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Monday, August 8, 2016

India Cements Annual Report 2016-some takeaways

In line with the increase in cement prices and improved economic outlook in its key areas of Andhra Pradesh/Telangana, the India Cements stock has returned ~40% in a few months. While it seems a speculative short in light of its murky corporate governance, I thought it apt to look at the report and see if any redflags. Following is the key points I saw-emphasis via red ink etc is all mine.

  • Unexplained Increase in auditor remuneration by 25%-Statutory auditors are M/s.Brahmayya & Co. (Registration No.000511S) and M/s.P.S.Subramania Iyer & Co. The Board of Directors at its meeting held on 26th May, 2016, based on the recommendation of the Audit Committee approved the payment of remuneration to the Statutory Auditors of Rs.50,00,000/- (Rupees Fifty Lakhs only) EACH (enhanced from Rs.40 Lakhs each) for the year 2016-17, besides reimbursement of service tax and all travelling and out of pocket expenses. 
  • Unresolved CSK(Chennai Super Kings) dispute: The Company was informed that CSKCL had sought the permission of BCCI, for the distribution of its shares by India Cements Shareholders Trust to the non-promoter shareholders of India Cements and India Cements Ex-cricketers Trust, on September 30, 2015. The Company has also been informed that the approval of BCCI is awaited.
  • Price increase despite overall capacity bulge-possible cartels? As the company puts it "The Indian cement industry which has a capacity of over 370 million tons could achieve a capacity utilisation of around 70% only for the year under review. The South in particular was affected with a much lower capacity utilisation. While the industry had to cope with inflationary pressures, including additional pay-outs on account of wage board settlements for the employees, the impact of the same was considerably reduced due to the sharp fall in oil prices and thereby reduction in the price of fuel. With fairly consistent selling price of cement coupled with improved operating parameters, the Industry could make reasonable bottom line despite lower capacity utilisation; the silver lining being the recovery in cement demand towards the end of the fiscal. ..The overall net plant realisation for the year was Rs.3793 per ton against Rs.3587 per ton in the previous year reflecting an increase of 6%"
  • Competition Act penalty still pending finality: The order passed by the Competition Commission of India (CCI) on 20th June 2012 against certain cement manufacturers including the Company alleging contravention of the provisions of The Competition Act, 2002 and imposing a penalty of Rs.187.48 Crores on the Company among others, was appealed against and the Competition Appellate Tribunal (COMPAT) allowed the same by its order dated 11.02.2015 setting aside the Order CCI and has remitted the matter back again to the CCI for re-adjudication while directing the refund of the pre-deposit of Rs.18.75 Crores to the Company. The matter is pending before the CCI after completion of the hearing on 22nd January 2016.

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