SPECIAL REPORT: CEMENT SECTOR Down & Out

Cement sector since 2007 is an underperformer after government's allegation of cartelisation on leading cement manufacturer. This sector on the whole did not participate much in the bull run and cement stocks were available at attractive valuation throughout the year 2007. But due to recent beating of stock market the valuations have turned jsut tempting.
Although the valuations look good still concerns of slowdown in real estate sector and a little bit slow down even in infrastructure sector puts margin under pressure which makes them a risky investment as well.
The sector is more or less in the same state as was sugar sector during 2006 which was under severe pressure due to excess government pressure. Excessive capacity build-up and many expansions lined up plus imported cement from Pakistan at competitive prices is straining the sector a lot.
Cement demand can be breaked up as under:
Real Estate: 70%. It can be catogerised as well with
Housing: 60% & Commercial: 10%.
Infrastructure: 25%.
Industrial: 5%.

Now since real estate sector itself is troubled the demand is sure to fall down. Besides margin will shrink due to rising input cost. Although most of cement companies be it large cpas or small caps are available at PE ranging 2 to 6x which is by no way very cheap. Also many of the stocks are available quite close to their book value. But due to economic slowdown the demand is sure to fall down which would hamper future profitability.
Hence cement sector as a whole is a very risky investment at present.
We still feel a portfolio of cement companies can be built up by investing surplus money only at steep fall in share's price. Any short term rally may be used to exit long positions to book profits.
Shares's snapshots:
Book Value RONW
ACC Book Value :221. RONW: 34.6%. PE: 8.3.
AmbujaCem Book Value:31. RONW: 38%. PE: 7.9
Birla Corp Book Value: 129. RONW: 39.2%. PE: 2.3
India Cement Book Value: 92. RONW: 19.2. PE: 5.1
JK Cement Book Value: 109. RONW: 25.2%. PE: 2.5
JK Laxmi Cem Book Value: 104. RONW: 34.8%. PE: 1.4
These are certain stocks which are available near their book value hence investment in these shares is not very risky except that the upside may be capped. Still some money can be invested in these stocks.