Zafar Iqbal
Introduction
UltraTech Cement, a leading name in the construction sector, has announced its entry into the cables and wires (C&W) industry with a massive investment of Rs 1,800 crore. This move has sent shockwaves through the market, causing stock prices of established C&W companies like KEI Industries, Polycab India, and Havells India to plummet by up to 17%. While some anal
ysts believe UltraTech Cement has a strong advantage in cost efficiency, others highlight the potential challenges in distribution and competition. How will this disruption unfold in the coming years? Let’s explore the key aspects.
UltraTech Cement’s Big Investment
On February 26, UltraTech Cement announced its plan to set up a new wires and cables plant in Bharuch, Gujarat. The project, with an investment of Rs 1,800 crore, is set to be completed by December 2026. This strategic decision follows a pattern similar to Grasim Industries’ foray into the paints sector with Birla Opus, raising speculation about whether a similar impact will be seen in the C&W space.
Market Reaction: A Sharp Sell-Off
The news of UltraTech Cement’s entry led to a major sell-off in the stock market. C&W companies suffered significant losses:
- KEI Industries: Down by over 17%
- Polycab India: Plunged by 16%
- Havells India: Declined by 15%
- RR Kabel: Saw heavy selling pressure
- UltraTech Cement: Even its stock fell by around 6%
Experts suggest that this reaction stems from fears of increased competition and valuation erosion rather than an immediate impact on earnings.
Why UltraTech Cement’s Entry Matters
1. Competitive Edge in Raw Materials
The C&W industry relies heavily on raw materials like copper and aluminum, which make up about 70-76% of total costs. Being part of the Aditya Birla Group, UltraTech Cement has direct access to Hindalco and Birla Copper. This ensures a steady supply of raw materials at competitive prices, allowing UltraTech to offer cost-effective products.
2. Established Real Estate Connections
With a strong foothold in the cement business, UltraTech Cement already has deep connections with real estate developers. This could help in quickly establishing its presence in the B2B market, which is a significant consumer of cables and wires.
3. Retail Presence Advantage
UltraTech Cement operates over 4,400 UltraTech Building Solutions (UBS) stores across India. These outlets could serve as effective distribution points for wires, making it easier to penetrate the market.
Challenges in UltraTech Cement’s Expansion into C&W
1. Different Consumer Influences
The C&W industry operates on a different distribution model compared to cement. While masons and contractors influence cement purchases, electricians and specialized engineers drive the decision-making in cables and wires. Adapting to this new sales dynamic will be crucial for UltraTech Cement.
2. Regulatory and Approval Processes
Cables require multiple certifications across industries such as railways, oil & gas, solar energy, and infrastructure. Obtaining these approvals could take anywhere between 6 to 24 months, depending on the product category, which may delay revenue generation.
3. Investor Concerns Over Financials
UltraTech Cement’s current net debt stands at Rs 16,200 crore. This new investment of Rs 1,800 crore is expected to reduce free cash flow by 13% over the next two years, raising concerns among investors about financial stability and return on investment.
Impact on the Cables & Wires Industry
1. Increased Competition and Market Shake-up
The C&W industry is highly fragmented, with nearly 400 players operating at different levels. No single company holds more than 20% market share, making it an ideal sector for a well-funded new entrant like UltraTech Cement.
2. Effect on Stock Valuations
Motilal Oswal has warned that while the earnings of existing C&W companies may not be affected in the short term, their valuation multiples could decline due to UltraTech Cement’s entry.
3. Shift from Unorganized to Organized Market
Industry experts predict that UltraTech’s entry will accelerate the shift from unorganized to organized players. The organized market share, which stood at 68% in FY19, is expected to rise to 73% by FY24.
Analysts’ Take on C&W Stocks
Different brokerage firms have provided varied ratings in response to UltraTech Cement’s announcement:
- Motilal Oswal:
- Downgraded KEI Industries and RR Kabel to ‘neutral’.
- Retained ‘buy’ for Polycab India.
- Maintained ‘neutral’ on Havells India.
- Nuvama Institutional Equities:
- Remains bullish on KEI Industries, Polycab India, and Havells India.
- Believes long-term growth prospects remain intact despite UltraTech’s entry.
Future Outlook: What Lies Ahead?
Short-Term Impact
In the next two years, UltraTech Cement’s entry is unlikely to impact the earnings of existing C&W companies significantly. However, the valuation of these firms could experience fluctuations due to heightened market competition.
Long-Term Market Share Projections
According to JM Financial, UltraTech Cement could capture 5% market share by FY28 and could secure a double-digit share in the wires segment alone. The speed at which it scales up manufacturing and distribution will be a key determinant of its success.
Investment Risks
Despite the strong market potential, concerns remain over UltraTech Cement’s ability to integrate into an entirely new sector. Investors should keep a close watch on:
- The company’s distribution strategy
- Regulatory approvals and certifications
- Overall impact on financials and cash flow
Specifications Table
| Factor | Details |
| Investment Amount | Rs 1,800 crore |
| Location | Bharuch, Gujarat |
| Expected Completion | December 2026 |
| Industry Players Affected | KEI Industries, Polycab India, Havells India, RR Kabel |
| UltraTech Cement’s Market Share Projection | 5% by FY28 |
| Organized Market Growth | Expected increase from 68% (FY19) to 73% (FY24) |
Conclusion
UltraTech Cement’s ambitious foray into the C&W sector is a bold move that could reshape the industry. While the company benefits from strong financial backing, raw material access, and a vast retail network, challenges in distribution, approvals, and consumer influence remain. The impact of this entry will unfold over the coming years, with mixed opinions among industry experts. Investors and stakeholders must carefully monitor UltraTech’s progress to determine whether this will be a game-changing success or a strategic misstep.
