Stocks of cement companies were definitely not among preferred choices for investors last year. If you had invested in them in 2008/09 and made a gain of 35-40 per cent, you should book profits and consider re-entering later. Decisions to hold on to cement stocks should be based on the company's region of operations, its operating efficiency and balance-sheet strength.

Good for long term

Ambuja Cements, a large player in the northern market that operates at high levels of efficiency and margins compared to the industry, is a good candidate for the long term and may see better earnings growth than peers in the difficult year ahead.

On a replacement cost (EV/tonne) basis, however, Ambuja Cements (Rs 7900/tonne) and ACC (Rs 6,960/tonne) are quoting at much higher valuations compared to 2008. 2008, if you can recall, was a year of high realisation for cement manufacturers with demand too growing at above 9 per cent.

Clouded prospects

The producers in the South are one class where valuations have slipped from the 2008 levels. While India Cements trades at Rs 3,700 a tonne (Rs 6400/tonne in June 2008), Madras Cements' valuation is much lower.

However, as the near-term prospects are clouded for southern cement manufacturers, cheap valuation may not be a buy trigger.

Smaller players in the industry, which are perpetually seen as consolidation plays, may see the short-term rallies in their stocks during the year, on talk of mergers, but buying into these stocks is not recommended as the speculated deals may actually not fructify at the current valuation levels.

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