PESTLE Analysis of Cement Industry

Political
 The price of cement is primarily controlled by following rates which are predominantly control by
government:

Coal rates

Power tariffs

Freight (Railway and road tariffs)

Royalty and cess on limestone

Taxes (Excise duty and VAT)

 Govt. of India plans to increase its investment in infrastructure to US $ 1 trillion in the Twelfth
Five Year Plan (2012-17) will lead to increase in the demand of cement

 Infrastructure projects such as the dedicated freight corridors, upgraded new airports and ports
are expected to enhance the scale of economic activity, leading to a substantial increase in
cement demand furthermore

 Most state governments, in order to attract investments in their respective states, offer fiscal
incentives in the form of sales tax exemptions/deferrals. States like Haryana offer a freeze on
power tariff for 5 years, while Gujarat offers exemption from electric duty

 During election period, cement demand increases as compare to normal period. So, during
2013-2014 state assembly elections cement demand will be higher

 Govt. programs like NREGS, Indira Awaas Yojana, rising minimum support prices enhance rural
income which boosts cement demand in rural areas

 NHAI plans to award road projects worth of Rs 57000 crores in FY 2012

 The total Government levies and taxes, which include Royalty on Limestone, Royalty on Coal,
Electricity Duty, VAT/Sales Tax etc., on cement constitute about 60% or more of the ex-factory
price of cement. The levies and taxes on cement in India are far higher compared to those in
countries of the Asia Pacific Region

 Strict law & order conditions and political will of the leader of any state enhance the confidence
of people living in the states as well as corporate to invest in that particular state

Economic
 Cement demand is proportional to growth in GDP of the nation. Average cement demand to
GDP ratio was 1.2 during the last decade. The cement industry is growing at the rate of 8 to 10 %
CAGR following the growth rate of GDP

 The per capita consumption of cement in India (about 155 kg) is much less compared to average
per capita consumption (about 380 kg) for the rest of the world. Hence Indian cement industry
has large potential to grow

 Any instability in the world economy like political instability in Middle East countries can lead to
huge increase in the crude oil prices and thus increasing the cost of fuel, power and freight
considerably

 Formal approval granted to 577 SEZ proposals

 Growth in tourism sector fuelling the increase in the construction of hotels in the country

 Upcoming industrial clusters and infrastructure development in emerging tier-II and tier III
cities

 The growing population and increased urbanization in the country

 Increasing per capita income leading to increase in housing demand to meet the current
shortages and future growth

Social
 The cement manufacturing units- with a slight regional imbalance -is spread all over India

 Indian consumers prefer buying branded cement like ULTRATECH, JAYPEE CEMENT, LAFARGE
CEMENT etc. It has been seen in the past, as well, that mini cement plants with low brand value
and image are not able to survive against the cement giants

 Looking at the growth rate of Indian cement industry and capacity expansions, it is expected that
cement industry will create good number of jobs in the next 4-5 years

Technological

 It can be seen that the wet process is rapidly replaced by the dry process. It reflects increasing
needs for energy conservation and suggests what the true cement plant of the future should be
 Technological development in the design of cement kiln and furnace can promote use of
cement kiln for utilization of wastes like tires etc. which can help in reducing the usage of costly
fuels like coke, coal etc. thereby reducing the manufacturing cost of cement

 Enhanced technology will be needed to substitute coal with low cost and eco friendly
alternative fuels like fuel from bio-mass wastes including fruit of Jatropha Carcus, Pongamia and
Algae

 Effectively finding the location of limestone reserves and efficient mining practices can lead to
reduction in per tonne cost of limestone

Legal

 Land acquisitions for limestone mining land, setting up of integrated units and grinding units
requires proper legal procedure

Environmental

 In India, the permissible stack dust emissions from various sources for existing cement plants is
150 mg/Nm3 and 100 mg/Nm3 for plants located in critically polluted areas. However, the limit
for new plants in our country is 50 mg/Nm3 which is at par with some of the developed
countries

 Since the cement production is an energy intensive process with very high emission, it has to
use state of art equipment to have energy efficiency and meet environmental standards

 Under PAT1 scheme, each particular unit (Designated Consumers (DC)) will be given Specific
Energy Consumption (SEC) target to meet over a period of three years. Any additional saving will
qualify for earning Energy Saving Certificates (ESCerts), which could be traded, with DC's who
could be short of targets. This trade can be made bilaterally or through exchange.

1 Perform, Achieve & Trade (PAT) scheme is promoted under the National Mission on Enhanced Energy Efficiency (NMEE)
which will help energy intensive large industries units in India to enhance cost effectiveness in terms of energy efficiency.