Global brokerage firm Jefferies has reiterated its 'buy' recommendation for Polycab India shares, setting a price target of Rs 11,100. This comes after the wires and cables manufacturer experienced a nearly 10% drop in its stock price over five days, following the market entry of UltraVolt by UltraTech Cement.
Jefferies Recommends 'Buy' Amidst Market Correction
According to Jefferies, the recent underperformance presents a strategic buying opportunity for investors. The brokerage highlighted that Polycab's business is predominantly in cables (70-75%), while UltraTech's new UltraVolt brand is more focused on wires. This distinction, Jefferies suggests, limits the potential for aggressive price wars within the industry, where net profit margins typically range between 5-7%.
Industry Impact and Price War Concerns
The launch of UltraVolt, a new wires and cables brand from the Aditya Birla Group's UltraTech Cement, marks its fourth new business foray in the past three years. This significant market entry has prompted various brokerage houses to reassess their outlook on the wires and cables sector.
Other Brokerages Weigh In: Kotak and Nuvama
While Jefferies maintains a positive stance, Kotak Securities adjusted its rating on Polycab India from 'SELL' to 'REDUCE' following the correction. Kotak lowered its price target to Rs 8,400 from Rs 8,700, citing UltraVolt as a credible threat to established wire players.
Similarly, Nuvama noted that UltraVolt's announcement implies aggressive strategies in terms of capacity additions, portfolio diversification, and distribution expansion. This could potentially lead to an interim de-rating for the entire cables and wires (C&W) industry.
UltraVolt's Ambitious Market Strategy
UltraVolt plans an extensive market penetration strategy, aiming to reach over 100,000 retailers. The brand also intends to leverage UltraTech Building Solutions (UBS)'s network of more than 5,000 outlets to expand its product availability significantly across India.