Set to leverage strong demand traction in power and telecom
Sterlite Technologies Ltd (STL), a major supplier of power conductors
and optical fiber cables, is well poised to leverage strong demand
traction in power and telecom sectors. With Government of India
laying substantial impetus to its “Power for all by 2020” scheme,
demand for transmission equipment such as power conductors is set
to witness a quantum leap over the medium term. Demand for
optical fiber cables is correlated to telephony and internet
penetration in an economy. Both these factors are expected to
improve considerably in India and other emerging countries.
Capacity expansion across segments to service demand
STL is expanding its existing fiber manufacturing capacity of 12mn
km to 20mn km by end of FY12E. Power conductor capacity is being
increased from 160,000 MT to 200,000MT. STL is also expanding its
optical fiber cable manufacturing capacity to 12mn f-km by end of
FY12. The total outlay for this expansion would be Rs4bn.
Vertical integration to help maintain operating margins
STL is amongst the few fully integrated manufacturers of power
conductors and fiber optic cables across the world. This aids STL to
maintain OPMs in a competitive and inflationary economic
environment.
Healthy order book provides good revenue visibility
STL’s current order book stands at Rs26bn; 70% of which comes
from the transmission segment alone. Healthy order book, proven
execution capabilities and marquee clientele will translate into
revenue growth in the near term. STL primarily caters to the public
sector, but is steadily increasing its presence within the private
sector.
Attractively valued at 10.4x FY12E EPS
STL is currently trading at 10.4x its FY12E EPS. Assuming full dilution
of equity due to conversion of warrants in FY12E we expect an EPS of
Rs9.3. STL’s leadership status and demonstrated ability to leverage
on industry growth drivers justifies a P/E of 14x based on which we
arrive at a target price of Rs130.
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