Polycab, KEI Industries, RR Kabel, Havells face de-rating, target price cut as UltraTech forays into cables & wires

UltraTech Cement’s foray into the cables and wires (C&W) sector is expected to be a disruptive development, potentially leading to a de-rating in valuation multiples of existing industry players, analysts said.

On February 25, UltraTech Cement, part of the Aditya Birla Group, announced that its board of directors had approved its entry into the wires and cables segment with a planned capital expenditure of ₹1,800 crore over the next two years. The manufacturing facility will be established near Bharuch, Gujarat, with commissioning targeted for December 2026.

Upon full-scale operations, analysts estimate that the company’s expansion into the C&W business could contribute approximately 4-5% to its projected FY27 EBITDA.

Stock Market Reaction

The announcement has led to significant volatility in UltraTech Cement shares and stocks of incumbent players in the C&W industry. While UltraTech Cement shares declined over 6% on February 27, shares of key industry players saw a sharper selloff. KEI Industries share price plunged over 21%, RR Kabel stock price dropped 19.5%, Polycab India shares declined more than 18%, and Havells India shares cracked by over 9%.

The Indian cables and wires market, valued at approximately ₹80,000 crore in FY24, has demonstrated a robust compound annual growth rate (CAGR) of ~9% over FY14-24 — approximately 1.5 times India’s GDP growth rate. The sector’s average EBITDA margins have ranged between 7-13% over FY20-FY24, with a return on capital employed (RoCE) of 13-19% during the same period.

UltraTech Cement’s planned capex represents 25% of the total gross block (FY24) of the four largest players in the sector (excluding Havells India). Of UltraTech’s anticipated capacity, 60% will be dedicated to wires and 40% to cables, analysts noted.

Industry Impact

According to HSBC Global Research, UltraTech Cement is poised to emerge as a formidable new entrant and a potential disruptor in the industry. HSBC’s base-case scenario projects that UltraTech could capture an 8% market share in the wires segment and a 4% share in cables by FY32, resulting in an overall 5% market share. This would translate into estimated revenues of approximately ₹10,000 crore for UltraTech by FY32.

The entry of a major player like UltraTech is expected to impact the revenue growth of existing incumbents, with HSBC estimating a 1.1% reduction in revenue growth for the sector. Moreover, profitability in the wires segment could decline by 1 percentage point (ppt), while the cables segment may experience a smaller impact of 0.5 ppt.

HSBC forecasts a decline of 1.6% – 2.0% in the FY27-FY32 CAGR of operating profits for pure-play C&W companies and a 1% decline for Havells, compared to the sector’s historical EBIT CAGR of 15-16%. The lower earnings growth outlook has led to a 20-23% reduction in target prices for pure-play C&W companies and a 7% cut in Havells’ target price.

As a result, HSBC has cut KEI Industries target price to ₹3,450 apiece, while R R Kabel share price target has been slashed to ₹1,260. Havells India share price target price has been reduced to ₹1,730, while the target for Polycab India shares has been cut to ₹6,250.

Valuation De-Rating

Brokerage firm Motilal Oswal Financial Services (MOFSL) anticipates a valuation multiple de-rating for cables and wires players due to the entry of a large-scale competitor.

MOFSL now values Polycab India shares at 40x FY27E EPS, reducing its target price to ₹6,950 from ₹8,380, while maintaining a ‘Buy’ rating. Meanwhile, it has downgraded KEI Industries shares to ‘Neutral’ and lowered its target price to ₹4,000 from ₹4,780, also valuing it at 40x FY27E EPS.

Similarly, R R Kabel shares have been downgraded to ‘Neutral’, with its target price cut to ₹1,240 from ₹1,600. MOFSL has also revised Havells India share price target to ₹1,650 from ₹1,740 earlier, maintaining a ‘Neutral’ rating.

Analysts believe that while UltraTech’s entry will intensify competition, the long-term impact on incumbents will depend on factors such as pricing strategies, supply chain efficiencies, and brand positioning. In the near term, however, the development is expected to weigh on share price performance across the sector.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.