Polycab, KEI to Havells - Cables & wire stocks catch fire, tank up to 20% on UltraTech’s foray into segment

Shares of major players in the cables and wires segment came under significant selling pressure in today's session, February 27, after UltraTech, an Aditya Birla Group company, announced its entry into Cables and Wires (C&W) as part of its strategy to become a comprehensive ‘Building Solutions’ provider.

UltraTech's entry into the ₹845 billion Cables and Wires market (as of FY24) has dented investor sentiment, as the move raises concerns over intensified competition, potential pricing pressures, and a shift in market dynamics that could challenge existing players.

Polycab share price drops 18%, Havells 9%

Against this backdrop, shares of Polycab India, which is the largest cables & wires company in India tumbled 17.6% in today's session, reaching ₹4,751 apiece, while those of KEI Industries crashed 20% to hit ₹3,038. Meanwhile, Havells India tumbled 9% in trade to ₹1,140 apiece. Likewise, R R Kabel shares plunged by 14% to hit an all-time low of ₹954 apiece.

The Street also appears disappointed with UltraTech's small capital allocation to the segment, leading UltraTech Cement shares to tumble 5% to ₹10,415 apiece.

UltraTech enters into C&W—What it means for C&W industry

As part of its strategy to become a comprehensive building solutions provider, UltraTech Cement (UTCEM) announced its entry into the Cables & Wires (C&W) segment and committed ₹18 billion in capital expenditure (less than 2% of its FY24 total gross block), with commissioning expected by December 2026.

Domestic brokerage firm Nuvama Institutional Equities estimates that the C&W industry is heading toward a balanced demand-supply scenario over the next three to four years, based on publicly announced capex by leading players and a 13% CAGR in industry revenue (similar to FY19–24).

"Secondly, assuming 60–70% capacity utilization (CU) in year three (as it builds distribution for wires and secures approvals for various cable SKUs), it will account for less than 5% of the C&W market at that time, in our estimate. Hence, this entry is expected to have a modest impact on C&W industry volumes and margins in the medium term," the brokerage said.

The brokerage further believes this move will accelerate the shift from unorganized to organized market share, which has likely increased from 68% in FY19 to 73% in FY24, while fostering healthy competition among organized players.

Additionally, it highlights the sensitivity of C&W players to margin fluctuations, noting that a 100 basis-point change in C&W margins could impact EPS by 3–9%. The report also notes that the industry has significant export growth opportunities, and some players may be able to divert capacities to exports, further limiting the impact of new entrants.

Unlikely to impact C&W players’ earnings until FY28

The cables & wires industry has been growing rapidly in recent years, fueled by strong government focus on infrastructure development, the rising trend of nuclear families, an increase in electrification in rural areas, an increase in exports of cables & wires, etc.

According to the experts, the industry would also benefit from the government policies, e.g., encouraging domestic manufacturing and PLI incentives for components. There could also be a shift to organized players from unorganized ones, which has historically been the case. This possible shift would further benefit the bigger players going forward.

Nuvama believes UltraTech's entry is unlikely to have any impact on FY25–28 earnings of C&W players, and the brokerage said it would watch out for any top-up announcements by the company for a longer-term impact on C&W’s demand-supply scenario. It retains a bullish stance on KEI Industries, Polycab, and Havells.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.