While UltraTech ventured into the Cables and Wires (C&W) segment maintaining grey cement as its core business, an analysis report by Nuvama said that there will be no material impact on earnings of existing C&W players in the immediate term (till FY27E). “Even post-FY28E, the impact shall be relatively modest for incumbents given: i) strong growth prospects (13 per cent industry CAGR); ii) strength in retail distribution and significant approvals in cables offerings; and iii) UltraTech capacities can be absorbed without big impact by FY31 (less than 5 per cent of total industry),” the brokerage report maintained.
Segment players like Polycab India and KEI Industries will see no immediate impact on growth. Jefferies maintained that over FY25-27, Polycab will record a robust sales CAGR of 22 per cent and profit CAGR of 28 per cent, driven by new orders and improving performance in the Fast Moving Electrical Goods (FMEG) segment.
Even so, per the analysts at Nuvama, valuation multiple can come under question until more clarity emerges on: i) demand-supply scenario (given several players are adding capacities); and ii) progress of UltraTech capacities and network developments. The cement major, with this foray, aims to expand its consumer reach and has identified C&W as a strategic fit, given its immediate adjacencies to the existing core construction value chain. The company has maintained that it will continue to strengthen its position in cement through both organic and inorganic expansions beyond FY27, said Motilal Oswal Financial Services (MOFSL).
According to Centrum Broking, UltraTech’s investment in the cables and wires segment is expected to be completed by FY27, and it will take at least two to three years before any financial impact is visible. The key uncertainty, it added, is whether UltraTech will continue to be the group’s investment vehicle for future ventures, given its strong operating cash flow.
A well thought out strategy by UltraTech
At its investor call, UltraTech impressed upon: i) a well thought out strategy of foraying into C&W (no further capex in C&W); ii) optimum utilisation of C&W facility by FY31E (with revenue mix of 60 per cent wires and 40 per cent cables); iii) industry-level operating margin by FY31E (initially low due to A&P); and iv) minimal working capital (total capital employed sub-Rs 20 billion), thereby generating RoCE of 25%-plus.
UltraTech plans no additional capex in C&W in the near future and maintained that the current capacity shall suffice till FY31. “At maturity (FY31), the company expects a 5-7x asset turn with wires and cables mix of 60 per cent and 40 per cent, respectively. Initially, the focus will be on wires, but UltraTech ruled out a foray into HT Cables/EHV segment. It also ruled out pricing/margin pressure in C&W following its entry. Moreover, it sounded confident about industry-level margins with RoCE of 25 per cent by FY31E, and aims for minimal working capital (total capital employed <Rs 20 billion),” Nuvama said.
The company is expected to leverage its relationships with contractors for the new vertical. Moreover, the UBS (Ultratech Building Solutions) network, B2B relationships, access to end users and influencers and their reach shall further extend its reach.
UltraTech remains confident of commissioning its facility on or before the stated timeline of Dec-26.