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FPO Note - ITI Ltd Issue Open: January 24 - January 28, 2020, Price Band: Rs. Rs. 72 77, Issue Size: 181,800,000 eq shares (Fresh Issue 180,000,000 eq sh for Public) + (additional Issue of 1,800,000 eq sh for employees)

FPO NOTE

STL indicated that global OFC demand came down in 2019 as China and India witnessed 13% and 29% de-growth, respectively, while North America & Europe were up 4% YoY. The company expects a demand and pricing recovery from H2FY21E onwards and has guided for an improvement in performance sequentially driven by strong services revenues and foray into new geographies. We lower our revenue forecast for FY20 to ~9% and expect FY21 revenues to witness a spurt (up 18% YoY) with new market foray that will improve capacity utilisation as well as continued network...

Sterlite Tech's performance for Q2FY20 was muted on the EBITDA front while it was weak on the PBT front given the higher depreciation and interest charges from the new optical fibre (OF) capacity that has yet to witness volume offtake. Revenues came in at | 1,360 crore, up 25.4% YoY, led by services revenues (forming 50% of topline) while product revenues were down ~16% YoY on account of demand challenges and pricing pressure. EBITDA came in at | 288.5 crore aided by slightly higher revenues. Reported EBITDA margins came in at 21.2%, a decline of 400 bps YoY. We highlight...

Sterlite Tech reported an in-line topline performance (~63% YoY growth) in Q1FY20 driven by strong domestic revenues (~64% of pie), which witnessed a staggering ~87% YoY growth. Exports revenues, on the other hand, forming 36% of revenues, grew 33% YoY. Reported EBITDA margins came in higher at 22.6% (vs. our estimate of 19.5%) given the higher proportion of product revenues that command superior margins. PAT came in lower at | 141.4 crore (vs. our expectation of | 151.2 crore) despite higher EBITDA, on account of higher depreciation and interest costs owing to...

Services & solution share in revenues to expand The company indicated that services and solution segment contribution increased to ~37% of topline in FY19 (vs. ~26% in FY18) given the superior execution in the Navy and other services projects. We also note that of the total order book of | 10,516 crore, services order book is ~| 5,000 crore, which, as per management, is likely to contribute to ~50% of the topline, in the next couple of years. Therefore, we raise our revenue forecast for FY20 and FY21E by ~9% & 16%, respectively, to build in superior execution in the...

The demand outlook for OF/OFC is strong, notwithstanding, recent pricing pressure, riding mainly on 5G, FTTx expansion and government initiatives for digital connectivity. However, the Chinese incident reflects the underlying lack of pricing power or commodity nature of the industry. With China's huge market share of ~50% in OF demand, the rub-off effect of pricing in other geographies cannot be ruled out. Moreover, huge capacity addition across the globe clouds the overall pricing outlook for OF/OFC. Therefore, we cut our revenue estimates for H2FY20 and FY21....

Sterlite Technologies' (STL) revenues came in at | 1334.9 crore, up 59.8% YoY, ahead of our expectation of | 1155 crore. Services formed ~30%+ (vs. 25% in Q2FY19) of the topline, with remaining...

SOTL has corrected 25% from its peak last month. Investors are concerned about three things: 1) a fall in spot optic fiber (OF) prices; 2) a slowdown in OF orders from China Mobile in 2018; and 3) any delay in 5G rollout globally. We spoke to SOTL management and found that it is confident on achieving the USD100m net profit target by FY20E. We maintain our Buy rating as we do not see any risk to our FY19-21 earnings forecasts amid rising data consumption globally. Stock is available at 16.3x PER/9.4x EV/EBITDA FY20E. The ongoing proliferation of data networks should keep the demand for SOTL's products/services intact. In addition, China contributes just 10% to SOTL's sales now....