IGI Logo

Eying a strong position in cables and wires

Aditya Birla Group has formally launched its cables and wires (C&W) business under the brand ‘Ultravolt’, housed under UTCEM with an initial Investment of INR18b. The company aims to build a scaled national brand and become one of the top two players in this segment within five years. It has commissioned a C&W plant at Bharuch, Gujarat, with installed capacity of 1.1m KM, and commenced commercial production from 1st Sep’26.

* The entry is consistent with UTCEM’s broader building solutions strategy and expands its participation in the construction value chain beyond grey cement, ready-mix concrete, building products and white cement. C&W offers an attractive adjacency to UTCEM’s existing customer ecosystem, particularly individual home builders, contractors, real-estate developers and EPC companies. The opportunity is supported by structural tailwinds around urbanization, electrification and digitization. Increasing residential construction, infrastructure spending and data-center development should provide multiple demand drivers over the medium to long term.

* Ultravolt plans to launch products at pan-India scale, targeting 100k+ retailers and leveraging 5k+ UltraTech Building Solutions (UBS) outlets to accelerate market penetration. The initial rollout will cover 500+ districts and 6k+ pin codes, supported by a network of 20+ warehouses. It is also focusing on electrician engagement, having already onboarded 1,600+ electricians and planning to train over 40k electricians over the next year.

* Ultravolt is launching home wires, flexible wires and cables catering to residential, commercial, industrial and infrastructure applications, while it intends to gradually expand into electrical accessories. The initial portfolio includes single-core, multipore flexible, flat, solar and communication cables, and the company is planning to add LV cables in the coming weeks and HV cables by early next year.

* The company is making significant upfront investments in brand building. The campaign will span print, outdoor, television, digital, social media, cricket, radio and other consumer touchpoints.

Initial guidance at the time of announcement of entry into C&W business

* UTCEM will invest INR18b in C&W business, with a focus on ramping up the capacity and achieving optimum utilization by FY31/32. The plant is likely to have a capacity of 3.5m-4.0m km (commissioned 1.1m km as of now). It is not exploring the HT, MVT, and EHV segments in cables.

* Initial operating profitability could be lower due to the gradual ramp-up, higher marketing and promotional spending, brand-building efforts, etc. However, it targets RoCE of ~25% by FY31-32.

* Copper will be available near the plant (within a 100km range) and UTCEM will be able to manage working capital well. It will be able to operate this business with negative working capital, similar to its cement operations.

* EBITDA margin will be similar to what the industry is achieving at a full ramp-up phase (expected by FY30-31). Brand recognition, UBS network, B2B relationship, and access to end-users and influencers will provide an opportunity for a ‘Right to Win’. The revenue contribution is expected to be 60% from wires and ~40% from cables.

Ambition seems to be similar to paint business of the group

* The group outlined that its all investments are undertaken with a clear objective of establishing a strong and sustainable position in the category. It is focusing on building businesses with long-term leadership potential.

* In Birla Opus, it has achieved double-digit market share within two years of launch. It has rapidly scaled up its distribution reach, product portfolio and brand positioning. The group’s strategy is centered on identifying large and structurally growing markets where it can leverage its expertise, brand strength, distribution capabilities and ecosystem advantages to create a differentiated proposition.

* We believe UTCEM’s entry into C&W is strategically significant, given the group’s ability to deploy capital, build distribution and leverage its established relationships across the construction ecosystem. Its ambition of becoming the No. 2 player within five years suggests that Ultravolt is likely to adopt an aggressive strategy for capacity ramp-up, distribution expansion and brand building, similar to the group’s approach during initial years of its paint business.

Valuation and view

* There could be near-term pressure on the stock price of C&W players due to UTCEM’s ambitious target of becoming the No. 2 brand, though the industry’s underlying demand outlook remains constructive. Assuming the current industry size of INR1.0t and expected CAGR of 13% over the next five years, we believe that UTCEM could achieve 5-7% market share by FY31E.

* On the cement business, demand remains healthy in 2Q so far even in a seasonally weak period. However, muted cement prices and high opex/t could weigh on margins in the near term. We reiterate that UTCEM continues to extend its lead over peers across scale, market share, cost, and cash-flow generation. Its large and diversified manufacturing footprint enables the company to capture a disproportionate share of industry growth, while scale benefits should structurally lower opex/t.

* In this note, we are not changing our earnings estimates and will wait for more clarity on the revenue/margin guidance for C&W in the near to medium term. We estimate a consolidated revenue/EBITDA/PAT CAGR of ~12%/17%/19% over FY26-28, aided by ~10% volume CAGR and ~1.5pp OPM expansion to ~21% by FY28E. Improving profitability and disciplined capex should drive RoE/RoCE to ~14%/~12% by FY28E (vs. ~11%/~10% in FY26). We value UTCEM at 18x FY28E EV/EBITDA to arrive at our TP of INR13,800. Reiterate BUY

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH00000041