On Tuesday, shares of Polycab India witnessed a significant decline after UltraTech Cement, a subsidiary of the Aditya Birla Group, announced its entry into the electrical industry. The news sent shockwaves through the market, triggering a sell-off in key industry players. As a result, shares of Polycab, along with KEI Industries and Havells, plunged by as much as 15%.
Investors reacted strongly to UltraTech’s strategic move, likely anticipating heightened competition in the sector. The sudden drop in stock prices reflects market concerns over the potential impact of a large conglomerate like UltraTech entering the space, which could reshape the competitive landscape.
On Tuesday, shares of Polycab India took a sharp hit, plunging 15% to ₹4,894.80 amid a wave of selling pressure. KEI Industries also faced a significant setback, hitting the 15% lower circuit at ₹3,226.65. Havells India wasn’t spared either, witnessing a 7% decline to ₹1,442.55, while RR Kabel saw its stock slide by 13%. The sharp downturn in these stocks highlights the sudden erosion of investor confidence, as market participants grapple with concerns over intensified competition and potential pricing pressures in the wires and cables sector, which has traditionally been a highly lucrative space.
UltraTech’s Strategic Move
UltraTech Cement, a flagship company of the Aditya Birla Group and a dominant player in the cement industry, sent ripples through the market with its unexpected decision to enter the wires and cables business. This diversification aligns with UltraTech’s broader vision of becoming a comprehensive building solutions provider. As part of this strategic expansion, the company has earmarked a capital expenditure of ₹1,800 crore for the new venture, with plans to commence operations by December 2026. The move signals a bold step into a new market segment, potentially altering the competitive landscape and challenging established players in the industry.
Global brokerage firm Jefferies has weighed in on UltraTech Cement’s entry into the wires and cables industry, suggesting that its impact may not be immediately disruptive. According to Jefferies, while UltraTech does cater to a similar customer base as its cement business, the sales and distribution channels for electrical products differ significantly from those in the cement sector.
Given these differences, the firm believes that concerns over UltraTech’s competitive threat may be somewhat overstated in the short term. It also interprets the sharp decline in stocks of existing industry players as a knee-jerk reaction rather than a reflection of fundamental long-term risks. Jefferies suggests that such volatility in stock prices following the announcement may present opportunities for investors, though the broader market sentiment will likely depend on how UltraTech executes its expansion strategy in the coming years.
A New Challenger in a Well-Established Market
For years, companies like Polycab and KEI Industries have maintained a stronghold in the wires and cables sector, capitalizing on robust demand fueled by rapid infrastructure development and growth in the real estate industry. Their dominance has been driven by an extensive distribution network, brand trust, and consistent innovation. However, the recent announcement of UltraTech Cement’s entry into this space has sparked concerns among investors and industry players alike. Market participants fear that UltraTech’s presence could lead to intensified competition, price wars, and margin compression for existing players.
UltraTech’s Growth Potential and Industry Challenges
According to global brokerage firm CLSA, UltraTech’s expansion into the wires and cables segment holds the potential to significantly boost its revenue, estimating a four to five times growth trajectory in this business. The firm also projects that UltraTech could achieve operating margins of around 11%-13% in this segment, which would position it competitively within the industry.
However, CLSA also points out that the wires and cables sector is already witnessing a significant capital expenditure surge, with approximately ₹100 billion expected to be invested over the next 2-4 years. This wave of expansion could lead to heightened supply-side pressure, making it crucial for the industry to sustain a compounded annual growth rate (CAGR) of at least 11%-13% in demand. Without such growth, the additional capacity from UltraTech and other players could lead to excess supply, further pressuring margins and profitability across the sector.
Short-Term Volatility or Long-Term Disruption?
The long-term impact of UltraTech’s entry remains a point of debate among analysts. Nuvama Research, for instance, maintains confidence in the prospects of established industry leaders like KEI, Polycab, and Havells. The research firm argues that despite UltraTech’s financial strength and brand recognition, its market penetration will take time. Given the highly fragmented nature of the wires and cables industry and the stringent regulatory requirements for cable manufacturing, Nuvama expects UltraTech’s market share to remain below 5% by FY28.
Additionally, Nuvama highlights that Indian wires and cables manufacturers have strong export opportunities, which could help mitigate the impact of increased domestic competition. With global demand for electrical infrastructure on the rise, established players may be able to offset any domestic pricing pressures through international sales, maintaining their growth momentum despite the entry of a new competitor.
Industry Outlook and Projected Impact of UltraTech’s Entry
According to Nuvama Research, the cables and wires (C&W) industry is expected to achieve a balanced demand-supply dynamic over the next three to four years. This projection is based on the capital expenditure plans publicly announced by leading industry players, along with an anticipated 13% compound annual growth rate (CAGR) in industry revenue. Notably, this growth trajectory aligns with the sector’s performance between FY19 and FY24, suggesting a continuation of steady expansion rather than an abrupt shift due to UltraTech’s entry.
Nuvama further analyzes UltraTech’s potential market position, factoring in the time required for the company to establish a distribution network for wires and obtain regulatory approvals for various cable stock-keeping units (SKUs). Given these factors, the research firm estimates that UltraTech may operate at a capacity utilization (CU) of around 60%-70% by its third year in the industry. Based on this assumption, Nuvama expects UltraTech’s share in the C&W market to remain below 5% at that stage.
As a result, the research firm believes that UltraTech’s entry is unlikely to cause major disruptions to the industry’s overall volumes or profit margins in the medium term. While the presence of a new competitor may introduce some level of pricing or market share adjustments, Nuvama suggests that the sector’s growth momentum and existing players’ strong foothold will help absorb the impact without significant destabilization.
Meanwhile, shares of UltraTech Cement also experienced a decline, slipping by 3.5% during the trading session. The drop suggests that investors may have had a mixed reaction to the company’s announcement, weighing both the growth potential of its new venture and the challenges associated with entering a well-established and competitive industry. The market’s response indicates a cautious approach as stakeholders assess the long-term implications of UltraTech’s diversification strategy.