KEI Industries Up 7 Per Cent: Was Yesterday’s Short Circuit in Cables and Wire Company a One-Off?

Why Retail Investors Should Not Rush In: The question remains: Was the brutal fall a one-off event, or does it signal the beginning of a valuation correction in the sector?

On D-street, one sector which has gained limelight is cables and wires. Ultratech’s entry into the cable and wires sector resulted in a dramatic sell-off in the cables and wires sector on February 27, 2025. With KEI Industries Ltd, a leading manufacturer in this space, suffering a massive blow. The stock plummeted 21 per cent to Rs 2,999, wiping out over one-fifth of its market capitalisation in a single day. 

The trigger? UltraTech Cement’s entry into the cables and wires business. While this move initially sparked panic among investors, KEI’s management in media interaction has emphasised that UltraTech's foray is unlikely to disrupt the fundamentals of established players like KEI Industries.

Despite the sharp correction, KEI Industries rebounded, climbing 7 per cent on February 28, 2025. However, the question remains: Was the brutal fall a one-off event, or does it signal the beginning of a valuation correction in the sector?

The P/E Derating Effect

Over the past few years, cables and wires stocks, including KEI, Polycab, and Havells, have enjoyed a significant valuation re-rating, with their P/E multiples reaching elevated levels. KEI Industries’ median one-year P/E stood at 62x, which dropped to 47x by mid-February as the broader market corrected on valuation concerns. Despite the strong growth potential driven by India’s infrastructure expansion and the gradual shift from unorganised to organised players, valuations in the sector have remained high.

However, markets have a way of punishing overvalued stocks at the slightest hint of disruption. UltraTech Cement’s relatively small investment compared with capital investment of the established players in the sector provided the perfect excuse for investors to derate high-P/E stocks, triggering the steep fall in KEI Industries and its peers. The market has effectively priced in the future competitive risks posed by UltraTech’s entry, despite no immediate impact on KEI’s financials, which has 10 per cent market share in the sector, largely dominated by unorganised players.

Is the Worst Over?

Looking at the delivery data from BSE and NSE on February 27, KEI Industries witnessed significant delivery-based selling, with a delivery percentage of 26.3 per cent and 14.22 lakh shares changing hands. This indicates that a substantial number of investors exited the stock rather than just speculative intraday trades, suggesting that yesterday’s sell-off was not merely a one-time panic event.

Management’s Take: No Immediate Threat from UltraTech

In a media interaction KEI Industries' Chairman and Managing Director, Anil Gupta, remains confident in the company’s position, dismissing concerns about a price war. “UltraTech Cement will take years to scale. Our industry operates on thin margins of 10.5-11 per cent. Any new entrant will have higher costs and will struggle to disrupt pricing,” he explained. He also noted that the B2B nature of the cables and wires business makes it harder for new entrants to gain a foothold quickly, unlike cement, which is distributed via a well-established network.

While KEI Industries has rebounded, the broader correction in Indian equities due to high valuations suggests that the worst may not be over. After a price correction, the next phase is often a time correction. This means that while earnings may not decline significantly, stock prices could remain stagnant for an extended period, making it a challenging phase for investors.

As of 11:30 AM, KEI Industries was trading at Rs 3,060, up 2 per cent, with a market capitalization exceeding Rs 29,200 crore.

Disclaimer: This article is for informational purposes only and should not be considered investment advice.