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UltraTech forays into C&W segment

UltraTech’s foray into the cables and wires (C&W) segment is likely to aggravate competitive intensity at a time when the industry was anyway going through massive capacity expansion. Notwithstanding the current demand tailwinds, we believe that the risks for margin compression for the incumbents are high, especially since UltraTech (1) has an enviable pan-India distribution, with early connect with infra and real estate projects; (2) has the balance sheet strength to double down on its initial investment to garner a respectable market share; and (3) could adopt aggressive pricing (as in the case of Birla Opus) to swiftly penetrate the market

Event—UltraTech forays into C&W with planned capex of Rs18 bn over 2 years

UltraTech has announced plans to extend its footprint in the construction value chain by foraying into the cables and wires segment, with a capex of Rs18 bn in the next two years. The plant will be set up in Bharuch (GJ) and is expected to be commissioned by December 2026E. It plans to operate across sectors— residential, commercial, infrastructure and industrial applications. Assuming gross asset turns of about 4-5X, UltraTech’s C&W revenue potential of Rs72-90 bn would be equivalent to about 6-7% of the industry size in FY2027E

Distribution may not necessarily be a challenge for UltraTech

Polycab/KEI derive about 80-90%/50-55% of their revenues from the domestic distribution channel, whereas the rest would be a mix of institutional channel and exports. UltraTech has the right to win in the building products supply chain, considering its pan-India distribution and early connect with infra and real estate projects. UltraTech could initially penetrate the institutional channel while simultaneously building its domestic distribution/influencer network (electrical contractors/electricians are the key influencers in urban/rural markets). In paints, we have seen Birla Opus scale up to ~50k/30k retail touchpoints/tinting machines in its maiden year of operations. Further, we believe that UltraTech could initially ramp up in relatively simpler segments such as wires, as the more complex cables would necessitate securing technical approvals from several agencies and EPC contractors, which could be a time-consuming process.

Significant capacity expansion in industry can lead to margin compression

The Indian C&W industry witnessed a significant step-up in capex in FY2024/25E (up 170%/60% yoy for the top 6 players) and further large expansion plans are already announced. Including UltraTech’s capex of Rs18 bn, we now estimate about Rs95 bn+ cumulative capex (excluding EHV capex of Polycab/KEI) being incurred by the top 7 players over FY2025-27E, which could have an incremental revenue potential of about Rs380-475 bn (about 40- 50% of the current industry size). Even if we assume that current industry demand tailwinds will continue, there could be margin compression considering that (1) the C&W industry, with its 10-12% EBIT margins, has among the highest profitability in the electricals space, (2) UltraTech could potentially double down on its investments (its press release mentions that the current Rs18 bn capex is ‘nominal’) and (3) it could play the pricing game (akin to Birla Opus in paints) to garner a respectable market share.

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