UltraTech Cement shares fall 5% after company announces its foray into wires and cable segment; here is why

The board of the Aditya Birla Group firm on Tuesday approved the proposal to extend its footprint in the construction value chain through its Building Products Division.

This is in accordance with the "company’s strategy to strengthen its position as a comprehensive building solutions provider," said UltraTech.

Last year, Aditya Birla Group entered into the decorative paints segment by launching the brand Birla Opus.

"The company aims to meet the growing demand for wires and cables across various sectors, including residential, commercial, infrastructure, and industrial applications," it said.

The wires and cables industry has witnessed a revenue CAGR of around 13% between FY19 and FY24, and with the migration from the unorganised to the organised market, the outlook continues to remain robust, which provides an attractive opportunity for a new trusted player in the sector, it said.

"The company believes that this proposed entry in the sector is likely to be value accretive to its shareholders," said UltraTech.

Why did shares slip in trade?

Shares of the company came under selling pressure as experts and market participants were worried about the company's decision to enter the new segment. Ultratech Cement is a big, well-known name in the cement industry, and it has consistently maintained its dominance and profitability in the sector.

Further, last year, the company made its entry into the paints business by launching the brand Birla Opus. Hence, the Street is worried about the capital allocation to the new segment, given that its existing businesses are doing well. Foraying into too many segments could impact the company negatively, a set of experts believes.