Sterlite Technologies Q4FY17 Concall Summary

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Industrial highlights

  • Data Consumption: Industrial Trends
    • Cloud Computing                                     
    • Artificial Intelligence
    • Internet of Things
    • Machine-to-Machine
  • Increasing Data-band applications making economical experiences more efficient.
  • Multiple layers to the data opportunity is enhancing business growth scope and consumer experience.
  • Constant up gradation of the current Industrial digital trends is needed to handle exponential data traffic.
  • An infrastructure of a layer on layer network will be built.
  • Recently a new player in the Indian Telecom Industry has triggered the data demand with their data focused offerings.
  • Data demand is only expected to increase in the next few quarters.
Hyper connected Data Network

Relevance At Sterlite Tech

  • Fiber is at the core of all these networks
  • Owing to the increasing density of future networks, Fiber has to penetrate deep into the network and point of consumption.
  • Optical Fiber is the preferred medium of data transport.
  • Fiber-based data transmission has high capacity and minimal impact of distance in comparison to wireless connections.
  • For mobility purpose the wireless technology will eventually evolve that will consequently complement Fiber usage. This is crucial to building a high capacity backhaul and future proofing the network.
  • Data Consumption will form a substantial part of telecom revenues in the next 3-4 years.

Architecture of Ultra Dense Network

  • ü  Noteworthy growth in the connected devices and them being engaged with the network puts pressure on it in terms of high speed data and low latency.
  • ü  The future will see high speed data and connectivity with desired quality of service with huge proliferation of dense micro site and small cells.

Growth of IP Traffic

  • The global growth of IP Traffic figure over the past 12 years is around 36%.
  • 17% cumulative growth marks the overall growth rate of Fiber.
  • The advent of 5G technology will entail a significant rise in the fiber deployment.

 Network Situation In India

  • From no connectivity India has graduated to 400 million mobile internet users among which 60% is smart phone users.
  • Indian trends are very much in line with those in advanced countries with respect to the drastic increase in the amount of data consumed online.
  • India has become the largest digital infrastructure in the world.
  • The Government is making initiative to move towards digitized India through Bharat Net.
  • The India Stack will drive the digital connectivity throughout the country.

Financial Highlights

  • The International revenues of 2017 have increased around 375 in comparison to previous year that totals to Rs.957 crore.
  • The order book has reached a high of about Rs.3,000 crore this quarter with more and more customer engagement.
  • This year saw volume growth, capacity build acceleration, enhanced market presence and product innovation.
  • Won awards for services, HR and leadership practices.  

 Financial Performance

Sterlite Tech FY17 financial performance
Sterlite Tech Q4FY17 Financials
Sterlite Tech 5 yer performance
  • Q4 Financial performance
    • Total Revenue- Rs.707 crore
    • Y-o-Y growth- 15%
    • EBITDA growth- 19% (highest ever EBITDA for Telecom business i.e. Rs.166 crore)
    • Y-o-Y growth on PAT level- 16%
  • FY 2017 Financial Performance
    • A 31% increase in profits from FY16 totaling to Rs.201 crore.
    • EBITDA growth- 14% , margin maintained at about 21%
    • ROCE on Q4 annualized run rate- 26%
    • Total cash flow generation post CAPEX funding is Rs.158 crore
    • Debt level has reduced from Rs.1,005 crore to Rs.919 crore in 2017.
    • As a result of continuous focus on ROCE and cash generation the debt-equity has reduced from 1.3x to 1.0x in FY17
    • In FY17 there was minimal revenue from Bharat Net.
  • 5 Year Financial Metrics
    • Revenue growth- 24%
    • EBITDA growth- 38%
    • ROCE – above 20%
  • The Board of Directors has announced a total dividend of Rs.1.25 per share (30% of total profits)  for the full year.
  • 50% of the total revenue share of the company belongs to the India non-public segment.

 Operational highlights

  • The company has an integrated capability of designing, building and managing all kinds of digital networks like 4G, WiFi or Fiber etc.
  • Grown from a pure manufacturing-led model evolving into the services and software layer.
  • Can now engage with their customers at the network design stage and provide best network performance.
  • Sterlite Tech aims to extend customer engagement right at the design phase as they plan for Greenfield network investments.
  • Technology remains key in the company’s services.
  • Center of Excellence in Aurangabad focuses on Advanced Fiber Optic Research having around 146 patents across geographies.
  • In Smart Network Lab in Gurgaon fiber-enabled solution for 5G network, new applications for smart cities and rural India, pre-connectorized fiber kit solution are being built to create a USP for our next generation network consumers.
  • Sterlite Tech Academy already trained and certified multiple technical staff.
  • The bid pipeline of the company is greater than Rs.10,000 crore. The win ratios with progress will keep getting higher for the pipeline. There is a strong order book and a strong pipeline.
  • Sterlite Tech comprises about 75% Product and Services and Software is close to 25% including Solutions
  • The company has no linkage with Sterlite Power.

Capex and Order book

  • By the middle of 2019, leap towards the next phase where there will be 50 million fiber kilometer to be executed in phases.
  • This comes in Greenfield setup at an estimated CAPEX of $170-200 million.
  • The last defense order is being executed presently.
  •  For the capacity expansion from 30 to 50 million the entire $170-200 million CAPEX will go till FY20.
  • The total estimated CAPEX in FY18 will be between Rs.1,000 crore to Rs.1,200 crore.
  • Above Rs.2,000 crore of order book from India shows huge potential of increasing business growth rate in India
  • The company has kept the debt-equity ratio to about 1 and by the end of the current CAPEX, debt guidance by 2020 will remain same.
  • Two of the company’s Smart Cities have already moved into management mode. Sterlite Tech will shortly announce some more wins on the Smart City. Smart cities are done in phases. The company itself has to be the one to provide the subsequent phases of the up gradation of the city.
  • Less than Rs.700 crore is to be executed on NFS project within the current fiscal.
  • The Rs.1,500 crore order on the product side is a definitive contract
  • Over the next three years the company has decided on spending between Rs.1,000 crore to Rs.1,200 crore for CAPEX of Optical Fiber capacity
  • As a part of Fiber capacity expansion the company is planning to do it in modules and stages. FY19, FY20 and FY21 will cover the full year of expansion.

Future outlook and strategies

  •  Next phase of Bharat Net spend that is speculated to be around Rs.20,000 crore till December 2018 is getting structured currently. Fiber would take up around 10-12% of it.
  • In comparison to Brownfield expansion that has been at about $8, Greenfield is going to be near $10 for the addition of utilities and infrastructure.
  • The pace at which Reliance is thinking about adding another 100,000 towers in the upcoming year requiring through and through fiber connections and also India is progressing towards a data-driven society over the next few years, the CAPEX order would total to Rs.75,000 crore. This requires proper building and designing of network. Sterlite Tech can cater to this opportunity pool pertaining to its revenue in services institutions i.e. 25%, order book in Services and Solutions i.e. 50% out of the Rs.10,000 crore pipeline. The pipeline is more service-heavy.
  • The company is not concerned with the slowing down of China fiber deployment as new networks will need to be built for 5G, they will need to be dense. One of the US Tele company’s announcing a billion dollar deal for buying fiber over the next few years.
  • In the next three years the global volume will be of the order of in excess of 500-550 million kilometers of fiber capacity. The company hase taken a call to move from 30 to 50 million.
  • There is huge scope in both fiber and service business and the company approach every opportunity from an individual profitability perspective in order to transform the mix successfully into an outcome.
  • In order to avoid competitive issues Sterlite Technologies Limited has decided on not revealing the exact numbers of product business. They will only let out the fact that they are taking calls for capacity expansion.
  • The EBITDA margin have been ranging between 21% to 22%, 23% and has been consistent on 21% for quite some time now. There might be a few variations in EBITDA margin expansion in the fourth quarter though.
  • Reliance has given hopes on their FTTH investments. In the field of Fiber-to-the-home opportunity for residential broadband, the company is either in order or in trial phase with more than five or six different category of operators.
  • The company’s focus of long-term, multi-year deal will continue to be in effect.
  • Sterlite Tech has decided to take a micro perspective along with the macro perspective to keep a check on the current status of the order book and simultaneously book orders for subsequent years.
  • Over the last 15-years the company has tapped the markets of Europe, China, Middle East AND Latin America. Sterlite Tech is currently reviewing North America as on one of the potential geography.
  • They will only be expanding the capacity of Optical Fiber as of now because the cable capacity presently is more than 15 million kilometers.
  • The pricing for Optical Fiber capacity during the year will be on the higher end of the range of $7-8.
  • The telcos need to upgrade their network and spend towards creating the database network since the voice revenue is declining rapidly.
  • The company is starting to do FY19 bookings.
  • 30 to 50 million in capacity increase offers the revenue potential of about $7.5 in $150 million.
  • Capacity expansion occurs more due to frequent customer engagements.
  • Based on the company’s scenario building and growth, the company will be comfortable delivering (+20%) ROCE even in the intervening period.

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