KEI, Polycab shares get electric shock, drop upto 15% as Adani enters mkt

KEI Industries, Polycab India shares: KEI Industries share price plunged 14.5 per cent intraday to a low of Rs 2,802 per share. Polycab India share price, meanwhile, fell 9.6 per cent intraday

Shares of large cable and wire (C&W) manufacturers came under investors’ axe on Thursday as intensifying competition, following the Adani group’s foray into the sector, hit sentiment. Shares of KEI Industries, Polycab India, RR Kabel, Finolex Cables, and Havells India fell up to 13 per cent on the BSE, while the benchmark BSE Sensex rose 1.19 per cent.

 

In a stock exchange filing on Wednesday, Adani Enterprises (AEL) informed the market that Kutch Copper, a wholly owned subsidiary, has incorporated a 50:50 joint venture (JV) company — Praneetha Ecocables — with Praneetha Ventures.

 

Through the JV, Adani group will manufacture, market, distribute, buy, and sell metal products, cables, and wires.

 

 

On the bourses, KEI shares plunged 15.68 per cent intraday, while Polycab fell 9.7 per cent, Havells 5.5 per cent, and Finolex 4.7 per cent. These stocks ended up to 13.3 per cent lower. AEL, meanwhile, settled 0.77 per cent higher after rising 1.6 per cent intraday.

 

Adani’s entry into the C&W sector comes less than a month after Aditya Birla group, through UltraTech Cement, entered the industry. On February 25, UltraTech informed the stock exchanges that its board had approved a proposal to enter the construction value chain through the C&W segment, with a capital expenditure of ₹1,800 crore to be spent over the next two years.

 

According to analysts, the entry of larger players in the sector will drive a shift from the unorganised to the organised market while fostering healthy competition among organised players. The organised market’s share has risen from 68 per cent in 2018-19 to 73 per cent in 2023-24 (FY24).

 

Moreover, the fundamental nature of the C&W industry, which requires new distribution channels and customer acceptance, limits any new player’s immediate impact on incumbents, according to Nuvama Institutional Equities. 

 

“The C&W industry needs a distribution channel to be largely built afresh for wires; and approvals from several customers across different user industries (railways, oil and gas, solar)/agencies (that may take six to 24 months). Besides, the fragmented nature of the C&W industry makes market share gains hard to come by for a new player as each incumbent is strong in select segment/geography,” said the brokerage.

 

Financially, while the industry enjoys reasonable margins and returns on capital employed, limiting a new player’s ability to disrupt pricing materially, the brokerage estimates a 3–9 per cent earnings per share impact for incumbents for every 100-basis-point change in industrywide C&W margins.

 

Shares of smaller C&W manufacturers rose on Thursday on hopes of potential mergers and acquisitions. Universal Cables rallied 4.6 per cent intraday, while Cords Cable Industries gained 2.7 per cent, Plaza Wires 2.2 per cent, Ultracab (India) 3 per cent, and Jigar Cables 5 per cent. However, three of these five stocks ended in the red.

 

According to analysts at Motilal Oswal Financial Services, the Indian C&W industry, valued at ₹80,000 crore at the end of FY24, posted a compound annual growth rate of 9 per cent from 2013-14 (FY14) through FY24 — 1.5 times the growth of gross domestic product. The industry continues to expand, driven by rising demand for electricity and power infrastructure, rapid growth in renewable energy, a real estate upcycle, the expansion of telecommunications, the rise of data centres, mobility, smart cities, and increasing urbanisation.

 

Estimates suggest that the C&W industry will grow in the mid-teens over the next five years. Branded players currently account for 74 per cent of the industry (up from 61 per cent in FY14), and this share is expected to rise to 80 per cent by 2026-27.

 

“While there will be no change in earnings estimates for C&W companies over the next two years, there could be a derating in their valuation multiples due to the entry of a sizeable player. We cut our target valuation multiple for all C&W companies (20 per cent for Polycab, KEI, and RR Kabel each, and 10 per cent for Havell),” the brokerage had said after UltraTech’s announcement.