New Delhi: 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 Monday.
"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," it said in a statement.
"As such the fragmentation level in the industry is expected to reduce and larger and vertically integrated companies are likely to gain market share," Fitch said.
Top eight players account for 57 percent 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, it said.
Last week, the Competition Commission of India (CCI) imposed penalty of Rs 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.
"The top five companies (Ultratech Cement Limited, ACL, ACC, ICL and Madras Cements Limited, constituting around 50 percent 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," it said.
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.
"Globally, most markets have significant consolidation and this move by CCI may indirectly help the Indian cement industry in correcting this structural imbalance," it said.
First Published: Monday, June 25, 2012, 21:32