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Results below estimates; margin continues to decline
Sterlite Technologies (SOTL) reported yet another disappointing quarter, below our
and consensus’ estimates. Revenue growth was low 3.0% Y-o-Y, at INR 6.8 bn; it
increased 7.0% in the power segment, to INR 5.1 bn, and dipped 7.6% in telecom,
to 1.7 bn, Y-o-Y. EBITDA dropped sharply by 55.5% Y-o-Y to INR 490 mn, as
EBITDA margin came off 944bps Y-o-Y to 7.2%, led by both power conductor and
telecom segments. PAT fell sharper by 86% Y-o-Y, to INR 103 mn, as depreciation,
interest and tax rate increased during the quarter.
Moderate order book position; inflows stronger
SOTL closed FY11 with an order backlog of INR 22 bn, down 8.3% Y-o-Y (1.0x
FY11 revenue). Order backlog was flat for the power conductor segment at INR
18 bn, whereas for telecom it was down 33% Y-o-Y to INR 4 bn. Order inflow
during the quarter stood at INR 11.5 bn, up 26% Y-o-Y. Orders in the power
conductor segment improved during the quarter on the back of improved ordering
activity by Power Grid Corp. of India (PGCIL). PGCIL orders accounted for ~70%
of the total orders inflows in SOTL’s power conductor segment.
Cut earnings by ~8% on lowered margin estimate
While the management has guided for EBITDA of INR 4 bn during FY12, we
believe, given the legacy power conductor orders at lower margin, improvement
in overall margin will take longer. Accordingly, we have cut our margin estimate
by 70bps and 100bps for FY12E and FY13E, respectively. Also, we cut our
earnings estimate by 8.8% and 8.1% for FY12E and FY13E, respectively.
Outlook and valuations: Challenging; maintain ‘HOLD’
Since order flow from PGCIL has already begun and the company has received
other decent orders, we believe margin improvement in the power conductor
segment will normalise in the next 2-3 quarters. Fibre realisation (~USD 7) seems
to have stabalised, but will remain a key to be watched out for. Power
transmission projects will start contributing FY14 onwards. We believe the
medium-term outlook for the company remains challenging in both power
conductor and telecom segments.
The stock is trading at 11.2x and 8.5x its FY11E and FY12E earnings,
respectively. We maintain our ‘HOLD/Sector Performer’ recommendation/
rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Results below estimates; margin continues to decline
Sterlite Technologies (SOTL) reported yet another disappointing quarter, below our
and consensus’ estimates. Revenue growth was low 3.0% Y-o-Y, at INR 6.8 bn; it
increased 7.0% in the power segment, to INR 5.1 bn, and dipped 7.6% in telecom,
to 1.7 bn, Y-o-Y. EBITDA dropped sharply by 55.5% Y-o-Y to INR 490 mn, as
EBITDA margin came off 944bps Y-o-Y to 7.2%, led by both power conductor and
telecom segments. PAT fell sharper by 86% Y-o-Y, to INR 103 mn, as depreciation,
interest and tax rate increased during the quarter.
Moderate order book position; inflows stronger
SOTL closed FY11 with an order backlog of INR 22 bn, down 8.3% Y-o-Y (1.0x
FY11 revenue). Order backlog was flat for the power conductor segment at INR
18 bn, whereas for telecom it was down 33% Y-o-Y to INR 4 bn. Order inflow
during the quarter stood at INR 11.5 bn, up 26% Y-o-Y. Orders in the power
conductor segment improved during the quarter on the back of improved ordering
activity by Power Grid Corp. of India (PGCIL). PGCIL orders accounted for ~70%
of the total orders inflows in SOTL’s power conductor segment.
Cut earnings by ~8% on lowered margin estimate
While the management has guided for EBITDA of INR 4 bn during FY12, we
believe, given the legacy power conductor orders at lower margin, improvement
in overall margin will take longer. Accordingly, we have cut our margin estimate
by 70bps and 100bps for FY12E and FY13E, respectively. Also, we cut our
earnings estimate by 8.8% and 8.1% for FY12E and FY13E, respectively.
Outlook and valuations: Challenging; maintain ‘HOLD’
Since order flow from PGCIL has already begun and the company has received
other decent orders, we believe margin improvement in the power conductor
segment will normalise in the next 2-3 quarters. Fibre realisation (~USD 7) seems
to have stabalised, but will remain a key to be watched out for. Power
transmission projects will start contributing FY14 onwards. We believe the
medium-term outlook for the company remains challenging in both power
conductor and telecom segments.
The stock is trading at 11.2x and 8.5x its FY11E and FY12E earnings,
respectively. We maintain our ‘HOLD/Sector Performer’ recommendation/
rating on the stock.
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