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Topline Flash Note: Pakistan Cement: CCP inspects APCMA, cement manufactures' offices

• On Sep 24, 2020, the Competition Commission of Pakistan (CCP) searched cement association and its member office(s) in Lahore.
• CCP has been entrusted with the exclusive statutory mandate of providing free competition in all spheres of commercial and economic activity, to enhance economic efficiency and protect consumers from anti-competitive practices in Pakistan.
• These raids are based on the information they receive from informants or through their own finding of any unfair (like collective decision making, cartelization) activity.
• As per channel checks, the CCP has collected data of the selected individual(s) from member offices, along with record available at association office.
• Previously, in 2008 CCP team searched Lahore office on Apr 24, 2008, which was followed by five hearings on Dec 5, 2008, Dec 29, 2008, Jan 26, 2009, Aug 11, 2009 and Aug 25, 2009. After more than year from the raid, the commission passed an order on Aug 27, 2009 imposing a penalty.
• The penalty was of Rs6.3bn i.e. 7.5% of turnover, translating into industry sales of Rs84bn. In FY19, industry sales were over Rs250bn, 3x of the 2009 sales. A similar percentage of penalty would mean a potential fine of Rs18-20bn, if any malpractices are found and proved. 
• In terms of cement prices, when Lahore office was searched in Apr 2008, cement prices in North over next six months increased by Rs100/bag from Rs250 to Rs350/bag, as per PBS data and industry was operating at a utilization of 75-80%. However, after the order by CCP (in Aug 2009), prices fell from Rs310-320 to Rs260-270. Similarly, after 2012 (Jan 16th) search, cement prices in North increased by Rs20-25/bag over next six months to Rs440, as per PBS.
• In terms of stock price performance, after the search (Apr 2008) over next 5-6 sessions, cement stocks fell by 5% (market -4%) and after the order (on Aug 27, 2009), cement sector fell by 2% (market return +4%) over next 2-3 sessions. However, 6M and 12M return of cement sector was -7% and -18% respectively vs. benchmark index return of 16% and 15% respectively. In 2012 search, cement sector witnessed 74% increase in its market cap over the next six months.

While it is premature to comment on the outcome, we believe it will take some time due to the procedural work, if any malpractices are found.