Manoj Gaur, chairman of Jaiprakash Associates today said that the CCI order was surprising and he did not expect such hefty penalties to be levied.
Cement stocks, which took a beating on Friday on the Competition Commission of India (CCI) order seems to have stabilized. Although they have not recovered all their losses, they are trading in the green. JP Associates got the worst end of this stick from the CCI with the highest penalty levied on them.
Speaking on the issue, Manoj Gaur, chairman of Jaiprakash Associates said that the CCI order was surprising and he did not expect such hefty penalties to be levied. In his view, the penalty based on PAT is unfair since a significant portion of PAT was from the sale of treasury shares.
Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying videos.
Q: You have got the roughest deal from the CCI. What has been your reaction to the amount of penalty that was levied on your company?
A: After we went through the CCI order, I think there would be none in India who would not have been shocked. But as far as we are concerned, with all respect to who have been party to this order, they are all eminent people, I have high respect for them. At the same time, I am very surprised in the way this order has been framed. We all know that JP Associates is a conglomerate with different revenue streams from various businesses, namely engineering, construction, cement, real estate, hospitality business.
It is on record that we added from 8 million tone, we became 12 million tonne in FY09, from 12 million tonne we became 18 million tonne in FY10. In fact, we put up more capacity, took more loan and increased the competition and now we are being framed for something which says that people have averted the competition.
It is on record that JP cement was not even in top 5 in FY09, and last year, it came at number 3 spot. The way the penalty has been computed, they have taken the figures without analysing how the profit after tax (PAT) was arrived by the company. Even though all the disclosures were made, the numbers and results are in public domain. In fact because you asked me this question, I have to mention to you that it is in public domain that for FY10 when you talk of PAT of Rs 1700 crore, Rs 1300 crore in PAT is because of sale of treasury share, how cement has contributed to the profit, I don’t know.
In FY11, out of PAT of Rs 1160 crore, Rs 513 crore has been there because of a part sale of Jaypee Infratech stake that year. So I am sad; at the same time, I can only say that whatever is happening, we have to face and safeguard the interest of all stake holders.
Q: How do you plan to contest this both in terms of the ruling and the way the penalty amount has been arrived at for your company?
A: As we have to safeguard the interest of all stakeholders, we have a duty to clarify that is required so that this unneeded structures and such duty are reviewed in totality. I am very much intrigued how this number has been arrived at. Suddenly, we are bracketed at the top company for the penalty. At the same time, how it has been inferred that there is a cartelisation, the government long back liberalized cement and cement industry grew in India.
In fact, the cement industry invested for every million tonne of capacity, job creation for over 10,000 people. We ourselves have passed through this entire journey of 28 years. Liberalized economy does not mean that you have the liberty to make profit, liberalized economy means that the market determines what type of pricing you can get and we have to put forward our view point with all whatever resources we can muster. So that there is clarity and such unwanted fines are not imposed when the industry is struggling to keep afloat.
Q: Due to this sharp penalty imposed by the CCI and the vigilance, how do you expect prices going forward? Do you think you will have a free hand in being able to fix prices depending on demand/supply or does it mean that this restrains your ability to fix prices?
A: Fixing has slightly different connotation. I can only tell you that prices are not fixed by individual companies, there is a market driven aspect of the cement industry. Prices keep fluctuating as they go down to as low as Rs 170-180, they go up in some areas more than Rs 330-350. What hurts is that, rightly in democracy, media plays a very important role of an unconscious regulator, if I can use the word.
But at the same time, one has to take into cognizance of what is happening to the cement industry. Even the government of India recognized that there are different pricing possible because of the distance, the availability of the limestone and coal from the market consumption area that is why there is a different slab for excise and different pricing accordingly. So, it is not that we are fixing any price, it is market driven.
If the company alone had the freedom to fix price then no cement company would have become sick, no cement company would have had to sell the plants and only few companies would be growing. So the cement industry has shown that how decontrolled industry can attain modern technology, can achieve excellence which is comparable to the best in the world. After all this has been achieved, when the industry is supported such allegations are being imposed which I find unfortunate.
Q: Aside from pricing though, do you expect demand to remain crimped? Would you keep capacity levels and utilization lower?
A: I have already mentioned and I will again say that as far as we are concerned, this organization has always taken projects, has always worked in the national interest. My founder Jaiprakash put a hydro power plant in Himachal Pradesh (HP) when the government liberalized the power sector. When it invited private sector participation, when there was no one to invest in power without a sovereign guarantee, Mr Jaiprakash Gaur invested in power plants without the sovereign guarantee on the strength of India's economy and the organisation has grown.
Yes, there are challenging phases where sadly I have to say, first the government says you should invest and after investment is made then there is some quarter, which starts re-thinking. There is a very interesting case, for the Bina Power Plant when we had the opportunity it was taken from a very known business group of the country, we had a coal FSA of more than 2 million tonne and now when the plant is ready, as we all know Coal India has gone into a different mode for new FSA now it will be 4 million tonne.
Definitely, like in cement, capacities are being met. Now it is being discussed that whether the capacity utilization was there or not. Nobody is asking why the capacity utilization is less when there is no coal for the capacity, I can tell you that why the power sector, the highest officer of the country is monitoring how CII should give the coal. For cement, nobody is discussing or thinking how they are getting coal. We are getting coal at e-auction and that also not for required quantity.
Capacity utilization can never come up to 80% if there is no coal. It cannot come to 80% if there is no rail to transfer but at the same time, I would like to say that we are patriotic Indians. If cement comes from Pakistan, I would rather say that we put our own plant, use India's own mineral wealth, you give Indians employment and put up the capacity if we can afford. But this is the difficult period, which we have to overcome.
Jaiprakash Asso stock price
On August 01, 2014, Jaiprakash Associates closed at Rs 59.55, up Rs 1.10, or 1.88 percent. The 52-week high of the share was Rs 88.80 and the 52-week low was Rs 28.40.
The company's trailing 12-month (TTM) EPS was at Rs 1.70 per share as per the quarter ended March 2014. The stock's price-to-earnings (P/E) ratio was 35.03. The latest book value of the company is Rs 56.69 per share. At current value, the price-to-book value of the company is 1.05.
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