and locational advantage with respect to sourcing of raw materials and market access.”

Most other players, it added, have a weaker cost structure and moderately high leverage levels.

The rating agency further said it has maintained a negative outlook on the Indian cement industry for the last two years, as it has been struggling with excess capacity besides having a structural feature of relatively high operating leverage.

It said that "Globally, most markets have significant consolidation and this move by CCI may indirectly help the Indian cement industry in correcting this structural imbalance.”

Source - Press Trust of India

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