Polycab India, KEI, Havells, RR Kabel, UltraTech tank up to 15%; here's why

Shares of Polycab, KEI, Havells India and R R Kabel slumped up to 15% after UltraTech announced its foray into wires & cables segment with an investment of Rs 1,800 crore over the next 2 years

Shares of Polycab India, KEI Industries, Havells India, and RR Kabel slipped up to 21 per cent on the BSE on Thursday amid heavy volumes after UltraTech Cement announced its foray into the wire and cable (W&C) segment with an investment of ₹1,800 crore over the next two years.

 

Shares of UltraTech closed 5 per cent lower at ₹10,420.7.

 

Analysts believe margins of W&C companies may contract in the coming years due to aggressive pricing (if any) by UltraTech.

 

Among the W&C stocks, KEI (down 21 per cent at ₹2,997.7), RR Kabel (down 20 per cent at ₹890.7), and Polycab (down 19 per cent at ₹4,673.9) tanked over 18 per cent each. Havells (₹1,449.6), and Finolex Cables (₹839.4) were down 5 per cent. Of these, Havells, RR Kabel, and Finolex were trading at their respective 52-week lows. In comparison, the BSE Sensex ended 0.01 per cent higher at 74,612.43 on Thursday.

 

 

UltraTech, in an exchange filing on February 25, after market hours, said its proposed entry into this segment of the construction value chain, through its Building Products Division, aligns with the company’s strategy to strengthen its position as a comprehensive building solutions provider.

 

The company will set up its first plant in Bharuch (Gujarat), expected to be commissioned by December 2026. It aims to meet the growing demand for wires and cables across various sectors, including residential, commercial, infrastructure, and industrial applications.

 

According to the company, the W&C industry has witnessed a revenue compound annual growth rate (CAGR) of around 13 per cent between 2018-19 and 2023-24.

 

The company believes its entry into the sector is likely to be value-accretive for shareholders.

 

Analysts at CLSA believe that, given its higher dependence on retail (housing) and a shorter time to market, UltraTech will focus more on wires than cables. For the W&C industry, the segment will need to grow at an 11-13 per cent CAGR over the next four to five years to absorb the announced expansion by incumbents and new players. Weaker growth could weigh on the sector’s profitability over the medium term, the brokerage firm said.

 

Analysts believe that, given UltraTech’s retail focus and brand recall, it has a relatively higher chance of succeeding in wires than in cables. Also, cables require several approvals and tender wins, while wires have a faster time to market.

 

India’s W&C market is valued at ₹80,000 crore ($9 billion), with two-thirds comprising cables and the rest wires. The market is relatively organised, with branded players accounting for 70 per cent of capacity. In the wire segment, 80 per cent of demand is driven by housing, with a higher reliance on new home construction.

 

Analysts at JM Financial Institutional Securities expect that, like the paint industry, UltraTech may choose to aggressively invest in marketing and offer higher channel margins to establish its foothold in a market where the top five players command 45-50 per cent share. In the process, industry margins could be adversely impacted.

 

Incumbents in the W&C industry are already in the midst of spending ₹10,000 crore on capacity expansion over the next two to four years. Adding UltraTech’s capital expenditure of ₹1,800 crore (and assuming no further expansion by other players), at a 4-5x asset turn, the industry would need to grow at an 11-13 per cent CAGR over the next five years to absorb this capacity. If demand does not pick up to the same extent, it could weigh on the industry’s profitability, CLSA said.

 

Aggressive pricing, similar to its strategy in paints, and its early connect with real estate and infrastructure projects should aid in swift penetration. UltraTech could easily double down on its initial investment in the next phase, given its balance sheet and cash flows from the cement business, analysts at Kotak Institutional Equities said.

 

Analysts at Motilal Oswal Financial Services cut valuation multiples for W&C companies under their coverage — by 20 per cent for Polycab, KEI, and RR Kabel each, and by 10 per cent for Havells, given its diversified product portfolio and the highest total addressable market. The brokerage firm also believes UltraTech might initially see a mild negative reaction, as investors have traditionally viewed the company as a pure-play cement firm.