UltraTech Cement Share Price Drops 5.3% Amid Cable & Wire Sector Entry Announcement
UltraTech Cement’s share price fell 5.3% intraday to Rs 10,381 after announcing its expansion into the cable and wire sector. While some brokerage firms remain neutral, Citi and Motilal Oswal expressed divergent views. CLSA projects a potential 4-5x revenue increase with 11-13% margins. Jefferies recommends buying on dips, setting a target of Rs 13,265 (21% upside). Motilal Oswal warns of a valuation threat to existing cable and wire (C&W) firms. JMFinancial forecasts a 24% upside, targeting Rs 13,000, anticipating EBITDA gains from FY27. Nuvama Institutional Equities sees minimal sector impact before FY28.
Key Highlights:
UltraTech Cement’s Strategic Expansion and Market Reaction:
UltraTech Cement, India’s largest cement producer, recently declared its decision to enter the cable and wire sector. The move led to an immediate 5.3% drop in its share price, bringing it to Rs 10,381 during intraday trading. The development has sparked mixed reactions from brokerage firms, with some viewing it as a growth opportunity while others foresee potential risks for existing C&W businesses.
Brokerage Firms’ Perspectives on UltraTech Cement’s Move:
CLSA’s Optimistic Outlook
Global brokerage CLSA sees this expansion as a revenue multiplier for UltraTech Cement. It estimates that the new business could increase revenue by four to five times while maintaining an 11-13% margin. CLSA suggests that despite market concerns, UltraTech’s established manufacturing expertise and customer connections will help the company scale up effectively.
Jefferies: Buy on Dips, 21% Upside
Jefferies sees the price dip as an opportunity to accumulate shares. They maintain a buy recommendation with a target price of Rs 13,265, suggesting a 21% upside. The firm highlights that UltraTech Cement’s capex is relatively low and aligns with its EBITDA/CF profile. Jefferies states, “While product specifics remain undisclosed, UltraTech Cement plans to leverage its existing manufacturing expertise and customer network for expansion.”
Motilal Oswal: Risk to C&W Valuations
In contrast, Motilal Oswal sees UltraTech’s entry as a threat to established C&W companies, particularly their valuation multiples. They draw parallels to the paint industry, where new entrants caused value erosion. However, they clarify that since UltraTech Cement’s primary focus remains on cement, there is no immediate risk to its core business. The firm notes, “Valuation multiples in the C&W sector could be impacted as seen in the Paints sector, especially with Aditya Birla Group aiming for a top 2-3 market position.”
Comparing Financial Metrics: Cement vs. C&W Sectors
Historically, the C&W sector has lower operating profit margins (OPM) but higher return on capital employed (RoCE) compared to the cement industry. Between FY20-FY24, C&W firms reported an average EBITDA margin of 7-13%, whereas UltraTech Cement maintained 21%. Additionally, UltraTech Cement’s RoCE surpassed the average C&W sector RoCE during the same period.
JMFinancial: UltraTech Cement Set for Structural Growth
JMFinancial recommends buying UltraTech Cement, setting a target price of Rs 13,000, implying a 24% upside. The firm anticipates a 4-5% EBITDA increase by FY27, once UltraTech’s new plant becomes operational in December 2026. They also speculate that UltraTech may expand into other building solution segments in the future. While some investors may worry about capital allocation, JMFinancial reassures that the investment is modest and unlikely to strain the balance sheet. The firm asserts, “UltraTech’s return ratios are expected to improve structurally over the next 3-4 years due to higher asset turnover and profitability improvements.”
Nuvama Institutional Equities: Minimal Near-Term Impact on C&W:
Nuvama Institutional Equities downplays the immediate impact of UltraTech’s entry into the C&W sector, expecting no major influence before FY28. They estimate that the sector’s total share within the industry remains under 5%, and the industry’s 13% CAGR should absorb new competition. Additionally, they highlight the fragmented nature of the C&W industry, where the largest player holds less than 18% market share. However, Nuvama warns that “UltraTech Cement’s revised capital expenditure plans remain a critical, trackable risk.”
Is UltraTech Cement’s Expansion a Game-Changer?
UltraTech Cement’s decision to enter the C&W sector has generated diverse market reactions. While Jefferies and JMFinancial view it as an opportunity for growth, Motilal Oswal raises concerns over valuation risks for existing C&W firms. CLSA remains optimistic about potential revenue gains, while Nuvama minimizes near-term competitive impacts.
With a 24% potential upside projected by JMFinancial and a 21% upside by Jefferies, investors may see this as a long-term growth opportunity. However, market watchers must track the capital allocation strategy and execution efficiency of UltraTech Cement’s non-cement ventures.
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