UltraTech's Cables And Wires Foray Fails To Deter Bullish Analyst Calls

UltraTech Cement Ltd. plans for a surprise entry into the cables and wires industry has not deterred analysts from their bullish outlook on the stock. The cement major will invest Rs 1,800 crore into the venture over the next two years with the aim to expand its building solutions portfolio.

Even as the market reacted negatively to this shift, most brokerage firms retained their bullish calls on UltraTech Cement stock.

However, concerns remain. While some see it as a positive move leveraging UltraTech's existing strengths, others express concerns about capital allocation and potential impacts on the cables and wires sector.

Jefferies maintained its 'buy' rating on UltraTech, with a target price of Rs 13,265, marking an upside of 21% from the previous close. The brokerage views the company's entry into the C&W segment as a logical extension of its building products division, leveraging its manufacturing expertise and customer connections.

Jefferies believes this move is more about deploying UltraTech's strong cash flow and that any knee-jerk market reaction should be seen as a buying opportunity.

JM Financial also retained its 'buy' rating on the stock, setting a target price of Rs 13,000, with an upside potential of 18.6%. They estimate that the UltraTech's new venture could add 4–5% to its Ebitda in the fiscal ending March 2027.

The brokerage highlighted UltraTech's ability to leverage its relationships with real estate players, its extensive distribution network, and the potential for synergy with group company Hindalco for raw material sourcing. While acknowledging potential concerns about capital allocation, they remain optimistic about UltraTech's long-term growth.

Motilal Oswal expressed concerns about the potential impact on the C&W sector, suggesting that UltraTech's entry could lead to valuation multiple de-rating for existing players. They have downgraded KEI Industries and RR Kabel to "Neutral" from "Buy".

They also believe that UltraTech's stock might initially see a negative reaction, as investors have traditionally viewed it as a pure-play cement company.

"UTCEM’s capital allocation may be questioned, but its focus on the cement business will remain intact. As such, we do not view this investment as a risk to the company," the brokerage said.

Macquarie Research retains an "Outperform" rating on UltraTech but highlights increased uncertainty regarding capital allocation. While acknowledging the C&W industry's growth potential and higher return on equity (ROE) compared to cement, they raise concerns about UltraTech's debt reduction plans and the need for significant investments in branding and distribution.

They await clarity on UltraTech's focus within the C&W segment and its technology access plans. They believe the near-term reaction might be negative, but the long-term outlook for UltraTech's core cement business remains intact.