NEW DELHI: The entry of UltraTech, the flagship cement company of the Aditya Birla Group, into the cables and wires (C&W) business has triggered a sharp decline in the shares of existing players in the market.
Analysts believe that India's largest cement manufacturer will have a significant advantage in establishing itself in this sector, benefiting from its extensive distribution network and the ability to source raw materials efficiently within the group.
On Thursday, shares of major C&W companies plummeted: Polycab Ltd dropped 19% to ₹4,677, KEI Industries crashed over 21% to ₹2,989, and R R Kabel fell 20% to ₹892. Finolex Cables and Havells also saw declines of 6% and 7%, respectively.
Vishnu Kant Upadhyay, AVP – Research & Advisory at Master Capital Services, noted that UltraTech's entry could disrupt the historically stable C&W sector.
"This might hurt the prospects for the current competitors. Additionally, UltraTech might be in a stronger position to purchase raw materials from group companies like Hindalco, such as copper and aluminium," added Upadhyay.
He explained that in this market, no single company controls more than 15% of the wires and 20% of the cables.
"In the medium run, Ultratech Cement's arrival is anticipated to have a minor effect on C&W industry volumes and profitability as it will take a few years for UltraTech's factory to start up," said Upadhyay.
UltraTech announced on Tuesday its plans to enter the C&W business with a capital expenditure of ₹1,800 crore over the next two years. The company will set up a manufacturing plant near Bharuch, Gujarat, which is expected to be operational by December 2026.
However, UltraTech’s shares also fell by 5% on Thursday, reflecting investor concerns over its shift from being a pure-play cement company. Analysts argue that this move could dilute its core identity in the cement sector.
The cables and wires industry has grown at a compound annual growth rate (CAGR) of around 13% between FY19 and FY24, driven by the shift from unorganized to organized markets. Despite this robust outlook, UltraTech’s entry has raised concerns about increased competition and potential pressure on sector profitability.
Global brokerage firm Citi said that UltraTech's foray into the W&C segment is small in the overall context and could hurt its positioning as a cement pure play. CLSA said that UltraTech will focus more on wires over cables and its foray will increase competition in the industry which may dent the overall profitability of the sector.
This isn't the first time the Aditya Birla Group has shaken up a sector. Its entry into the paint business in February 2024 initially impacted shares of established players like Asian Paints and Kansai Nerolac Paints, both of which have seen a 22% decline in their share prices over the past year amid broader market sell-offs.