UltraTech Cement’s Bold Move into Wires and Cables: A Strategic Leap for Growth
UltraTech Cement's ambitious plan to enter the wires and cables (W&C) segment with a capex of Rs 1,800 crore over two years is seen as a strategic move to expand its presence in the construction sector. CLSA predicts this could drive 4-5 times revenue gro
Ultratech CementWires And CablesConstruction SectorGrasim IndustriesClsaReal EstateFeb 26, 2025
This strategic move, backed by a capex plan of Rs 1,800 crore ($210 million) over the next two years, is seen as a significant step by the Aditya Birla Group to offer comprehensive solutions in the construction sector.
The parent company, Grasim Industries, has previously ventured into the paints industry with 'Birla Opus,' and this new foray into W&C is part of a broader strategy to diversify and grow its portfolio.
Foreign brokerage CLSA is optimistic about UltraTech Cement's new venture, estimating that this investment could potentially drive 4-5 times revenue growth, with a margin of 11-13 per cent.
According to UltraTech Cement, this move into the W&C segment is aimed at expanding its presence in the construction sector through a high-growth and high-asset-turn segment.
CLSA notes that UltraTech Cement's focus might be more on wires than on cables due to the higher dependence on retail (housing) and a lower time to market.
The cables and wires industry is expected to grow at a compound annual growth rate (CAGR) of 11-13 per cent over the next 4-5 years to absorb the announced expansion by both incumbents and new players.
However, CLSA warns that a weaker demand could impact the profitability of the sector in the medium term.
Incumbents in the industry are also ramping up their investments, with plans to spend Rs 10,000 crore over the next 2-4 years.
This competitive landscape could pose challenges for UltraTech Cement, but the company's strong distribution network and existing presence in the construction sector provide a solid foundation for growth.
For now, CLSA has maintained a 'Hold' rating on UltraTech Cement shares, with a target price of Rs 12,100.
A key point of discussion is why this investment is being set under UltraTech Cement and not the parent entity, Grasim Industries, which already has the paints business.
The argument in favor of placing the investment under UltraTech is that the influencers, particularly from an urban setup, are similar (real estate developers) and wires are generally used immediately after the construction process.
This aligns well with UltraTech's existing customer base and distribution channels.
On the other hand, some analysts argue that given the allied businesses like paints are housed under Grasim Industries, it might have been more logical to maintain a similar structure.
However, UltraTech has a robust distribution network with 4,500 UBS stores, which it can leverage to sell wires and other products.
This is a significant advantage over competitors like Polycab India, which has 2,200 distributors and 2 lakh retail touchpoints.
CLSA also points out that the distribution channel for wires is not entirely similar to that of cement and building materials.
However, UltraTech's existing presence in the construction sector and its strong retail network provide a solid foundation for this new venture.
The company's earlier move into the paints segment, led by Grasim, had initially led to a derating of the sector, indicating the impact of new entrants on established players.
In conclusion, UltraTech Cement's foray into the wires and cables segment is a strategic move that aligns with its broader vision of offering comprehensive construction solutions.
While there are challenges, the company's strong distribution network and existing customer base provide a solid foundation for growth in this high-potential sector.
Frequently Asked Questions
What is UltraTech Cement's capex plan for the wires and cables segment?
UltraTech Cement's capex plan for the wires and cables segment is Rs 1,800 crore ($210 million) over the next two years.
What is CLSA's prediction for the revenue potential of this new venture?
CLSA predicts that UltraTech Cement's investment in the wires and cables segment could drive 4-5 times revenue growth with a margin of 11-13 per cent.
Why is UltraTech Cement focusing more on wires than cables?
UltraTech Cement is focusing more on wires because of the higher dependence on retail (housing) and a lower time to market for wires compared to cables.
What is the expected growth rate for the wires and cables industry over the next 4-5 years?
The wires and cables industry is expected to grow at a compound annual growth rate (CAGR) of 11-13 per cent over the next 4-5 years.
What is CLSA's current rating and target price for UltraTech Cement shares?
CLSA has maintained a 'Hold' rating on UltraTech Cement shares and suggested a target price of Rs 12,100.
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