Outlier in Focus: Sterlite Technologies – Designing Smart Data Networks

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Today we take a look at Sterlite Technologies [STRTECH]

Headed by Anil Agarwal, STRTECH is a Telecom Solution Provider with wings spread across the globe coupled with manufacturing presence in China [optical fiber capacity of nearly 27 million fiber kilometres on an annualized run rate] and Brazil. STRTECH is engaged with key customers across Europe and partners global telecom operators in the Middle East, Latin America as well as Asian markets and European markets.

With unprecedented opportunities surfacing in telecom industry, STRTECH demerged the power products and transmission business into a separate company called Sterlite Power Transmission last year. This helps STRTECH narrow its focus on the telecom space which is witnessing operator consolidations and spectrum wars.

With the government’s Digital India program [STRTECH is working on the Smart Cities projects in Ahmedabad. , Gandhinagar and Jaipur. Some of the projects include 10,000 km long fibre-based communication network intrusion-proof smarter data network for the Armed Forces, rural broadband for BharatNet, Smart Cities’ development, and establishing high-speed Fibre-to-the-Home (FTTH) networks] playing a major part in the future of the company.

Adding more muscle power to its presence in the telecom industry, ST acquired a telecom software product company – Elitecore Technologies  to increase its offerings to global customers in the form of software solutions for operations support, business support and revenue management.

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The stock as can be observed in the table below has been popping up in our Outliers table for quite some time and is currently trading at near its all time high.

Financials last year

With the demerger having taken place, we look at the financials of the pure play telecom entity for last year alone coupled with information available as of April, 2017.

  • Net Revenue stood at Rs. 2,161 Crores in 2015-16 against the adjusted figure of Rs. 1,619 Crores in 2014-15. Export Revenue stood at Rs. 547 Crores in 2015-16 against the adjusted figure of Rs. 466 Crores in 2014-15.
  • Net Profit stood at Rs. 151 Crores in 2015-16 against the adjusted figure of Rs. 119 Crores in 2014-15.
  • Net Debt stood at Rs. 1,008 Crores in 2015-16 against the adjusted figure of Rs. 674 Crores in 2014-15 mostly on account of working capital finance, funding of capacity expansion projects in fibre and fibre cable business and acquisition of Elitecore.
  • Fibre Optic Sales volume stood at 6.5 million-fkm in 2015-16 against 7.8 million-fkm in 2014-15. [fkm stands for fibre kilo meters].
  • Revenue from Telecom Solutions and Services segment stood at Rs. 476 Crore in 2105-16 against the adjusted figure of Rs. 84 Crore in 2014-15.

Financials 3Q

  • Mix between Software and Services stands at 22% and 77% of the Net Revenue.
  • International Revenues have remained below 40% with contributions from China stands at close to 50% of the total export revenue [the company has 6-7% market share] China has a strong investment plan till 2019 which includes fiber to the home roll outs as well as 5G roll outs.
  • Capex for the whole year was targeted at Rs. 220 crore and close to Rs. 160 crore has been utilized with the remaining amount expected to be consumed in Q4.
  • Net Debt as of Q3 stood at Rs. 1,030 crore.

Current State

  • Evolution of the usage of the internet with 2G primarily catering to the wide voice requirements evolving into 3G and now 4G in order to serve the high-speed data requirements of the customers along with voice.
  • Acceleration of connectivity requirements [quantum leap in technology clubbed with the increase in per capita data consumption] is raising the quantum of fiber deployment on a year-on-year basis.

Future Propsect

  • Base case estimate for fiber demand level for the year 2020 would be north of 500 million fiber kilometre. At current levels fiber production is using up most of the glass capacity globally.
  • With roll over to 5G networks, look forward to further increase in fiber deployment as customer data requirements accelerate.
  • Ongoing OF capacity expansion program of 30 million fkm by September, 2017 from the current 27 million fkm.

Connectivity, Content and Low Cost Smart Devices – are the three fundamental drivers that the company states are crucial for its growth.

1 COMMENT

  1. Navin Agarwal, Pravin Agarwal are brothers of Anil Agarwal, Vedanta. Pravin with his two sons – Pratik Agarwal and Ankit Agarwal runs Sterlite Tech. Except Anil Agarwal, all hold shares in individual capacity (individually <1%).

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