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Sterlite Technologies Limited
Investment Rationale
Business Drivers remains intact: Business drivers set to recover in FY12E. We believe
Q3 FY2011 marked a bottom for revenues and margins. Management expects Power
segment to benefit from PGCIL’s large chunk of orders expected in Q4FY2011E. Recently,
STL received third UMPT project from PGCIL. Power conductor orders for about
240,000 tonnes are to be released in the remaining period of 11th plan of which about
180,000 tonnes are expected to be released in Q4FY11E itself.
Q3 FY2011 results disappoint: STL reported disappointing Q3FY2011 results. Top
line degrew by 33.2% YoY, to 5791.1mn, primary due to sharp fall in telecom revenues.
Power business revenue in Q3FY2011 was flat at YoY to 4218.60mn vs 4188.70mn,
whereas telecom business degrew by –65% (YoY), to 1572.50mn vs 4484mn.
Backward Integration: Sterlite Technologies Ltd (STL) is a sole integrated optical fiber
manufacturer in India and is among 6-7 major players (fully integrated) in the world.
While most global fiber manufacturers procure glass and process it into fiber, STL starts
by procuring silicon directly from the mines to convert it into glass and further into fiber
which helps the company to realize 35‐40% OPMs from this integration; in addition to
14‐15% OPMs from manufacturing of fiber‐optic cables (OFC) from the optical fibers
(OF).
Aggressive Capacity Expansion: STL is planning to increase its OF capacity from 12
to 20mn fiber km (f-km), its OFC capacity from 6mn km to 10mn km and power conductor
capacity from 1,15,000 mtpa to 2,00,000 mtpa. These capacities will come in
phases and are expected to be completed by FY12E. This will help the company to become
the 3rd largest manufacturer of optical fiber & fiber-optic cables globally.
Order book position: STL has an order‐book position of ~`17.0bn with `14.0bn
backlog in power conductors and the balance `3.0bn in telecom. The company started
Q3FY11 with an order book of `22.0bn including `6.0bn of L1 orders. Order inflow in
Q3FY11 was `3.5bn.
Outlook & Valuations: We expect net revenue to grow at a CAGR of 23%over FY11-
13E. The growth prospects for STL's end-user industries - transmission and telecom are
robust. The transmission and distribution sector is expected to witness investments aggregating
`3.4 trillion over the next five years. Moreover, with the expected increase in the
penetration of broadband services and rollout of 3G services, the medium-term demand
outlook for STL's telecom business is also robust. In order to tap this growth potential, STL
is expanding its manufacturing capacities across business segments. We recommend the
stock to BUY with a target price of `72 per share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sterlite Technologies Limited
Investment Rationale
Business Drivers remains intact: Business drivers set to recover in FY12E. We believe
Q3 FY2011 marked a bottom for revenues and margins. Management expects Power
segment to benefit from PGCIL’s large chunk of orders expected in Q4FY2011E. Recently,
STL received third UMPT project from PGCIL. Power conductor orders for about
240,000 tonnes are to be released in the remaining period of 11th plan of which about
180,000 tonnes are expected to be released in Q4FY11E itself.
Q3 FY2011 results disappoint: STL reported disappointing Q3FY2011 results. Top
line degrew by 33.2% YoY, to 5791.1mn, primary due to sharp fall in telecom revenues.
Power business revenue in Q3FY2011 was flat at YoY to 4218.60mn vs 4188.70mn,
whereas telecom business degrew by –65% (YoY), to 1572.50mn vs 4484mn.
Backward Integration: Sterlite Technologies Ltd (STL) is a sole integrated optical fiber
manufacturer in India and is among 6-7 major players (fully integrated) in the world.
While most global fiber manufacturers procure glass and process it into fiber, STL starts
by procuring silicon directly from the mines to convert it into glass and further into fiber
which helps the company to realize 35‐40% OPMs from this integration; in addition to
14‐15% OPMs from manufacturing of fiber‐optic cables (OFC) from the optical fibers
(OF).
to 20mn fiber km (f-km), its OFC capacity from 6mn km to 10mn km and power conductor
capacity from 1,15,000 mtpa to 2,00,000 mtpa. These capacities will come in
phases and are expected to be completed by FY12E. This will help the company to become
the 3rd largest manufacturer of optical fiber & fiber-optic cables globally.
Order book position: STL has an order‐book position of ~`17.0bn with `14.0bn
backlog in power conductors and the balance `3.0bn in telecom. The company started
Q3FY11 with an order book of `22.0bn including `6.0bn of L1 orders. Order inflow in
Q3FY11 was `3.5bn.
Outlook & Valuations: We expect net revenue to grow at a CAGR of 23%over FY11-
13E. The growth prospects for STL's end-user industries - transmission and telecom are
robust. The transmission and distribution sector is expected to witness investments aggregating
`3.4 trillion over the next five years. Moreover, with the expected increase in the
penetration of broadband services and rollout of 3G services, the medium-term demand
outlook for STL's telecom business is also robust. In order to tap this growth potential, STL
is expanding its manufacturing capacities across business segments. We recommend the
stock to BUY with a target price of `72 per share.
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