Cement player UltraTech Cement Ltd. shares tumbled six percent in trade on February 27, sinking the most in three years, after the Aditya Birla Group's flagship company also said it will enter wires and cables segment with Rs 1,800-crore capex.
UltraTech Cement said 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.
At 10.50 am, shares of the cement firm were quoting Rs 10,552.85, lower by 3.75 percent on the NSE. On the flip side, cable players such as KEI Industries and Polycab India shares sank 17 percent and 14 percent at Rs 3,132.85 and Rs 4,976.9 respectively.
Shares of Havells India were down 5.1 percent at Rs 1,468.95, while RR Kabel's stock cracked 12 percent to quote Rs 972.6.
UltraTech Cement noted that the entry into the C&W segment is in line with the its strategy to strengthen its position as a comprehensive Building Solutions provider. "UltraTech proposes to leverage its extensive manufacturing expertise coupled with its connect with the end-customers to deliver high-quality wires and cables thereby targeting a higher share of the customers wallet," said the firm in a press release.
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Given C&W industry is likely to sustain strong 13 percent CAGR and emerging opportunities in exports, the entry of UltraTech Cement may have only a modest impact, at best, in FY28 or onwards (less than 5 percent of the total industry then), according to Nuvama Institutional Equities.
This is on account of fragmented nature of C&W industry, where the largest player has less than 18 percent market share, distribution nuances and approvals for cables, noted the brokerage.
"We believe this shall further drive unorganised to organised market share (organised share is likely to have gone up from 68 percent in FY19 to 73 percent in FY24) while creating further healthy competition among organised players," said the brokerage.
Its top picks in the sector, KEI Industries, Polycab and Havells, remains unchanged. A key monitorable for the C&W segment is any enhancement of UltraTech Cement's capex plans for the sector.
Jefferies noted that any knee-reaction reaction should be used as a buying opportunity for buying UltraTech Cement shares. While C&W segment has a similar customer base like cement, it doesn't have the same channel of sales.
Citi noted that the move is small in the overall context, but the foray into the C&W segment might hurt its positioning as a cement pure play.
The brokerage added that expected spends of Rs 1,800 crore would account for around 13 percent of cumulative free cashflows in the next two years. However, the business could generate revenue of around Rs 1,200 crore, making up 14 percent of estimated FY27 revenue.
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