Downgrades

We highlight that while long term target is attractive, the fibre pricing weakness persists. Moreover, we would await meaningful traction in demand before turning constructive. Post ~40% run up since our last update, we downgrade our rating to REDUCE (vs. HOLD, earlier). We value...

STL indicated that global fibre demand declined 7% YoY in 2019 (from 511 mn fkm to 477 mn fkm), on account of China slowing down after a massive 4G build. Globally most telcos have taken a capex pause and are delaying their investments. Hence, overall global fibre demand is expected to decline by 4.5% in 2020. Once the 5G investment cycle starts, demand is likely to pick up from H2FY21, with expected growth cycle of eight to 10 years. STL has decided to push the capacity expansion of OFC by six to nine months given the Covid-19 led disruption and demand challenge. The company...

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...

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....

Revenues came in at | 876.9 crore, up 17.8% YoY, slightly ahead our expectations of | 871.1 crore. In terms of revenue breakup, product formed ~77-78% of the topline, with the remaining being services....

GE T&D;'s Q3 order inflow was lower 30% YoY to Rs 7.8 bn and order backlog was down 12% YoY to Rs 72 bn. Company won major orders from Sterlite Power and Gujarat Transco during Q3.

Sterlite Technologies (STLs) 1QFY16 results were below estimates due to sluggish optic fiber cable (OFC) sales. This seems to be a one-off, which management is attributing to seasonal weakness in government orders.

Karvy maintains a BUY on Sterlite Technologies on the back of improving traction in products business (optic fibre & cable and power conductors) and commissioning of capital intensive Transmission Projects.