Share price of UltraTech Cement drops 4% after announcing entry into cables and wires market

Market Performance

Shares of UltraTech Cement Ltd. declined by 4% in early trade on February 27 following the company's announcement of entering the cables and wires segment. At 10:50 AM, UltraTech Cement's stock was trading at Rs 10,552.85, marking a 3.75% decline on the NSE.

The stock of major players in the cable and wire sector also saw significant declines. 

• KEI Industries' shares dropped by 17% to Rs 3,132.85,
• Polycab India experienced a 14% fall, trading at Rs 4,976.9
• Havells India also recorded a 5.1% decline, with shares priced at Rs 1,468.95.

UltraTech Cement's Expansion into Cables & Wires

UltraTech Cement, a key player in the cement industry under the Aditya Birla Group, has announced an investment of Rs 1,800 crore to establish a new cables and wires manufacturing plant in Bharuch, Gujarat. The plant is projected to be operational by December 2026.

The company plans to use its manufacturing expertise and strong customer base to expand its presence in the building solutions sector.

Industry Impact and Market Dynamics

The cables and wires industry is projected to maintain a strong growth rate, with a compound annual growth rate (CAGR) of approximately 13%. However, the industry's fragmented nature, with the most significant player holding less than an 18% market share, may limit the immediate impact of UltraTech Cement's entry.

Additionally, the organised segment of the market has grown from 68% in FY19 to 73% in FY24, indicating a trend towards structured industry growth. The company's expansion may contribute to further consolidation within the sector while introducing additional competition.

Financial Overview of UltraTech Cement's Investment

• Capital Expenditure: Rs 1,800 crore
• Projected Revenue Contribution: Rs 1,200 crore by FY27
• Estimated Share of Industry by FY28: Less than 5%

UltraTech Cement's investment in this sector represents approximately 13% of its cumulative free cash flows over the next two years. While this move broadens the company's reach beyond cement, it may also impact its brand positioning as a cement-focused entity.

Summary

UltraTech Cement's decision to invest in the cables and wires sector is a strategic move aimed at diversifying its product offerings within the building solutions industry. While the investment is substantial, the industry's competitive and fragmented nature may limit its immediate influence. The shift from unorganised to organised market segments continues, and the company's expansion is expected to contribute to this trend.

The broader market reaction has reflected concerns over increased competition, with existing cable and wire manufacturers experiencing stock declines. However, the lasting impact of this decision will hinge on UltraTech Cement's execution strategy and how the market responds in the years ahead.