UltraTech Cement recently announced its plans to expand into the cable and wire industry, marking a significant diversification from its core cement business. However, the market reacted negatively to the news, with the company’s stock declining by 5.3% to an intra-day low of ₹10,381.
Following this development, brokerage firms have expressed mixed opinions on the company’s new strategic direction. While many analysts have maintained a neutral stance, global brokerage firm Citi and domestic player Motilal Oswal have taken a different perspective. Meanwhile, international brokerage CLSA has projected that UltraTech Cement’s foray into the cable and wire segment could drive substantial revenue growth, estimating a potential increase of 4 to 5 times, with operating margins in the range of 11-13%.
The company’s decision to venture into a new sector has sparked discussions in the market, with investors closely monitoring how this diversification could impact its long-term financial performance and core cement business.
Some brokerage firms view UltraTech Cement’s entry into the cable and wire industry as a positive step for the company’s future growth. They believe that this diversification could open new revenue streams, reduce dependency on the cyclical nature of the cement business, and enhance overall financial stability. Analysts who support this move see potential synergies between the new venture and UltraTech’s existing operations, which could lead to improved efficiency and long-term value creation. While market reactions have been mixed, these brokerages remain optimistic about the company’s ability to capitalize on this expansion opportunity.
Global brokerage firm Jefferies has weighed in on UltraTech Cement’s recent announcement regarding its expansion into the cable and wire industry. The firm believes that any immediate decline in the company’s share price due to this announcement should be seen as a temporary market reaction rather than a reflection of the company’s long-term prospects.
According to Jefferies, the capital expenditure (capex) required for this new venture is relatively small, making it more of a strategic deployment of UltraTech Cement’s strong earnings before interest, taxes, depreciation, and amortization (EBITDA) and cash flow (CF) rather than a significant financial burden. The brokerage firm also noted that while specific details about the company’s product portfolio and target market segments have not been disclosed, UltraTech Cement expects to leverage its expertise in manufacturing and its established customer relationships to scale up operations in the new segment.
Jefferies further highlighted a key distinction between the cement business and the cable and wire segment. While both industries share a similar customer base, the distribution channels differ significantly. The cement business primarily serves the construction and building materials sector, whereas the cable and wire industry caters more to electrical and hardware requirements. Despite some overlaps, the differences in sales channels will require strategic adaptation from the company as it ventures into this new space.
Motilal Oswal has expressed concerns about the impact of UltraTech Cement’s entry into the cable and wire (C&W) industry, particularly on existing players in the sector. The brokerage firm views this move as a potential disruption to C&W companies, which could put pressure on their valuation multiples.
Drawing a parallel with the paints industry, Motilal Oswal highlighted how the entry of new competition in that sector led to value erosion and increased capital expenditure beyond initial expectations. The report suggests that the Aditya Birla Group, known for its strategy of becoming a dominant player (among the top two or three) in the industries it enters, could pose a competitive challenge to established C&W companies.
Despite these industry-wide concerns, Motilal Oswal does not see UltraTech Cement’s expansion into C&W as a financial risk to the company itself. The brokerage firm noted that UltraTech remains primarily focused on its core cement business and has a strong balance sheet that could support investments in the new segment without straining its financial position.
The report also pointed out key differences in profitability and financial efficiency between the cement and C&W industries. Historically, operating profit margins (OPM) in the C&W sector have been lower than those in the cement industry. Over the financial years 2020-2024 (FY20-24), the EBITDA margin for C&W companies under Motilal Oswal’s coverage ranged between 7-13%, whereas UltraTech Cement maintained a significantly higher margin of 21% during the same period. However, the brokerage firm noted that C&W companies typically achieve higher returns on capital employed (RoCE) due to their superior fixed asset turnover ratios. Despite this, UltraTech Cement’s return on capital remained higher than that of C&W companies in the same timeframe.
Overall, while Motilal Oswal sees UltraTech Cement’s diversification as a challenge for existing C&W players, it does not believe this move poses a financial risk to UltraTech itself, given the company’s strong financial position and primary focus on the cement sector.
JM Financial has shared its perspective on UltraTech Cement’s recent announcement regarding its expansion into the cable and wire industry. The brokerage firm has analyzed the potential financial impact of this move and provided key insights into how it could influence the company’s future growth trajectory.
According to JM Financial, UltraTech Cement’s new plant is expected to become operational by December 2026. Once fully functional, the firm estimates that this expansion could contribute an additional 4-5% to the company’s EBITDA based on its projected earnings for the financial year 2027 (FY27E).
Beyond this specific venture, JM Financial believes that UltraTech Cement’s strong cash flow generation and the Aditya Birla Group’s broader growth ambitions could potentially lead to further diversification into other building solutions segments in the future. While the initial capital expenditure (capex) required for the cable and wire business is relatively low and unlikely to strain UltraTech’s financial position, the brokerage firm noted that the company’s investment in a non-cement business might raise concerns about capital allocation strategies.
Additionally, JM Financial expects UltraTech Cement’s return ratios to improve structurally over the next three to four years. This positive outlook is based on three key factors: an increase in asset turnover, the company’s low-cost approach to expansion, and a steady rise in profitability. These elements are likely to contribute to enhanced financial efficiency and sustained growth in the coming years.
Overall, JM Financial has acknowledged both the opportunities and potential challenges associated with UltraTech Cement’s entry into the cable and wire segment, while also highlighting the company’s strong financial fundamentals and long-term expansion strategy.
Nuvama Institutional Equities and Citi Weigh in on UltraTech Cement’s Expansion into Cable & Wire Industry
Nuvama Institutional Equities has shared its analysis of UltraTech Cement’s entry into the cable and wire (C&W) industry, stating that the overall impact on the sector is expected to be minimal. According to the brokerage firm, even if UltraTech Cement’s foray into this new business does have an effect, it is unlikely to be significant before the financial year 2028 (FY28) at the earliest.
One of the key reasons for this limited impact is the sheer size of the industry. Nuvama estimates that UltraTech’s contribution to the sector would likely remain under 5% of the total market. Furthermore, the brokerage firm expects the C&W industry to continue growing at a compounded annual growth rate (CAGR) of 13%, which would further cushion any potential disruptions caused by new entrants.
Nuvama also highlighted the highly fragmented nature of the industry. Unlike UltraTech Cement’s core cement business, where a few large players dominate the market, the C&W industry is far more decentralized. For instance, the largest player in the segment holds less than 18% of the total market share. Additionally, companies in this sector must navigate complex distribution structures and regulatory approvals, particularly for cables, which could present operational challenges for new entrants like UltraTech Cement.
However, Nuvama pointed out that an important factor to monitor is whether UltraTech Cement decides to expand its capital expenditure (capex) plans for this new business. Any significant increase in investment could introduce new financial and strategic considerations.
On the other hand, Citi has taken a different perspective on UltraTech Cement’s diversification. While acknowledging that the company’s entry into the C&W space is relatively small, Citi expressed concerns that this move could dilute UltraTech Cement’s positioning as a pure-play cement company. The brokerage firm suggested that expanding beyond cement could shift investor perception and potentially impact how the company is valued in the market.
Overall, the brokerages have provided contrasting views on UltraTech Cement’s new venture—while Nuvama sees minimal disruption to the C&W industry and highlights the fragmented nature of the market, Citi focuses on how this diversification could influence UltraTech Cement’s core identity in the eyes of investors.