Shares of select wire & cables companies including Polycab India, Havells India, KEI Industries and RR Kabel tumbled as much as 14 per cent during the trading session on Thursday after the Aditya Birla Group's flagship firm UltraTech Cement eyes its entry in the segment, which may dent the prospects for the existing players. Interestingly, UltraTech Cement itself cracked over 5 per cent following the announcement.
The cement major said it will enter the wires and cables (W&C) segment with Rs 1,800-crore capex. The Aditya Birla Group firm said that it will set up wires and cables plant in Bharuch, Gujarat, with an expenditure of Rs 1,800 crore over next two years. The plant is expected to be commissioned by December 2026. The company believes that the entry into the W&C segmen is in line with its strategy to strengthen its position as a comprehensive building solutions provider.
Following the announcement of entry into the new segment, shares of Ultratech Cement Ltd tanked over 5 per cent to Rs 10411.90 on Thursday, with its total market capitalization close to Rs 3.02 lakh crore. The scrip had settled at Rs 10,968.45 in the previous trading session on Tuesday.
Polycab India Ltd led the laggards from the sector as the stock cracked nearly 14.5 per cent to Rs 4,928 during the session commanding a market capitalization falling below Rs 75,000 crore. The scrip had settled at Rs 5,758.55 on Tuesday. Shares of R R Kabel Ltd tumbled more than 12.45 per cent to Rs 971.25 during the day. The stock had settled at Rs 1,109.50 in the previous trading session.
KEI Industries Ltd was down 10 per cent, hitting the first circuit limit at Rs 3,416.45 against the previous close at Rs 3,796.05. Similarly, Shares of Havells India Ltd tumbled nearly 8.9 per cent to Rs 1,410.60 in the early session against the previous close at Rs 1,547.55. However, both the counters made a marginal recovery.
Among other companies from the sector, Dynamic Cables Ltd cracked about 7 per cent 605.10, while shares of Finolex Cables Ltd was down over 5 per cent to Rs 848.95. However, Plaza Wires Ltd emerged as the sole exception from the industry, whose stock jumped nearly 8 per cent to Rs 64.25 during the day.
Brokerage firms have a mixed opinion on Ultratech's entry in the industry. Citi said that Ultratech's foray into the W&C segment is small in overall context and could hurt its positioning as a cement pure play. The company has a net debt of Rs 16,200 crore post India Cements offer and capex of Rs 1,800 crore will dent 13 per cent of free-cash flows for next two years.
However, Jefferies believe that any knee-jerk reaction in Ultratech Cement should be seen as a buying opportunity as the W&C segment will have a similar customer base, but channels of sales may differ. New segment could account for 10-12 per cent of revenue and 6-9 per cent ebitda for FY25, it said.
CLSA said that Ultratech will focus more on wires over cables. However, the foray will increase the competition in the industry and may dent overall profitability of the sector. Industry is already undergoing a capex of Rs 10,000 crore over next 2-4 years and Ultratech's entry will increase the expansion pressure.
Nuvama Institutional Equities said tha UltraTech's entry in the segment is likely to sustain strong 13 per cent CAGR (similar to FY19–24) and emerging opportunities in exports, entry of Ultratech may have only a modest impact, at best, in FY28 or onwards. This is on account of the fragmented nature of W&C industry; distribution nuances; and approvals for cables. "Our top picks (KEI, Polycab and Havells) remain unchanged," Nuvama added.
Motilal Oswal has cut valuation multiples for C&W companies under its coverage, given the diversified product portfolio and the highest TAM. It also believes that Ultratech might initially see a mild negative reaction, as the investors have traditionally viewed the company as a pure-play cement firm.
Motilal Oswal has maintained 'buy' rating on Polycab India with revised target price of Rs 6,950 (from Rs 8,380). It has downgraded KEI Industires and RR Kabel to 'neutral' with target price of Rs 4,000 (from Rs 4,780) and Rs 1,260 (from Rs 1,600), respectively. Havells continued to get a 'neutral' tag but targets were trimmed to Rs 1,650 (from Rs 1,740).