Sterlite Technologies Ltd. share price target

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STL announced a fresh capex of | 200 crore to set up 9 mn Fkm optical fibre cable plant in the US and UK. Consequently, its overall optical fibre cable capacity is expected to expand from 33 mn Fkm to 42 mn Fkm. STL indicated that capacity enhancements will support extensive fibre build-outs planned across the US, Europe and UK to boost rural broadband and 5G roll outs. On the financial front, it aims to reach | 10000 crore revenue run rate by Q4FY23 (vs. | 10000 crore revenue target in FY23 earlier, given Covid led delays in services portfolio) along with net debt/equity < 0.5 and RoCE > 20%. The...

STL has indicated that OFC capacity utilisations are at 100%. It also said that optical fibre demand has revived by investments in digital infrastructure. Globally, OFC industry volumes in 2021 are likely to grow ~6% YoY. STL perceives that unprecedented decade of digital network creation is on the anvil. The company has also maintained that, going ahead, growth should be driven by growing OFC volumes, optical interconnect business, scaling up SI business (both domestically and going global) and building access solution business. We bake in revenues CAGR of ~26.6% in FY21-23E. We...

STL has indicated that capacity utilisations are at all-time high and execution on the ground for services also continues to improve on Q-o-Q basis. It has guided for continued growth in Q4FY21 on QoQ basis. It has indicated that Optical fiber demand has revived by investments in digital infrastructure. Globally, OFC Industry volumes in H22020 have grown by 5% YoY and STL volumes have grown faster than the industry high. STL perceives that unprecedented decade of digital network creation. Factors such as adoption of open source standard and software defined networking, are some of the...

Net profit after tax for the quarter declined by 65% to INR 552 Mn. Profit declined was on account of lower revenue, increase in deprecation cost and decline in operating margins. Order Book remains robust at INR 107050 Mn. The order book consists of 43.9% Telecos, 36.9% Citizen Networks and Enterprises 18.8%. Cloud segment is less than 1% of overall order book. For H1FY21, Revenue from India 51% followed by Europe 30%, China 4% and ROW 15%....

Net profit after tax and minority for the quarter declined 95.78% YoY and (down 92.58% QoQ) to INR 59.60 Mn while net profit margin for the quarter was at 0.68%. Reported profit was higher than our estimate of INR 41 Mn. Order book remains robust at INR 103120 Mn. The order book consists of 38% from Telcos, 41% and 20% from Citizen Network and Enterprises respectively. Segment cloud is 1% of overall order book....

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...

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...

Sterlite Tech reported good set of numbers in Q4 FY19 driven by increase in revenue contribution from service and solutions business. Revenue recorded remarkable growth of 111.56% YoY and 34% QoQ to INR 17,912 Mn driven by early execution of the navy order. EBITDA stood at INR 3,151 Mn, an increase of 7.19% QoQ and 43% YoY while margin reported at 18% which is down 800bps YoY and 400 bps QoQ. Decrease in margin was primarily driven by the increase in execution of service orders and softening of fibre prices. Order book remains robust at INR 105160 Mn, which is 2x of FY19 revenue and gives us a good revenue visibility. The order book consists of INR 55000 Mn worth of orders for Product whereas INR 50000 Mn for Services and Software. Net Profit came at INR 1652 Mn. for the...

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...