Sterlite Technologies: 2Q FY11 (Sept 2010) results miss: Nomura

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Sterlite Technologies: 2Q FY11 (Sept 2010) results miss



 Action
At Sterlite, our BUY stands on a new price target of Rs129.3, down from 143.0. It
has a dominant position in the local-optical fibre and power-conductor business,
both of which have strong demand drivers. Owing to a lag in capex in the Power
Sector, Sterlite expects a shift in revenue from this year to next year. Also, owing to
a fall in realisation of optical fibre, performance will not meet our prior expectations.
 Catalysts
Capacity expansion plans and continuing demand for its products will likely lead to
EPS growth of more than 20% over the next few years.
Anchor themes
Sterlite is a play on industrial (telecom) and infrastructure (power transmission)
capex in India. In line with our theme — investment cycle at the cusp of inflection —
we expect a pick-up in industrial and infrastructure capex, especially from FY12F


2Q FY11 results miss
 2Q FY11 results vs estimates
The company reported revenue of Rs5,094mn vs our estimate of
Rs6,270mn. Company net income was Rs556mn, vs our estimate of
Rs515mn.
 Change in estimates and price target
Based on revised guidance for coming quarters, we have changed our
estimates. Our price target goes from Rs143 to Rs129.3/share, still on
a P/E multiple of 15x FY12F EPS.
 Management bullish on demand outlook
There is good momentum in fibre demand at the global level. As per
the latest report from CRU, global demand for fibre in the 1H10 was
around 92mn-fkm, 2% higher than demand in the corresponding
period of 2009. In the power industry, State Electricity Boards (SEBs)
are also planning to invest to build and upgrade their existing
transmission infrastructure. Solid demand is coming from other
emerging markets, such as Latin America, Africa, Eastern Europe,
and even Central Europe as well.
 Management commentary
The orderbook has come down to Rs22,000mn from Rs26,000mn
owing to low order inflow from players such as PGCIL that are having
trouble sourcing funds. Management expects realisation (as “realised
prices” are called) for optical fibre to remain at US$7-$7.5Kmn in
coming quarters.