UltraTech Cement shares slide 5% on entering wires & cables segment. What brokerages say?

Ultratech Cement shares fell by 5% on the BSE in Thursday's early trade to its day’s low of Rs 10,411.90 after the firm announced its entry into the wires and cables segment, investing Rs 1,800 crore to set up a plant in Gujarat over the next two years as part of plans to expand its footprint in the construction value chain.

The plant will be set up near Bharuch in Gujarat and is expected to be commissioned by December 2026, according to a statement from UltraTech Cement.

The board of the Aditya Birla Group firm on Tuesday approved the proposal to extend its footprint in the construction value chain, through its Building Products Division.


This is in accordance with the "company's strategy to strengthen its position as a comprehensive Building Solutions provider," said UltraTech.

After the company announced its entry into the segment, various brokerage firms weighed in on the development.

Here’s what they said:

Jefferies

The global brokerage firm suggests that any immediate negative market reaction to this move should be viewed as a buying opportunity. While the new segment shares a similar customer base with cement, the sales channels are not identical. Jefferies anticipates that questions regarding capital allocation may arise. The new segment is projected to contribute 10-12% to revenue and 6-9% to EBIDTA in FY25. There may be some overlap with UltraTech Building Solutions.

Citi

Citi suggests that this foray, while small in the overall context of the company's operations, could potentially impact its positioning as a cement pure play. Following the India Cements offer, UltraTech's net debt stands at Rs 16,200 crore. The expected expenditure of Rs 1,800 crore for the new segment would account for 13% of the company's cumulative free cash flows over the next two years. Citi estimates that the wires and cables business could generate revenue of over Rs 1,200 crore, representing 14% of the company's estimated revenue for FY27.

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CLSA

CLSA believes the new segment could generate 4x-5x revenue growth with margins of 11-13%. However, the industry is already witnessing significant capital expenditure, with Rs 100 billion expected over the next 2-4 years. UltraTech's entry will add further expansion pressure, necessitating an 11-13% CAGR demand growth to absorb the new capacity. CLSA also cautions that increased competition could negatively impact overall profitability within the sector. Furthermore, the brokerage expects UltraTech to focus more on wires than cables in its new venture.

Nuvama

The brokerage anticipates a limited impact from this expansion, projecting that UltraTech's contribution to the total industry will remain below 5% by FY28 or later. Nuvama also highlights potential challenges for UltraTech in this new venture, citing the fragmented nature of the market, complexities in distribution, and the need for regulatory approvals.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)