Sterlite Technologies Q1FY18 Concall Summary

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Introduction

  • Focused on designing, building, and managing smart data networks for its customers
  • Offerings include high-quality optical communication products, system integration services, and software services
  • 3 state-of-the-art manufacturing facilities and two software development centers across India, China, and Brazil.

Financial highlights

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  • Highest ever revenues and order book in telecom industry
  • Revenues for the quarter stand at Rs.744 crore registering a growth of 23% Y-o-Y
  • Growth of 32% for EBITDA to EBITDA margins of 22%
  • PAT stands at Rs.61 crore with a growth of 61% Y-o-Y
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  • ROCE at the end of quarter at 26%
  • Net cash generation of Rs.60 crore after CAPEX and taxes leading to overall net debt reducing to Rs.860 crore
  • Gearing ratio at 0.9 and also will try to improve return ratio with plan for growth
  • 5-year Performance
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  • Revenue growth of 24% CAGR
  • EBITDA growth almost at 38% CAGR
  • ROCE profile in plus 20% range

Industry outlook

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  • Proliferation of digital content with more players entering the space
  • Total number of mobile internet users with high speed internet access and overall data consumption are expected to rise
  • Indian government’s initiatives to boost digital inclusion
  • 5G and FTTx require superior levels of performance for which fiber is required and will have to be brought closer to the point of consumption
  • Internet economy significant impact on GDP
  • Pace of fiberization continuing to increase rapidly
  • Requirement of fibre to meet capacity and performance goals of 5G

Business strategy

  • Evolution of business from pure manufacturing to services and software layer to offer end-to-end solution to customers
  • Strengths: Integrated manufacturing, strong system integration business and software capabilities for network operations, billing and monetization

Capacity Enhancement

  • Targeting $100 million net profits by 2020
  • Driving absolute profitability while maintaining a healthy ROCE of more than 20%
  • On track to reach 30 million exit capacity by mid FY18
  • Current quarter exited with capacity of 28million fkm
  • Fiber capacity expansion from 30 to 50 million by June 2019
  • Revenue from exports witnessed a significant 77% Y-o-Y increase
  • Stronger in Europe and China
  • Order book at all-time high of Rs.3410 crore with product’s order book more than doubling with order book of Rs.850 crores in current quarter
  • Building pipeline of long-term contracts for product’s business with more than 1 year of fibre capacity already booked and confirmed
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Key business update

  • Sterlite Tech to design, build and manage Kakinada Smart City in Andhra Pradesh
  • 4 new smarter optical communication technologies
  • Providing high-quality optical fibre cables with harmonized European CPR regulation
  • CII award for Customer Service

Kakinada Smart City

  • End to end fiber software offering with horizontal IoT platform integration, LoRA based city-wide wireless sensor network and disaster management system
  • Sterlite Tech IoT integrator
  • Will be building basic optical fiber backbone coupled with routing and transport layer
  • Initial design to managing operations and post-implementation projects for 6 years
  • Current smart city project in the range of Rs.110-120 crores as compared to Rs.30-50 crore for the previous projects

Senior level hiring to strengthen global leadership:

  • Steve Bullock in charge of North America
  • Richard Eichhorn in charge of Europe, Middle East, and Africa
  • Sanjeev Bedekar as Chief Delivery and Technology Officer for services business
  • Nischal Gupta leading companies’ digital transformation journey
  • Anshoo Gaur, ex- Managing Director of Amdocs India as a strategic advisor to scale and build our software capabilities

Products and services

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  • Order book mix: 50:50
  • Revenue mix: 75:25
  • China has taken aggressive targets for 5G rollout with another 10 year investment from 2020 to 2030 of almost $400 billion apart from the already announced plans till 2020
  • Cabling increased from 40% capacity in last year to 60-65%
  • Opportunities regarding Bharat Net continue to be bullish
  • Encouraging signs for 5G rollout with launches this year and the year after
  • Capacity expansion about Rs.1000 crores to 1200 crores with some part via incremental debt
  • For cabling business, manufacturing is based out of India

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