There appears to be a dichotomy in the valuations of cement companies by the Street, with stocks of several small- and mid-sized players, such as Saurashtra Cement, Barak Valley Cements and Sanghi Industries, ending Thursday trade hovering close to their 52-week lows. In contrast, strong investor interest has resulted in stocks of leading players such as ACC, Ambuja Cements and Ultratech Cement trading not too far from their 52-week highs.

Analysts tracking the sector have highlighted the fact that investors are especially concerned that the tough operating environment for the broader cement sector, has resulted in a rather weak financial performance for these small- and mid-cap cement players over the past few quarters. Cement firms are facing imported coal prices at elevated levels, despite a recent easing in their global prices. Apart from that, the rupee has also weakened.

There is also considerable uncertainty in demand from key user industries, like the real estate sector, in the short-term. However, leading cement players have dealt with this tough environment via economy-of-scale in terms of production capacity and a wide marketing network.

Meanwhile, Sanghi Industries, which is focused on the western region, reported a net loss of 37.4 crore for the September '11 quarter, and it had more than doubled from a year earlier. The company had seen a rise in its key costs like power & fuel. Also, for its financial year ended June '11, Sanghi had reported a net loss of 30 crore.

In the case of Saurashtra Cement, the company reported a net loss of 22 crore in the second quarter of FY12, broadly in tune with the loss a year earlier. This player had also reported a net loss for its year ended March '11.

In contrast, an-all India player like ACC benefited from strong cement realisations on a per-tonne basis especially, from the southern region and helped deal with cost pressures.

As a result, the company's consolidated net profit during the trailing 12 months ended September '11 quarter was broadly flat on a year-on-year (y-o-y) basis. Total cement dispatches of the broader industry during April till October of FY12 grew 4.5 per cent y-o-y as per brokerage house reports and was broadly in line with the growth reported during FY11.

However, as the P/E of the stocks of these leading players (ACC, Ambuja Cements and Ultratech), ranges between 19.6 and 20.8 times on a trailing four-quarter basis, they do appear expensive in the short-term. Investors could instead consider stocks such as India Cements and Chettinad Cement, which have respectively shown strong growth in their net profit over the past several quarters and also appear reasonably valued. 

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