UltraTech share price rises 5%: Check key takeaways from the concall on entry into C&W segment

Last week, UltraTech Cement announced its entry into the wires and cables segment. The cement giant said it would invest ₹1,800 crore to set up a plant in Gujarat over the next two years as part of plans to expand its footprint in the construction value chain. The plant will be set up near Bharuch in Gujarat and is expected to be commissioned by December 2026.

• The company, according to InCred Equities, said that over the last 10 years, the company has grown its installed capacity by nearly 12% compound annual growth rate (CAGR) to 178mtpa vs. a nearly 5% CAGR growth at an industry level to 645mtpa.

MTPA stands for million tonnes per annum.

• With cement at the core of all construction, UltraTech has been able to create a strong position across grey cement, white cement (launched in 1988), RMC (launched in 1998; now the largest network), building solutions (launched in 2007) and building products (launched in 2012).

It added that overall cement demand is expected to grow at a 7-8% CAGR over FY24-FY30F to 640 mtpa.

• The company's management believes that they are far from maturity in terms of runway for growth in grey cement. At the end of FY25 Ultratech will be at 209mtpa capacity in India.

Rationale behind entry into C&W segment

• The company said that the management aims to play within the whole value chain within the construction industry and services with almost 90 SKUs. Management also did a study to see which category to enter and studied pipes, sanitary and fittings, furniture, lighting, etc; however, cables and wires were the ones they finalised as there is headroom to grow. Not expected to enter another new category in the next 3-5 years, as per InCred Equities.

The company added that urban housing is 30% of cement demand. The builder decides on the cement and wires along with the consultant. Ultratech connects with EPC as well as corporate players, and hence C&W is a strategic fit for Ultratech.

• For Cables, the core markets are infrastructure, railways, EV projects, etc. UltraTech is present in all metro projects in India. Hence they are entrenched across these segments to play the cable proposition as well.

• Ultratech will expand its offerings under BDP (building products) and focus on driving up the wallet share of customers.

• Management believes there is adequate room for a new player in this high-growth industry.

The total cable and wires market is expected to grow at ~13% over the next 5 years. The total wires/cables market stood at ₹26.7 billion / ₹71 billion in FY24 (a growth of 17.3%/12.2% between FY19-24, respectively).

• The company said that the distribution will be pan-India and will leverage the existing UBS (building solutions) network as well as existing B2B relationships to drive growth.

• It added that the revenue mix between wires and cables will be 60:40.

• The company added that it aspires to achieve a 25% internal rate of return (IRR) and a 25% return on capital employed (ROCE) in FY30/FY31. ROCE is a profitability ratio that measures how efficiently a company is using its capital to generate profits, as per reports.

• Working capital will not be a problem as per management when C&W peaks. The company will aim to have negative working capital for this category as well as asset turns are expected to be 5-7 times.

EBITDA margins will be in line with the industry, it notes.