UltraTech Cement's entry into the cables and wires (C&W) segment generated mixed views from stock analysts. While a few do not see it as a major threat to existing players in initial years, others see scope of rating downgrade for the sector ahead. Analysts said C&W segment differs from paints sector and it would take time for UltraTech Cement to built distribution channel afresh for wires. This is against some overlap in cement-paints case for Grasim Industries with white cement presence.
At present, Polycab India (20 per cent), KEI (12 per cent), Havells (8 per cent and KEC (6 per cent) are the major players in the cables segment. Finolex (15 per cent), RR Kabel (12 per cent), Polycab (10 per cent), V-Guard (8 per cent), Anchor (7 per cent), and Havells (6 per cent) are the leaders in wires.
The entry of UltraTech Cement may have only a modest impact, at best, in FY28 or onwards, said Nuvama Institutional Equities. The impact would be less than 5 per cent of market by FY28, it said given the fragmented nature of C&W industry, distribution nuances and approvals for cables.
UltraTech Cement shares plunged 5.07 per cent to hit a low of Rs 10,411.90 today. Polycab India, Havells India and KEI Industries tumbled 9-10 per cent.
"We believe UTCEM’s entry is unlikely to have any impact on FY25–28 earnings of C&W players and we shall watch out for any top-up announcements by UTCEM for longer term impact on C&W’s demand supply scenario. We retain bullish stance on KEI, Polycab and Havells," Nuvama said.
MOFSL cut valuation multiples for C&W companies under its coverage -- 20 per cent for Polycab India Ltd, KEI Industries Ltd and RR Kabel each, and 10 per cent for Havells India Ltd, given the diversified product portfolio and the highest total addressable market.
"We also believe that UltraTech might initially see a mild negative reaction, as the investors have traditionally viewed the company as a pure-play cement firm," MOFSL said.
This brokerage downgraded its rating on KEI and RR Kabel to 'Neutral' from 'Buy', while maintaining the ratings for Polycab India (Buy ) and Havells India (Neutral).
CLSA said given higher dependence on retail (housing) and a lower time to market, UltraTech Cement could focus more on wires than cables. For the cables and wires industry, the segment would require to grow at a 11-13 per cent over the next 4-5 years compounded annually to absorb the announced expansion by incumbents and new players, CLSA said.
Incumbents in the industry are already looking to spend Rs 10,000 crore over the next 2-4 years. A weaker demand could weigh on the profitability of the sector over the medium term, the broking firm warned. For now, CLSA has maintained its 'Hold' rating on UltraTech Cement shares and suggested a target price of Rs 12,100.
"We believe UltraTech is creating a revenue potential of Rs 7,200 crore to Rs 9000 crore based on 4 times to 5 times asset turns. The revenue scale-up will depend upon how fast the company is able to ramp up its manufacturing and distribution. At full scale revenue, and based on industry growth expectations, UltraTech could possibly garner 5 per cent market share by FY28 in the W&C industry, and even a double-digit share in the wires segment," said JM Financial.