UltraTech Cement shares rise after management assures ‘no further diversification’

Shares of India’s largest cement manufacturer UltraTech Cement Ltd. surged as much as 3.5% on Monday, March 3, after the company shared more details about its cables and wires foray on Friday. The stock is recovering after a sharp sell-off on both Thursday and Friday.UltraTech’s ₹1,800 crore planned foray into the cables and wires space led to a loss of nearly $4 billion in market capitalisation of wires and cables companies like Polycab, KEI Industries and peers.

In an investor presentation shared on Friday evening, UltraTech clarified that it is looking at an IRR of close to 25% with a Return on Capital Employed (RoCE) target of over 20%. The wires and cables mix will be 60% for wires and 40% for cables.

More importantly, UltraTech made it clear that they are not looking for any other new business opportunity and it does not expect pricing pressure to disrupt the industry. The company called this move a one-off strategic diversification targeting higher customer wallet share.Brokerage firm DAM Capital has reiterated UltraTech has a “strong buy” with a price target of ₹12,550, saying that the recent stock correction is an “over-reaction”. The brokerage said that the investment figure for UltraTech is nominal with potential advantages in place.

Jefferies too has reiterated its “buy” rating on UltraTech with a price target of ₹13,265. The brokerage said that it derived comfort from the management’s commentary on future capital allocation.

Nuvama has maintained its “hold” rating on UltraTech with a price target of ₹11,574.

Shares of UltraTech Cement are trading 1.9% higher on Monday at ₹10,327. The stock is looking to rebound after an eight-day losing streak. The stock has declined nearly 8% in the last two trading sessions.