Polycab share price declined after UltraTech Cement announced entry into the wires and cables market. Concerns about oversupply and margin pressure impacted valuations.
The Indian wires and cables (W&C) market recently witnessed a significant event with UltraTech Cement’s announcement of its entry into the sector. This move has had a notable impact on the share prices of existing players, including Polycab India Ltd.
UltraTech Cement, a flagship company of the Aditya Birla Group, revealed plans to invest ₹1,800 crore in establishing a wires and cables manufacturing plant in Bharuch, Gujarat. The plant is expected to be commissioned by December 2026. This announcement triggered a wave of selling pressure in the stock market, affecting several key players in the W&C industry.
Polycab, along with KEI Industries, Havells India, RR Kabel, and Finolex Cables, experienced a substantial decline in market capitalization. On February 27, these five companies collectively lost over ₹31,000 crore. Polycab alone saw a decrease of approximately ₹15,726 crore in its market capitalization.
Market Reaction and Analysis
The market’s reaction reflects concerns about potential oversupply and margin pressure in the W&C sector. UltraTech’s entry is viewed by some analysts as similar to Grasim Industries’ entry into the paints sector, which also led to significant market disruption.
While the W&C market is highly organized, it remains fragmented, with no single player holding a dominant market share. The industry comprises numerous companies, ranging from SMEs to large enterprises. This fragmentation makes the sector attractive for new entrants with strong financial backing, like UltraTech.
Analysts at Motilal Oswal downgraded their rating on KEI Industries and RR Kabel to ‘neutral’ from ‘buy’, while retaining a ‘buy’ call for Polycab India shares and a ‘neutral’ rating for Havells India. Nuvama Institutional Equities, however, maintained a bullish stance on KEI Industries, Polycab India, and Havells India.
Potential Advantages and Challenges for UltraTech
UltraTech Cement may benefit from its access to raw materials like copper and aluminum through its parent group, potentially leading to cost advantages. Its existing relationships with real estate developers and a wide network of UltraTech Building Solutions (UBS) stores could provide a competitive edge in distribution.
However, challenges remain. Securing approvals from various industries and agencies for cables and wires can be a time-consuming process. Also, some analysts believe that there will be modest impact on C&W industry volume/margins in the medium term.
Expert Opinions and Future Outlook
Experts have mixed opinions on the long-term impact of UltraTech’s entry. Some believe it could lead to a de-rating of valuation multiples for existing C&W companies, while others suggest that the industry’s growth potential, particularly in exports, could mitigate the impact.
JM Financial estimates that UltraTech Cement could potentially achieve a 5% market share in the W&C industry by FY28, with a potentially higher share in the wires segment alone. Nuvama anticipates that this entry shall further drive unorganised to organised market share while creating further healthy competition among organised players.
The situation is still unfolding, and the industry will be closely watching UltraTech’s strategies and their impact on market dynamics. For Polycab, the key will be to leverage its existing market position and adapt to the changing competitive landscape.
Sources: https://m.economictimes.com/markets/stocks/news/polycab-kei-havells-share-short-circuited-is-this-birlas-next-paint-style-disruption/articleshow/118596652.cms
https://www.cnbctv18.com/market/ultratech-cables-and-wires-foray-200-million-investment-market-cap-lost-polycab-kei-rr-kabel-havells-share-price-19565593.htm
https://www.moneycontrol.com/news/business/markets/cables-wires-sector-braces-for-ultratech-cements-big-entry-how-will-this-disruption-play-out-12951733.html