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Informist, Friday, Feb. 28, 2025

MUMBAI – Shares of wires and cable makers are likely to face selling pressure next week as UltraTech Cement announced plans to enter the business. This is likely to increase competition for the current players in this segment, affecting profitability, analysts said.

Earlier this week, UltraTech Cement announced its entry into the wires and cables business with an initial investment of INR 18 billion over the next two years. The company had said it will set up a plant near Bharuch in Gujarat, which is likely to be commissioned by December 2026.

Shares of wires and cables companies fell since the news came out on Tuesday post market hours, with Polycab down 18%. "Although the company has announced a two-year plan and the plant will be ready only by December next year, market has reacted to the news as if from the organised players are facing the pressure today onwards," Harshit Kapadia, a research analyst at Elara Secuties said.

"The cement-maker may gain some market share in this new business, but the key monitorable is the product portfolio they wish to target," Onkar Kelji, a research analyst at IndSec Securities. Kapadia spoke on similar lines and said the wire vertical offers high margins, whereas cable has higher demand. 

While there could be some near-term challenges for the existing wires and cables companies, players that are more exposed to exports and cables will see less impact, Kapadia said. The capital expenditure announced by UltraTech could turn into a revenue of INR 70 billion in the best case scenario, he added.

Apart from cables and wires, analysts said there is a huge potential for companies that are into electrification business. While the thermal power-based transmission and distribution business has mainly seen upgradation-related orders, there is a huge opportunity on the renewables side, Kelji said.

With the comeback of build-operate-toll model in road infrastructure, margins are expected to remain under pressure, Kelji said. "Continuing with hybrid annuity model would have been better for the industry as a whole," he added. 

Although capital goods stocks have fallen lately, they might continue to see more corrections temporarily, Kelji said. However, stocks in this sector will rise once foreign outflow bottoms out, as the companies in the sector has high orderbooks with unchanged margin improvement guidance, he said, adding that valuations of Kalpataru Projects International looks more attractive as of now. Overall, the capital goods sector has seen INR 62.83 billion of net foreign outflow between Jan. 16 and Feb. 15, according to the data availible on National Securities Depositories.

On the other hand, Kapadia said "we are in a free-fall" and shares in the sector will continue to see selling pressure if the broader market falls. Engineering, procurement, and construction companies are riskier as of now, Kapadia said, and added that he prefers Bharat Electronics due to its better risk-to-reward ratio.

BSE Capital Goods index closed in the red for the fifth straight session on Friday. The index ended at 55241.12 points, down 2.2%. The sectoral index fell 5.4% this week. Almost all the index constituents fell this week, barring Mazagon Dock Shipbuilders which rose 0.5%. Titagarh Rail Systems, Finolex Cables, Rail Vikas Nigam, Elgi Equipments, NBCC (India), and Suzlon Energy are down over 10% this week. 

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Following are the resistance and support levels for the stocks for next week as per calculations by Informist based on their prices on the National Stock Exchange:

End

Reported by Aman Aryan

Edited by Tanima Banerjee

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