Ultratech Cement, a major player in the cement industry, has recently announced its foray into the wires and cables sector. This also marks a significant shift for the cement manufacturer.
According to brokerage firm Nomura, the company has made an investment of Rs 1,800 crore ($210 million) over the next two years, with its first plant expected to be operational by December 2026.
The company is aiming for Rs 10,000 crore in revenue from the wires and cable segment by FY31, which would contribute around 7 to 8% to its overall revenue.
The brokerage has maintained a ‘Buy’ rating on Ultratech. The firm in its report noted, ” Our sensitivity analysis suggests ~10% lower W/C revenue/100bp lower W/C margins impact EPS by 3-4%. With a diversified revenue profile, focus on ramping-up of exports, and margin recovery driven by operating leverage, we maintain Buy on the stock.”
Nomura on cable sector: Revenue targets and market share prospects
As per the brokerage estimates, achieving this goal would require a 12% compound annual growth rate (CAGR) from FY24-31. However, this market entry is relatively modest compared to Grasim’s aggressive foray into the paints sector, which accounted for 23% of listed players paint capacity.
“While the Rs 1800 crore capex for the W&C segment is <3% of the FY24F capital employed, we estimate it to generate >20% post-tax ROCE assuming a 12% EBITDA margin,” added the brokerage in its report.
Looking at the wires and cable industry in India, this segment is on a steady growth, with listed players expanding at a 16% CAGR over the last six years. The industry is projected to reach Rs 90,000 crore by FY25, with the share of unorganised players shrinking from 45% in FY15 to an estimated 15% by FY30.
Despite this growth, Ultratech’s initial contribution will remain limited compared to established players like Polycab and Havells.
Furthermore, the brokerage in its report notes that leading brands have “built a network of 200k+ electricians, 220k+ retail outlets, and over 6,000 dealer/distributors.” Ultratech, which was engaged in the business of cement, will need time to establish a similar foothold in the market.
Nomura on cable sector: Execution risks and certification challenges
The brokerage further in the report pointed out of the W&C industry relies heavily on certifications and licensing agreements.
According to the brokerage firm, “certifications and R&D investments will be key enablers for long-term success.”
UltraTech’s cable entry Vs Birla’s paint foray
Ahead of all this, a similar comparison arises between Ultratech’s wires and cable goal and the Aditya Birla Group’s entry into the paints sector. However, the two cases differ significantly. Paints have a strong B2C presence, leading to quicker brand recall, whereas wires and cables are primarily B2B, requiring long-term relationship building and approvals.
In addition to this, the wires and cable products are designed for lifetime usage with minimal replacement demand.
The brokerage believes that Ultratech’s market entry will not have an immediate impact on existing wires and cable companies. Production is expected to begin by FY28, with optimum utilisation by FY30-31, giving current players time to adapt.