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7/31/2019 CRISIL Research Ier Report Sterlite Technologies 2012
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MAKINGMARKETS
FUNCTIONBETTE
R
YEARS
Apollo HospitalsEnterprise Ltd
CRISIL IERIndependentEquityResearch
Enhancing investment decisions
Detailed Report
Sterlite TechnologiesLtd
Detailed Report
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CRISIL IERIndependentEquityResearch
Explanation of CRISIL Fundamental and Valuation (CFV) matrix
The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process Analysisof Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a
five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a five-
point scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP).
CRISIL
Fundamental Grade Assessment
CRISIL
Valuation Grade Assessment
5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP)
4/5 Superior fundamentals 4/5 Upside (10-25% from CMP)
3/5 Good fundamentals 3/5 Align (+-10% from CMP)
2/5 Moderate fundamentals 2/5 Downside (negative 10-25% from CMP)
1/5 Poor fundamentals 1/5 Strong downside (
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MAKINGMARKETS
FUNCTIONBETTER
YEARSSterlite Technologies LtdReturning to normal profitability
Fundamental Grade 3/5 (Good fundamentals)
Valuation Grade 4/5 (CMP has upside)
Industry Technology, hardware and equipment
1
July 24, 2012
Fair Value Rs 40
CMP Rs 33
For detailed initiating coverage report please visit: www.ier.co.in
CRISIL Independent Equity Research reports are also available on Bloomberg (CRI ) and Thomson Reuters.
Sterlite Technologies Ltd (Sterlite Tech) has stepped into FY13 with better business
prospects in both its segments telecom and conductors. The optical fibre plantsstabilisation issues have been resolved and the conductor segment has a healthy flow of
Power Grid Corporation of India Ltd (PGCIL) orders. However, competition in both segments
has increased. We believe that the company will bounce back from FY12 lows and, hence,
retain the fundamental grade of 3/5, indicating that its fundamentals are good relative to
other listed securities in India.
Expanding fibre capacity to capture market growth; profitability to improve
According to the company, the stabilisation issues in the newly commissioned capacity in its
fibre plant at Aurangabad (Maharashtra) have been resolved in Q4FY12. Further, the
capacity expansion from 12 mn fibre-Km to 20 mn fibre-Km and established presence in the
global markets will ensure that Sterlite Tech is able to cater to the increase in demand for
optical fibre. Driven by these factors, the segments EBITDA is expected to grow at 31%
CAGR over FY12-14 to Rs 2,279 mn.
Healthy PGCIL order book to drive conductor segments profitabilityAfter the gap of one year, PGCIL released the order backlog in H2FY12, resulting in healthy
order book of Rs 21 bn (62% from PGCIL) for Sterlite Tech, as of FY12, executable over
FY13-14. As PGCIL orders are relatively high margin orders, EBITDA per tonne is expected
to improve to Rs 9,200 in FY14 from Rs 6,187 in FY12. However, we do not expect
profitability to return to historical levels of Rs 12,000-13,000 per tonne as competition has
intensified. Further, the company is expanding its conductor capacity from 1.6 lakh MT to 2
lakh MT by FY13, which will enable it to meet the demand CAGR of 15% over FY13-15 in the
domestic conductor industry. Also, the company is executing three transmission grid projects
entailing equity investment of Rs 10 bn by FY15. Though returns are low, the projects will
provide a steady cash flow to Sterlite Tech.
Key monitorables/Risks
a) Capacity expansion by Chinese players which could reduce Chinas dependency on
imports, (b) PGCILs order flow and increase in competition in the domestic conductorindustry, and c) successful execution of the ultra mega power transmission projects.
Standalone earnings to grow at a CAGR of 71% over FY12-FY14
Sterlite Techs standalone revenue is expected to grow at a CAGR of 15% to Rs 36 bn in
FY14 driven by capacity expansion in both telecom and power transmission segments.
Further, following an improvement in both segments profitability, standalone PAT is projected
to grow from Rs 438 mn in FY12 to Rs 1,279 mn in FY14.
Valuations: Current market has upside
We have used the sum-of-the-parts method to value Sterlite Tech and maintain the fair value
of Rs 40. Based on the current market price of Rs 33, the valuation grade is 4/5.
KEY FORECAST- STANDALONE
(Rs mn) FY10 FY11 FY12# FY13E FY14EOperating income 24,311 22,641 27,275 29,588 35,931
EBITDA 3,813 2,709 1,996 3,214 3,925
Adj Net income 2,565 1,405 438 1,113 1,279
Adj EPS-Rs 7.2 3.9 1.1 2.8 3.3
EPS growth (%) (46.6) (45.4) (71.7) 153.8 14.9
Dividend Yield (%) 0.6 1.6 1.0 1.0 1.0
RoCE (%) 27.8 14.7 7.4 11.9 12.4
RoE (%) 33.4 14.4 4.0 9.2 9.6
P/E (x) 12.2 7.8 27.5 10.8 9.4
P/BV (x) 3.4 1.1 1.1 0.9 0.9
EV/EBITDA (x) 8.4 5.5 8.5 6.4 6.2
Source: Company, CRISIL Research estimates
# Based on abridged financials, NM: Not meaningful; CMP: Current market price
CFV MATRIX
KEY STOCK STATISTICSNIFTY/SENSEX 5118/16877
NSE/BSE ticker STRTECH
Face value (Rs per share) 2
Shares outstanding (mn) 393
Market cap (Rs mn)/(US$ mn) 10,914/198
Enterprise value (Rs mn)/(US$ mn) 15,710/285
52-week range (Rs)/(H/L) 59/27
Beta 1.6
Free float (%) 45.3%
Avg daily volumes (30-days) 1,033,168
Avg daily value (30-days) (Rs mn) 35
SHAREHOLDING PATTERN
PERFORMANCE VIS--VIS MARKET
Returns
1-m 3-m 6-m 12-m
Sterlite Tech 9% -15% -6% -38%
NIFTY 2% -2% 3% -7%
ANALYTICAL CONTACTMohit Modi (Director) mohit.modi@crisil.com
Pravesh Rawat pravesh.rawat@crisil.com
Vishal Rampuria vishal.rampuria@crisil.com
Client servicing desk
+91 22 3342 3561 clientservicing@crisil.com
1 2 3 4 5
1
2
3
4
5
Valuation Grade
FundamentalGrade
Poor
Fundamentals
ExcellentFundamentals
Stron
g
Downs
ide
Stron
g
Upsid
e
54.7% 54.7% 54.7% 54.7%
2.2% 1.8% 1.4% 2.4%
11.6% 11.5% 11.5% 9.9%
31.5% 32.0% 32.4% 33.0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jun-11 Sep-11 Dec-11 Mar-12
Promoter FII DII Others
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Table 1: Sterlite Technologies: Business environment (Standalone)
Product / Segment Telecom Power transmission conductors Grid projects
Revenue contribution
(FY12)
30% 70% NA
Revenue contribution
(FY14)
29% 71% NA
Product / service offering Manufactures optical fibre, fibre
optic cables, structured data
cables, and offers telecom
integration and managed services
Power transmission conductors, optical
fibre composite overhead ground wire
(OPGW ) cables
Setting up of high capacity transmission
lines on a build, own, operate and
maintain basis (BOOM)
Geographic presence India, China, Middle-East, Africa and Europe India
Market position 5% market share in global fibre
industry
24% market share in India for
optical fibre and cables
8% share in Africa, 7% share inChina and 5% share in Russia
for fibre optic cables
25% market share in India
8% market share in Africa
Won three out of nine projects
awarded so far released by the
government
Sales growth
(FY09-FY12 3-yr CAGR)
-3%* 8% NA
Sales forecast
(FY12-FY14 2-yr CAGR)
17% 16% NA
Demand drivers Domestic
Laying out of fibre network in
rural areas under the national
broadband policy
Increased penetration of FTTx#
Growth in bandwidthrequirement in India due to
increase in demand for video
content
International
Increase in FTTx penetration
Increase in wireless and
broadband network penetration
in developing countries
Domestic
Increase in power generation
PGCILs power transmission corridor
project for evacuation of power from
surplus regions and supplying it to
deficit regionsInternational
Improvement in power infrastructure
in developing nations
Thrust on renewable sources of
energy in developed nations
Upgradation of national grids of
developed nations
Increase in power generation
PGCILs power transmission corridor
project for evacuation of power from
surplus regions and supplying it to
deficit regions
Key competitors Domestic: Aksh Optifibre, Finolex
Cables, Birla Ericsson Opticals
International: Sumitomo Electric,
Prysmian Inc, Nexans Inc, Draka,
General Cables, Furukawa,Fujikura, Corning
Domestic: Apar Industries, Diamond
Power Infrastructure
International: Alcan, ZTT China,
Southwire, Midal, Prysmian Inc, General
Cables
PGCIL, Reliance Infrastructure, Simplex
Infrastructure
Key risks Competition from global players
Increase in fibre capacity in
China
Stabilisation of incremental
capacity installed
Competition from domestic players
High dependence on PGCIL
Cost overrun
Delay in payment from SEBs (state
electricity boards)
*Due to the decline in the optical fibre realisation and lower system integration business
Note: Revenue contribution of the telecom and power transmission conductor segments is for the respective standalone business
#Fibre to the x (FTTx) is a generic term for any broadband network architecture that uses optical fibre to replace all or part of the usual metal (copper)
local loop used for last mile telecommunications. The various configurations are FTTN (fibre to the node), FTTC (fibre to the curb), FTTB (fibre to the
building and FTTP (fibre to the premise)
Source: Company, CRISIL Research
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Grading Rationale
Last year was tough but future looks promising
Sterlite Tech has stepped into FY13 with better demand prospects and expects profitability to
improve over FY12 in both its businesses optical fibre/cable and conductors. FY12 was a
subdued year for Sterlite Tech as its newly commissioned optical fibre capacity faced
stabilisation issues and the demand for conductors was low due to delay in PGCIL orders.
The company has resolved the stabilisation issues in the optical fibre plant and currently holds
a healthy order book of Rs 21 bn (62% PGCIL orders) in the conductor segment. Further,
demand for both its products optical fibre/cables and conductors - is expected to be healthy
over the next two years. The companys prospects have improved from the previous year and
we expect standalone earnings to grow at a two-year CAGR of 71% over FY12-14. The
growth number appears to be large on account of a low base; the standalone earnings de-
grew significantly by 59% CAGR during FY10-FY12.
Optical fibre: Expanding capacity to capture demand surge
Capacity expansion
Sterlite Tech is expanding its optical fibre capacity to 20 mn fibre-Km from the existing 12 mn
fibre-Km to capture the expected demand growth in the global optical fibre industry. According
to the management, the company will become the third largest manufacturer of optical fibre
post the expansion from being the fifth largest currently.
Of the incremental 8 mn fibre-Km, the company is setting up 4 mn fibre-Km in China in a JV
with a local partner to improve its market share. The preform required for this capacity will be
imported from India. The capex for the total capacity addition in India (preform manufacturing
for 8 mn fibre-Km and 4 mn fibre-Km optical fibre capacity) is estimated to be ~Rs 1.5 bn,
which will be largely funded through internal accruals. We expect capacity to come on stream
in Q2FY13 in India and in Q1FY14 in China.
Figure 1: Optical fibre and cable capacity expansion trend
*includes 4 mn fibre-Km installed in China for FY14
Source: Company, CRISIL Research
4.0
6.0
9.010.0 10.0
12.0
16.0
20.0
3.2 3.2 3.24.5 4.5
5.5 5.5 6.0
0.0
5.0
10.0
15.0
20.0
25.0
FY07 FY08 FY09 FY10 FY11 FY12 FY13E FY14E
(mn fibre-Km)
Optical fibre* Optical fibre cable
Sterlite Tech, with an installed
capacity of 12 mn fibre-Km, is
currently the fifth largest global
and the only domestic
manufacturer of optical fibre
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With an established presence in global markets
Over the years, Sterlite Tech has established itself in various geographies. Exports comprise
~85% of total revenues of optical fibre business in FY12. The company exports optical fibre
and cables to China, Africa, Middle East, South Africa, Europe and the US. According to the
management, the company has ~10% market share in Europe, ~6% in China, ~7% in Latin
America and ~2% in North America. It has supplied optical fibre and cables to six of the top 10
global telecom service providers.
Figure 2: Geographical break-down of optical fibre sales (FY12)
Source: Company
To equip Sterlite Tech to reap benefits from increase in global demand
CRU a UK based research agency, expects the global optical fibre demand to grow by 9%
in 2012 driven by demand from Asia. Compared to earlier expectations of nil growth in CY11,
the global demand for optical fibre grew by ~7% to 204 mn fibre-Km, the highest ever
recorded by the industry. Strong demand from China, Europe and North America led this
growth.
Chinese demand, which de-grew by ~8% in 2010, bounced back in 2011. In 2012 too,
demand from China is expected to increase driven by fibre capex of the three main Chinese
telecom service providers - China Mobile, China Telecom and China Unicom. These players
are collectively expected to purchase ~100 mn fibre-Km of optical fibre in 2012. Demand from
Australia, Brazil and the US is also expected to be strong. FTTx installations and growth in
bandwidth demand are expected to be key drivers for optical fibre demand in most
geographies.
China34%
Europe26%
Middle East andAfrica
22%
US6%
India12%
Sterlite Tech is an established
players in global markets such as
China, Africa, Middle East, South
Africa, Europe and the US
Poised to benefit from the
global demand of optical fibre
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Figure 3: Global optical fibre demand
Source: CRU, Company, CRISIL Research
Profitability projected to move towards normalcy
We expect the optical fibre segments EBITDA margin to move towards normalcy in FY13 as
the company has resolved the stabilisation issues with the new capacity of 2 mn fibre-Km. The
company expanded its optical fibre capacity from 10 mn fibre-Km to 12 mn fibre-Km in FY12.
This incremental capacity faced stabilisation issues due to which the yields from this capacity
were low. This impacted Sterlite Techs profitability in this segment. According to the
company, the stabilisation issues have now been resolved and the plant is operating at
optimum yields.
However, the expansion in EBITDA margin of telecom segment in FY13 is expected to be
limited to only 278 bps as we factor in the stabilisation issues in the upcoming capacity of 4
mn fibre-Km, which is coming on stream in H2FY13. Post the expansion, we expect EBITDA
margin to expand to 21.6% in FY14.
Telecom segments EBITDA margin - yearly trend Telecom segments EBITDA margin quarterly trend
Note: Telecom segment includes optical fibre, fibre optic cables, data cables and system integration business
Source: Company, CRISIL Research Source: Company, CRISIL Research
65
90 92
59 59 6275
95
118
140
174190
204
222
0
50
100
150
200
250
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012E
(mn fibre-Km)
14.2%
16.0%
22.7%
25.6%
17.5%
20.3%21.6%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
FY08 FY09 FY10 FY11 FY12 FY13E FY14E
28.8% 28.8%
24.2%
21.6%23.3%
15.6% 15.9%16.8%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
Q1FY11
Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q2FY12
Q3FY12
Q4FY12
Stabilisation issue in the optical
fibre plant has been resolved
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Increase in Chinese capacity a threat to profitability
According to Research in China (a China-based research agency), China will become self-
sufficient in preform (glass used for making optical fibre) by 2013 driven by capacity expansion
by the six small fibre manufacturers in China. Preform imports have already declined from
70% in 2010 to 48.9% in 2011. Since China accounts for ~40% of the global demand for
optical fibre, decline in Chinese imports will have an adverse impact on the global players
volume growth and their capacity utilisation levels. Also, over the past year, realisations of
optical fibre have been stable at US$7.5-8 per fibre-Km since the demand-supply situation has
been stable. When the Chinese capacities come on stream, supply will exceed demand and
will put pressure on fibre realisation, which will adversely impact profitability of players like
Sterlite Tech.
According to the management, Chinese manufacturers have not been able to stabilise the
preform capacities in the past and, hence, China has always remained an importer of opticalfibre. Also, the gestation period for optical fibre capacities is high. Accordingly, the company
believes that China will take some time to become self-sufficient.
Conductors: Sterlite Tech has the largest capacity in India
Expanding the capacity in conductor business
Sterlite Tech is on track to expand its conductor capacity from existing 1.6 lakh MT to 2 lakh
MT by FY13-end, following which, according to the management, it will become the largest
global manufacturer of power conductors in terms of capacity.
Given the existing healthy order book, we expect the capacity to run at 90% utilisation rate.
The total capital expenditure is estimated at ~Rs 500 mn which will be funded through internal
accruals only.
Figure 4: Increasing capacity... Figure 5: ... to fuel the growth
Source: CRISIL Research Source: CRISIL Research
160,000 160,000 160,000 160,000
200,000
0
20,000
40,000
60,000
80,000100,000
120,000
140,000
160,000
180,000
200,000
FY10 FY11 FY12 FY13E FY14E
(Tonne)
15,370 16,073 19,210 20,577 25,777
2,060
1,137
838
1,295
1,656
-
500
1,000
1,500
2,000
2,500
-
5,000
10,000
15,000
20,000
25,000
30,000
(Rs mn)(Rs mn)
Revenue (Conductor segment)
EBITDA (conductor segment) (RHS)
Reduction in Chinas dependency
on imports is a threat
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Sterlite Tech is not only an approved but also one of the largest vendors of PGCIL (which
accounts for ~50% of total domestic demand for conductors). As per the company, 25% of
Indias national grid uses conductors manufactured by Sterlite Tech. Its other clients include
SEBs and a few private players in India. The contracts are awarded based on competitive
bidding.
Table 2: Domestic peers installed capacity Table 3: Share of players in PGCILs total orders released since 2008
Company UnitInstalled capacity
(FY12)
Sterlite Technologies MT 1,60,000
Apar Industries MT 1,35,000
Diamond power and
infrastructure MT 50,500
Company Till August, 2011 Till March, 2012
Sterlite Technologies 33% 28%
JV of Apar, Deepak and Gupta Cables 17% 6%
Apar Industries 8% 13%
Gupta Power Infrastructure 3% 6%
Deepak Cables 3% 6%
Others 36% 59%
Source: CRISIL Research Source: CRISIL Research
To benefit from industry-wide opportunities
Sterlite Tech, leveraging its leading position in the industry, is likely to benefit from the
upcoming demand in the Rs 60-65 bn conductor industry. Demand for conductors, which
account for 25-30% of the total transmission capex, is expected to grow at a CAGR of 15%
over FY13-15 to Rs 96 bn, driven by the following factors:
Investment in generation to grow at a CAGR of 14%
CRISIL Research expects 87 GW power capacity to be added over the next five years as
compared to only 42 GW added in the past five years. Consequently, the investment in power
generation is expected to grow at a five-year CAGR of ~14% to Rs 6,706 bn by FY16.
Investment in transmission to grow at a CAGR of 19%
Investment in transmission is expected to gain momentum due to PGCILs capacity addition
plans, which plans substantial augmentation of the inter-state transmission system with high
voltage transmission corridors required for evacuating power from the upcoming generation
capacities. Private sector projects will also heighten the momentum of investments in the
sector. Investments in the transmission sector are expected to rise at a CAGR of 19% over the
next five years, aggregating to Rs 1.8 tn, which is almost 2.5 times the investment of Rs 739
bn during the past five years.
Profitability set to improveWe expect the conductor segments EBITDA per tonne to improve from Rs 6,187 in FY12 to
Rs 8,750 in FY13 and to Rs 9,200 in FY14, driven by the execution of relatively high-margin
PGCIL orders.
The profitability (EBITDA per tonne) of the conductor segment has declined significantly over
FY11-FY12 due to the delay in orders from PGCIL, which makes up ~50% of the domestic
conductor demand. During that period, PGCIL was evaluating new players to include them in
its approved vendor list. Sterlite Tech had to take up low-margin orders with shorter lead time
to maintain capacity utilisation at an optimum level. This caused the EBITDA per tonne to
decline from Rs 16,540 in FY10 to Rs 6,187 in FY12. However, PGCIL released the order
backlog in H2FY12 by awarding conductor contracts worth Rs 46.5 bn. As a result, the
Healthy order book from
PGCIL; profitability to
improve
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EBITDA per tonne improved in H2FY12; the company reported EBITDA per tonne of Rs 8,844
(adjusted for bad debt write-off of Rs 50 mn) in Q4FY12. PGCIL constitutes 62% of Sterlite
Techs total conductor order book of Rs 21 bn as on March 31, 2012.
Figure 6: Decline in PGCIL contracts... Figure 7: ...Resulted in decline of EBITDA per tonne
Note: There is a lag of close to one year in order winning and the
execution of the order.
Source: PGCIL, Company Source: PGCIL, Company
But will remain lower than historical high levels
While we expect the profitability to improve due to higher PGCIL order book, it is not expected
to return to the historical average of Rs 12,000-13,000 per tonne due to increase in
competition in this segment. Over the past one year, a number of new vendors have been
included in PGCILs approved vendor list; they have bagged ~5.5% of the orders awarded in
FY12. Additionally, the three big players (Sterlite tech, Apar and Diamond Infrastructure) are
expanding capacities. The threat of new entrants, since this industry is not high fixed-capital
intensive, cannot be ignored. Hence, we expect the competition to intensify in future, which
will impact all players profitability.
Figure 8: Market share in PGCIL orders has declined due to
competition...
Figure 9: ... which will keep EBITDA per tonne below
historical levels
Note: There is a lag of close to one year in order winning and theexecution of the order.
Source: PGCIL, Company Source: Company, CRISIL Research
2.1
11.4
12.7
11.5
1.01.4
3.6
9.3
3.22.4
4.4
19.4
0.0
6.7
16.3
30.2
0
5
10
15
20
25
30
35
Q1FY09
Q2FY09
Q3FY09
Q4FY09
Q1FY10
Q2FY10
Q3FY10
Q4FY10
Q1FY11
Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q2FY12
Q3FY12
Q4FY12
(Rs bn)
16,55615,407
3,591 3,9452,665
6,458
7,890 7,428
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
Q1FY11
Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q2FY12
Q3FY12
Q4FY12
(Rs/tonne)
30.3% 29.5%
37.8%
21.5%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
FY09 FY10 FY11 FY12
14,318
11,603
16,540
9,120
6,187
8,7509,200
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
FY08 FY09 FY10 FY11 FY12 FY13E FY14E
(Rs)
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Table 4: New vendors awarded PGCIL contracts in FY12 Table 5: Expansion plans of conductor manufacturers
Companies Installed capacity
(MT)ICOMM TELE LTD. NA
Galaxy Transmissions Pvt. Ltd 24000
Cabcon India Pvt Ltd 12000
Aravali Infrapower Ltd 45000
Shashi Cables Limited NA
North Eastern Cables & Conductors Pvt Ltd
(NECCON) NA
Company Unit
Installed
capacity(FY12)
Installed
capacity(FY14E)
Sterlite Technologies MT 1,60,000 2,00,000
Apar Industries MT 1,35,000 1,50,500
Diamond power and
infrastructure MT 50,500 1,00,000
Source: PGCIL Source: CRISIL Research
Grid project executions on track; low IRRs a key concern
According to the management, execution of the three ultra mega power transmission projects(UMTP) is on track. The first project is 60% complete and will be operational in FY14. The
company has recently received Rs 22 bn as debt syndication for the second and third
projects. So far, Rs 6.7 bn has been invested in these projects, out of which Rs 3 bn is
contributed by Sterlite Tech as an equity infusion. The company expects to further infuse Rs 3
bn in FY13 and Rs 4 bn in FY14 as equity. The debt-equity for these projects is expected to
be 70:30.
These projects have been awarded on a BOOM basis wherein post the tenure of the projects,
the company will own the assets. Each project is part of a separate special purpose vehicle
(SPV). We expect Sterlite Tech to earn an IRR (internal rate of return) of 10-11% from these
projects.
Table 6: Details of UMTP projects won by Sterlite Tech
Details of project
Year of
commencement
Capex
(Rs bn)
Levelised tariff
(Rs bn)
Tenure
(years) Status of the project
East North Interconnection
Project (project 1)FY14 10 1.2 25
60% complete. The company expects to complete this
project by March 2013 and generate cash flows from
the same in FY14.
Bhopal-Dhule Transmission
Project (project 2)FY15 18 2.3 35
Moved from the survey stage to the design and
engineering stage, and most key orders related to this
project have been awarded.
Jabalpur TransmissionProject (project 3)
FY15 13 1.5 35 The orders are yet to be finalised and the companyexpects to award them in H1FY13.
Source: Company, CRISIL Research
Execution is a monitorable
Sterlite Tech is a new player in the asset-heavy business and does not have any track record
of setting up transmission lines. Though the company has outsourced the ground work to EPC
players and has recruited an experienced team, successful execution of these projects is a
key monitorable. Also, given the low IRRs (10-11%), funding mix (including foreign currency
funding) is key for value accretion to equity holders. Accordingly, we prefer to wait for further
development in the BOOM projects before factoring them into our valuations.
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Key Risks
Delay by PGCIL in awarding contracts
Sterlite Techs profitability in the power segment is driven by the contribution of PGCIL orders
to the total orders executed. The companys margins in FY11 and FY12 were depressed as
PGCIL delayed orders. PGCILs orders for FY12 are strong and we expect the profitability to
bounce back, albeit not at historical levels as the competition in this segment has increased.
However, any delay in PGCIL orders in the future will impact the conductor segments
profitability.
Delay in investments in transmission
The demand for conductors is a function of the governments investments in transmission.
Transmission lines are being laid to strengthen the national grid and for evacuation of power
from new generation capacities. The generation segment is in troubled times due to shortage
of coal and there is uncertainity over policy reforms. Driven by this, there may be some delays
in investments in transmission lines.
Crystallisation of contingent liability
Sterlite Tech had received an order from Custom, Excise and Service Tax Appellate Tribunal
(CESTAT) upholding a demand of Rs 1.9 bn (17% of shareholders equity in FY12) in a
pending excise/custom matter. The companys appeal in the High Court of Mumbai was
rejected on grounds of jurisdiction. It has appealed to the Supreme Court against this order
and the decision on the matter is pending. The company has made a provision of Rs 50 mn in
FY11 against the aforementioned liability. However, its profitability will be impacted in case the
Supreme Court rules in favour of CESTAT.
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Financial Outlook
Standalone revenue to grow at 15% CAGR over FY12-14
Sterlite Techs standalone revenue is expected to grow at a two-year CAGR of 10% to Rs 36
bn in FY14 driven by capacity expansion in telecom and power transmission segments. The
demand for both products - optical fibre/cable and conductors is expected to remain healthy,
hence we expect the company to operate both capacities at optimum utilisation levels.
Figure 10: Increase in capacity of both segments Figure 11: Capacity expansion to drive revenue growth
Capacity FY10 FY11 FY12 FY13E FY14E
Conductor (Tonne) 160,000 160,000 160,000 160,000 200,000
Optical Fibre (mn f ibre-Km) 10 10 12 16 20
India 10 10 12 16 16
China 0 0 0 0 4
Source: CRISIL Research Source: CRISIL Research
Standalone EBITDA margin to expand and stabilise at 11% inFY13- FY14
We expect standalone EBITDA margin to improve and stabilise at 11% in FY13 and FY14
from 7.3% in FY12. The EBITDA margin contracted by 460 bps y-o-y in FY12 on account of
poor performance in telecom segment (due to stabilisation issues in newly commissioned
optical fibre capacity) and the power transmission segment (due to the delay in PGCIL
orders). However, the company has resolved the stabilisation issues and has a healthy order
book of Rs 21 bn (62% from PGCIL) in the power transmission segment. Also, expected
increase in the demand for optical fibre and conductors will support margins.
Figure 12: Improvement in profitability of both segments Figure 13: To drive the overall standalone margins
FY10 FY11 FY12 FY13E FY14E
Conductor segment
(EBITDA per tonne) 16,540 9,120 6,187 8,750 9,200
Telecom segment margin 22.7% 25.6% 17.5% 20.3% 21.6%
Source: CRISIL Research Source: CRISIL Research
15,370 16,07319,210 20,577
25,777
9,264 6,588
7,9479,469
10,711
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
FY10 FY11 FY12 FY13E FY14E
(Rs mn)
Power Trans mis sion segment Telec om s egment
3,813 2,709 1,996 3,214 3,925
15.7%
12.0%
7.3%
10.9%10.9%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
FY10 FY11 FY12 FY13E FY14E
(Rs mn)
EBITDA EBITDA margin (RHS)
15% growth in the standalone
revenue driven by capacityexpansion
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Standalone PAT to grow by 71% over FY12 - FY14
Following the growth in sales and improvement in operating performance, standalone PAT is
expected to grow to Rs 1,279 mn in FY14 from Rs 438 mn in FY12. PAT margin is expected
to expand by 215 bps to 3.8% in FY13. However, we expect a slight contraction in PAT
margin in FY14 on account of increase in depreciation and interest expenses. The
deprecation is expected to increase y-o-y in FY13 and FY14 as the company capitalises both
the optical fibre (FY13) and conductor (FY14) capacities. Further, interest cost is expected to
go up in FY13 and FY14 on account of increase in long-term loans, which the company will
borrow to fund the equity portion (30% of total capex) in grid projects.
Sterlite Tech is expected to report EPS of Rs 2.8 and Rs 3.3 in FY13 and FY14, respectively.
The standalone RoE and RoCE are expected to improve from FY12 level but will remain
subdued, as the investment in three grid projects will start giving returns from FY15.
Figure 14: Healthy growth in PAT over FY13 and FY14 Figure 15: Standalone RoE to improve from FY12 level
Source: CRISIL Research Source: CRISIL Research
2,461 1,405438
1,113 1,279
10.1%
6.2%
1.6%
3.8% 3.6%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
0
500
1,000
1,500
2,000
2,500
3,000
FY10 FY11 FY12 FY13E FY14E
(Rs mn)
PAT PAT margin (RHS)
33.4%
14.4%
4.0%
9.2% 9.6%
27.8%
14.7%
7.4%
11.9% 12.4%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
FY10 FY11 FY12 FY13E FY14E
RoE RoCE
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Change in standalone earnings estimate
Particulars Unit
FY13E FY14E
Old New % change Old New % change
Exchange rate Rs 49.5 52.0 5.1% 51.0 48.0 -5.9%
Net Revenue Rs mn 30,798 29,588 -3.9% 36,835 35,931 -2.5%
EBITDA Rs mn 3,160 3,214 1.7% 3,965 3,925 -1.0%
EBITDA margin % 10.3% 10.9% 60bps 10.8% 10.9% 16bps
Depreciation Rs mn 875 830 -5.2% 925 880 -4.9%
Interest cost Rs mn 1125 1105 -1.8% 1470 1477 0.4%
Other income Rs mn 203 166 -18.2% 108 92 -15.2%
PAT Rs mn 1,050 1,113 6.0% 1,291 1,279 -1.0%
PAT margin % 3.4% 3.8% 35bps 3.5% 3.6% 5bps
EPS Rs 2.7 2.8 6.0% 3.3 3.3 -1.0%
Source: CRISIL Research
Reasons for changes in estimates
Line item FY13 FY14
Revenues Higher than expected depreciation of rupee
Lower-than-expected volume for conductor
segment due to delay in additional capacity
Expect rupee to appreciate to Rs 48 per US$ against previous
expectation of Rs 51 per US$
EBITDA margins Higher-than-expected margin in fibre optic cable Largely maintained
PAT margins Higher than expected EBITDA margin Due to lower than expected other income. Based on the
management discussion, we have revisited our assumptions related
to cash outflow for grid projects.
Source: CRISIL Research
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Management Overview
CRISIL's fundamental grading methodology includes a broad assessment of management
quality, apart from other key factors such as industry and business prospects, and financial
performance.
Experienced management with strong parent backing
Sterlite Tech has an experienced management headed by Dr Anand Agarwal, CEO and
whole-time director, who has been associated with the company for the past 15 years. He is
supported by Mr Pravin Agarwal, whole-time director, who has been with the group since its
inception. Mr Anupam Jindal is the CFO and has been associated with the Sterlite group since
1998. Additionally, the company can leverage on the management strength of the Sterlite
group.
Demonstrated strong capabilities in the pastSterlite Tech was formed in 2000 to do business of telecom cables. However, due to the
slowdown in the telecom segment in 2003-2004, the company posted a net loss of Rs 1 bn in
FY03 and Rs 821 mn in FY04. It rebounded with a profit of Rs 164 mn in FY06. In FY07, the
company acquired the power conductor division from Sterlite Industries for Rs 1.5 bn. Over
the years, the company has shown continuous growth and sustained profitability. In FY10, it
reported revenues of Rs 24 bn and a net profit of Rs 2.5 bn. Also, to stay ahead of
competition, the company is continuously working towards developing new products and has
a research and development facility. It has recently introduced overhead power ground wire
(OPGW) cables in the market, which are power cables that can also carry data.
Limited access to the management
Our interaction has been limited to only the CFO and AGM Corporate Strategy and Investor
Relations. We have not been able to get access to business heads and other personnel in the
second line of management.
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Corporate Governance
CRISILs fundamental grading methodology includes a broad assessment of corporate
governance and management quality, apart from other key factors such as industry and
business prospects, and financial performance. In this context, CRISIL Research analyses the
shareholding structure, board composition, typical board processes, disclosure standards and
related-party transactions. Any qualifications by regulators or auditors also serve as useful
inputs while assessing a companys corporate governance.
Overall, corporate governance at Sterlite Tech meets the desired levels supported by
reasonably good board practices and an independent board.
Board composition
Sterlite Techs board comprises six members; Mr Anil Agarwal is the non-executive chairman.
The company has three independent directors, which exceeds the requirement under Clause
49 of SEBIs listing guidelines. The independent directors have strong industry experience and
are highly qualified. Given the background of directors, we believe the board is well
experienced.
Boards processes
The companys quality of disclosures can be considered adequate judged by the level of
information and details furnished in the annual report, websites and other publicly available
data. The company has all the necessary committees audit, remuneration and investor
grievance - in place to support corporate governance practices. The audit committee is
chaired by an independent director, Mr Arun Todarwal.
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Valuation Grade: 4/5
We continue to value Sterlite Tech based on the sum-of-the-parts method. We have assigned
a fair value of Rs 39 to the companys standalone business based on P/E of 12x FY14E EPS
of Rs 3.3. The investment in the China subsidiary is valued at book value of Rs 350 mn to
arrive at a fair value of ~Rs 1 per share. Accordingly, we maintain our fair of Rs 40. At the
current market price of Rs 33, the valuation grade is 4/5.
One-year forward P/E band One-year forward EV/EBITDA band
Source: NSE, CRISIL Research Source: NSE, CRISIL Research
P/E premium / discount to NIFTY P/E movement
Source: NSE, CRISIL Research Source: NSE, CRISIL Research
Global peers
Companies
Adj EPS (US$) RoE (%) P/E EV/EBITDA P/Book
Country CY11 CY12E CY13E CY11 CY12E CY13E CY11 CY12E CY13E CY11 CY12E CY13E CY11 CY12E CY13E
Corning Inc USA 1.8 1.4 1.5 13.9 9.7 10.0 7.1 9.0 8.0 5.8 5.2 4.8 0.9 0.8 0.8
General Cable Corp USA 1.8 2.7 3.5 5.8 9.6 12.2 14.1 9.6 7.4 5.5 5.4 4.6 0.9 0.8 0.8
Nexans Sa Europe 0.7 3.8 5.1 -8.8 5.1 6.6 na 10.0 7.5 4.7 3.2 2.7 0.6 0.5 0.4
Prysmian Spa Europe 0.7 1.5 1.9 -15.1 20.0 22.0 na 9.7 7.7 5.8 6.4 5.5 2.0 2.1 1.7
Sumitomo Electric* Japan na 0.9 1.3 na 6.1 7.8 na 15.3 8.8 na 7.7 4.9 na 0.9 0.7
Fujikura Ltd* Japan na -0.2 0.2 na -3.5 3.0 na 0.0 15.1 na 5.9 5.1 na 0.6 0.4
Furukawa Electric* Japan na -0.2 0.2 na -7.2 5.7 na 0.0 12.1 na 9.1 7.1 na 1.1 0.7
* March ending; Exchange rates considered for the conversion are 1.2 US$/Euro and 78.2 Yen/US$
Source: CRISIL Research, Industry sources
-50
0
50
100
150
200
250
300
Apr-06
Jul-06
Oct-06
Feb-07
May-07
Sep-07
Dec-07
Mar-08
Jul-08
Oct-08
Feb-09
May-09
Sep-09
Dec-09
Mar-10
Jul-10
Oct-10
Feb-11
May-11
Aug-11
Dec-11
Mar-12
Jul-12
(Rs)
Sterlite Tech 1x 5x 12x 24x 36x
0
5,000
10,000
15,00020,000
25,000
30,000
35,000
40,000
45,000
50,000
Apr-06
Jul-06
Oct-06
Feb-07
May-07
Sep-07
Dec-07
Mar-08
Jul-08
Oct-08
Feb-09
May-09
Sep-09
Dec-09
Mar-10
Jul-10
Oct-10
Feb-11
May-11
Aug-11
Dec-11
Mar-12
Jul-12
(Rs mn)
EV 3x 5x 8x 10x
-200%
-100%
0%
100%
200%
300%
400%
Apr-
06
Ju
l-06
Oc
t-06
Fe
b-0
7
May-0
7
Sep-0
7
Dec-0
7
Apr-
08
Ju
l-08
Oc
t-08
Fe
b-0
9
May-0
9
Sep-0
9
Dec-0
9
Mar-
10
Ju
l-10
Oc
t-10
Fe
b-1
1
May-1
1
Sep-1
1
Dec-1
1
Mar-
12
Ju
l-12
Premium/Discount to NIFTY Median premium/discount to NIFTY
0
10
20
30
40
50
60
70
Apr-
06
Ju
l-06
Oc
t-06
Fe
b-0
7
May-0
7
Sep-0
7
Dec-0
7
Mar-
08
Ju
l-08
Oc
t-08
Fe
b-0
9
May-0
9
Sep-0
9
Dec-0
9
Mar-
10
Ju
l-10
Oc
t-10
Fe
b-1
1
May-1
1
Aug-1
1
Dec-1
1
Mar-
12
Ju
l-12
(Times)
1yr Fwd PE (x) Median PE
+1 std dev
-1 std dev
We continue to value Sterlite
Tech at Rs 40 per share
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CRISIL IER reports released on Sterlite Technologies Ltd
Date Nature of report
Fundamental
grade Fair value
Valuation
grade
CMP
(on the date of report)
17-Aug-11 Initiating coverage* 3/5 Rs 68 5/5 Rs 39
09-Nov-11 Q2FY12 result update 3/5 Rs 55 5/5 Rs 40
01-Feb-12 Q3FY12 result update 3/5 Rs 51 5/5 Rs 39
11-May-12 Q4FY12 result update 3/5 Rs 40 5/5 Rs 31
24-July-12 Detailed report 3/5 Rs 40 4/5 Rs 33
Source: CRISIL Research
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Company Overview
Sterlite Tech has three main lines of business: telecom products, power transmission
conductors and transmission grid projects. Sterlite Industries entered the telecom cable
business in 1988 with copper cables. It started producing fibre optic cables in 1992 and
backward integrated into optical fibre production in 1995. In 2000, the telecom cables
business was demerged into Sterlite Optical Technologies Ltd. In 2006, the company acquired
the power conductor business from Sterlite Industries and the company was renamed Sterlite
Technologies Ltd.
Milestones
1988 Started the copper cables business
1992 Started the fibre optic cables business
1995 Backward integrated into optical fibre manufacturing
2000 Telecom business demerged into Sterlite Optical Technologies Ltd
2006 Acquired the power conductors business from Sterlite Industries and was renamed
Sterlite Technologies Ltd
2006 Started manufacturing broadband and access networks
2010 Won its first UMTP project
Business segments
Telecom products
Under the telecom products business, the company manufactures copper cables, optical fibre,
fibre optic cables, structured data cables and provides telecom integration and managed
services. This segment contributed ~30% of total revenues in FY12. The company procures
silica, the main raw material used in optical fibre, from China. While optical fibre is a
standardised product, fibre optic cables is customised.
Power transmission conductors
Under this business, the company manufactures power conductors, which are used for power
transmission. It also manufactures OPGW cables. This segment contributed ~70% of total
revenues in FY12.
Ultra mega power transmission projects
Sterlite Tech has diversified into the asset heavy, transmission grid business. It has
successfully won three projects on a build, own, operate and maintain basis wherein post the
tenure of the projects, it will own the assets.
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Annexure: Financials (Standalone)
# Based on abridged financials
Note: FY12 financials are not strictly comparable with that of the previous years due to the
new format of disclosure under Schedule VI of the Companies Act
Source: CRISIL Research
Income statement Balance Sheet
(Rs mn) FY10 FY11 FY12# FY13E FY14E (Rs mn) FY10 FY11 FY12# FY13E FY14E
Operating income 24,311 22,641 27,275 29,588 35,931 Liabilities
EBITDA 3,813 2,709 1,996 3,214 3,925 Equity share capital 711 713 787 787 787EBITDA margin 15.7% 12.0% 7.3% 10.9% 10.9% Reserves 8,449 9,646 10,702 11,978 13,118
Depreciation 483 560 714 830 880 Minorities - - - - -
EBIT 3,330 2,149 1,282 2,384 3,046 Net worth 9,160 10,359 11,489 12,764 13,905
Interest 381 474 951 1,105 1,477 Convertible debt - - - - -
Operating PBT 2,949 1,675 331 1,279 1,569 Other debt 3,582 6,198 6,644 9,144 13,144
Other income 220 107 237 166 92 Total debt 3,582 6,198 6,644 9,144 13,144
Exceptional inc/(exp) (104) 0 - - - Deffered tax liability (net) 602 660 735 735 735
PBT 3,065 1,782 568 1,445 1,660 Total liabilities 13,344 17,217 18,868 22,643 27,784
Tax provision 605 377 129 332 382 Assets
Minority interest - - - - - Net f ixed assets 6,168 6,982 9,671 10,341 10,462
PAT (Reported) 2,461 1,405 438 1,113 1,279 Capital WIP 570 1,608 410 1,110 360
Less: Exceptionals (104) 0 - - - Total fixed assets 6,737 8,589 10,081 11,451 10,822
Adjusted PAT 2,565 1,405 438 1,113 1,279 Investments 61 1,003 1,763 5,346 9,555
Current assets
Ratios Inventory 1,709 1,914 2,727 2,999 3,544
FY10 FY11 FY12# FY13E FY14E Sundry debtors 6,574 9,193 7,840 8,512 10,336
Growth Loans and advances 1,261 2,062 3,706 2,959 3,593
Operating income (%) 6.1 (6.9) 20.5 8.5 21.4 Cash & bank balance 2,097 1,301 1,848 763 887
EBITDA (%) 61.0 (28.9) (26.3) 61.0 22.1 Marketable securities 1,000 1,000 - - -
Adj PAT (%) 194.1 (45.2) (68.8) 153.8 14.9 Total current assets 12,642 15,469 16,121 15,232 18,360
Adj EPS (%) (46.6) (45.4) (71.7) 153.8 14.9 Total current liabilities 6,193 7,924 9,097 9,387 10,954
Net current assets 6,448 7,545 7,023 5,846 7,407
Profitability Intangibles/Misc. expenditure 97 80 - - -
EBITDA margin (%) 15.7 12.0 7.3 10.9 10.9 Total assets 13,343 17,217 18,868 22,643 27,784
Adj PAT Margin (%) 10.5 6.2 1.6 3.8 3.6
RoE (%) 33.4 14.4 4.0 9.2 9.6 Cash flow
RoCE (%) 27.8 14.7 7.4 11.9 12.4 (Rs mn) FY10 FY11 FY12# FY13E FY14E
RoIC (%) 30.3 16.0 11.3 15.7 17.6 Pre-tax prof it 3,169 1,782 568 1,445 1,660
Total tax paid (562) (318) (54) (332) (382)
Valuations Depreciation 483 560 714 830 880
Price-earnings (x) 12.2 7.8 27.5 10.8 9.4 Working capital changes 118 (1,893) 69 93 (1,437)Price-book (x) 3.4 1.1 1.1 0.9 0.9 Net cash from operations 3,207 131 1,296 2,035 722
EV/EBITDA (x) 8.4 5.5 8.5 6.4 6.2 Cash from investments
EV/Sales (x) 1.3 0.7 0.6 0.7 0.7 Capital expenditure (750) (2,396) (2,125) (2,200) (250)
Dividend payout ratio (%) 7.2 12.7 27.4 10.6 9.2 Investments and others (141) (941) 239 (3,583) (4,209)
Dividend yield (%) 0.6 1.6 1.0 1.0 1.0 Net cash from investments (891) (3,337) (1,886) (5,783) (4,459)
Cash from financing
B/S ratios Equity raised/(repaid) 441 30 1,113 - -
Inventory days 33 37 39 42 40 Debt raised/(repaid) (1,384) 2,616 446 2,500 4,000
Creditors days 102 138 123 123 118 Dividend (incl. tax) (208) (208) (120) (118) (118)
Debtor days 97 148 107 103 103 Others (incl extraordinaries) 154 (29) (301) 281 (20)
Working capital days 51 69 70 63 59 Net cash from financing (998) 2,410 1,137 2,663 3,862
Gross asset turnover (x) 2.4 2.0 2.0 1.9 2.1 Change in cash posiiton 1,318 (797) 547 (1,085) 124
Net asset turnover (x) 4.2 3.4 3.3 3.0 3.5 Closing cash 2,097 1,301 1,848 763 887
Sales /operating assets ( x) 1.3 1.0 1.0 1.0 1.0
Current ratio (x) 2.0 2.0 1.8 1.6 1.7 Quarte rly financials
Debt-equity (x) 0.4 0.6 0.6 0.7 0.9 (Rs mn) Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12
Net debt/equity (x) 0.1 0.4 0.4 0.7 0.9 Net Sales 6,822 5,473 7,073 6,635 8,093
Interest coverage 8.7 4.5 1.3 2.2 2.1 Change (q-o-q) 18% -20% 29% -6% 22%
EBITDA 490 302 504 522 667
Per share Change (q-o-q) 14% -38% 67% 4% 28%
FY10 FY11 FY12# FY13E FY14E EBITDA margin 7.2% 5.5% 7.1% 7.9% 8.2%
Adj EPS (Rs) 7.2 3.9 1.1 2.8 3.3 PAT 103 52 127 95 165
CEPS 8.6 5.5 2.9 4.9 5.5 Adj PAT 103 52 127 95 165
Book value 25.8 29.1 29.2 32.5 35.4 Change (q-o-q) -40% -49% 142% -25% 74%
Dividend (Rs) 0.5 0.5 0.3 0.3 0.3 Adj PAT margin 1.5% 1.0% 1.8% 1.4% 2.0%
Actual o/s shares (mn) 355.5 356.4 393.3 393.3 393.3 Adj EPS 0.3 0.1 0.3 0.2 0.4
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Annexure: Financials (Consolidated)
# Based on abridged financials
Note: FY12 financials are not strictly comparable with that of the previous years due to the
new format of disclosure under Schedule VI of the Companies Act
Source: CRISIL Research
Income statement Balance Sheet
(Rs mn) FY10 FY11 FY12# FY13E FY14E (Rs mn) FY10 FY11 FY12# FY13E FY14E
Operating income 24,311 22,645 26,218 27,765 34,921 Liabilities
EBITDA 3,811 2,717 1,886 3,099 4,906 Equity share capital 711 713 787 787 787EBITDA margin 15.7% 12.0% 7.2% 11.2% 14.0% Reserves 8,474 9,664 10,662 11,978 13,036
Depreciation 483 560 715 830 1,317 Minorities 3 - 91 91 91
EBIT 3,328 2,157 1,171 2,269 3,589 Net w orth 9,188 10,376 11,540 12,856 13,914
Interest 381 452 924 1,105 2,284 Convertible debt - - - - -
Operating PBT 2,947 1,705 247 1,164 1,305 Other debt 3,587 7,678 10,364 21,353 35,175
Other income 221 88 271 166 313 Total debt 3,587 7,678 10,364 21,353 35,175
Exceptional inc/(exp) (104) 0 - - - Deferred tax liability (net) 602 660 735 735 735
PBT 3,064 1,793 518 1,330 1,619 Total liabilities 13,377 18,714 22,639 34,944 49,824
Tax provision 605 380 129 332 415 Assets
Minority interest - 1.1 (7.70) - - Net f ixed assets 6,168 6,983 10,676 10,341 19,635
PAT (Reported) 2,459 1,412 396 998 1,204 Capital WIP 852 3,926 6,176 18,552 22,223
Less: Exceptionals (104) 0 - - - Total fixed assets 7,019 10,909 16,852 28,893 41,857
Adjusted PAT 2,563 1,412 396 998 1,204 Investments - - - - -
Current assets
Ratios Inventory 1,709 1,928 2,806 2,999 3,544
FY10 FY11 FY12# FY13E FY14E Sundry debtors 6,290 8,665 7,859 8,512 10,435
Growth Loans and advances 1,280 2,132 3,091 2,959 3,593
Operating income (%) 6.1 (6.9) 15.8 5.9 25.8 Cash & bank balance 2,103 1,810 2,162 4,197 2,550
EBITDA (%) 60.9 (28.7) (30.6) 64.3 58.3 Marketable securities 1,070 1,120 130 - -
Adj PAT (%) 192.3 (44.9) (71.9) 151.8 20.6 Total current assets 12,452 15,655 16,049 18,667 20,122
Adj EPS (%) 165.3 (45.0) (74.6) 151.8 20.6 Total current liabilities 6,216 7,964 10,296 12,649 12,189
Net current assets 6,236 7,691 5,753 6,017 7,933
Profitability Intangibles/Misc. expenditure 121 114 34 34 34
EBITDA margin (%) 15.7 12.0 7.2 11.2 14.0 Total assets 13,377 18,714 22,639 34,944 49,824
Adj PAT Margin (%) 10.5 6.2 1.5 3.6 3.4
RoE (%) 33.2 14.4 3.6 8.2 9.0 Cash flow
RoCE (%) 27.8 14.0 5.9 8.1 8.6 (Rs mn) FY10 FY11 FY12# FY13E FY14E
RoIC (%) 30.0 14.5 8.8 9.1 9.9 Pre-tax profit 3,168 1,793 518 1,330 1,619
Total tax paid (562) (321) (54) (332) (415)
Valuations Depreciation 483 560 715 830 1,317
Price-earnings (x) 4.6 8.3 32.7 13.0 10.8 Working capital changes 403 (1,698) 1,301 1,640 (3,563)Price-book (x) 1.3 1.1 1.1 1.0 0.9 Net cash from operations 3,491 334 2,480 3,468 (1,042)
EV/EBITDA (x) 3.5 6.1 8.8 5.3 9.3 Cash from investments
EV/Sales (x) 1.3 0.7 0.8 1.1 1.3 Capital expenditure (1,032) (4,443) (6,578) (12,871) (14,281)
Dividend payout ratio (%) 7.2 12.6 29.8 11.8 9.8 Investments and others (143) (50) 990 130 -
Dividend yield (%) 0.6 1.5 0.9 0.9 0.9 Ne t cas h from inve stm ents (1,176) (4,493) (5,588) (12,741) (14,281)
Cash from financing
B/S ratios Equity raised/(repaid) 441 30 1,113 - -
Inventory days 33 38 42 44 43 Debt raised/(repaid) (1,379) 4,091 2,686 10,990 13,821
Creditors days* 102 139 146 180 141 Dividend (incl. tax) (208) (208) (139) (118) (118)
Debtor days 93 140 112 110 107 Others (incl extraordinaries) 154 (47) (199) 436 (28)
Working capital days 49 63 57 35 38 Net cash from financing (992) 3,866 3,461 11,307 13,675
Gross asset turnover (x) 2.4 2.0 1.9 1.7 1.6 Change in cash position 1,324 (294) 353 2,035 (1,647)
Net asset turnover (x) 4.2 3.4 3.0 2.6 2.3 Closing cash 2,103 1,810 2,162 4,197 2,550
Sales /operating assets (x) 1.3 1.0 0.9 0.7 0.6
Current ratio (x) 2.0 2.0 1.6 1.5 1.7 Quarte rly financials - s tandalone
Debt-equity (x) 0.4 0.7 0.9 1.7 2.5 (Rs mn) Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12
Net debt/equity (x) 0.0 0.5 0.7 1.3 2.3 Net Sales 6,822 5,473 7,073 6,635 8,093
Interest coverage 8.7 4.8 1.3 2.1 1.6 Change (q-o-q) 18% -20% 29% -6% 22%
EBITDA 490 302 504 522 667
Per share Change (q-o-q) 14% -38% 67% 4% 28%
FY10 FY11 FY12# FY13E FY14E EBITDA margin 7.2% 5.5% 7.1% 7.9% 8.2%
Adj EPS (Rs) 7.2 4.0 1.0 2.5 3.1 PAT 103 52 127 95 165
CEPS 8.6 5.5 2.8 4.6 6.4 Adj PAT 103 52 127 95 165
Book value 25.8 29.1 29.3 32.7 35.4 Change (q-o-q) -40% -49% 142% -25% 74%
Dividend (Rs) 0.5 0.5 0.3 0.3 0.3 Adj PAT margin 1.5% 1.0% 1.8% 1.4% 2.0%
Actual o/s shares (mn) 355.5 356.4 393.3 393.3 393.3 Adj EPS 0.3 0.1 0.3 0.2 0.4
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Sterlite Technologies Ltd
21
Focus Charts
Expanding capacities of both segments... ...To drive revenue growth
Capacity FY10 FY11 FY12 FY13E FY14E
Conductor (Tonne) 160000 160000 160000 160000 200000
Optical Fibre (mn fibre-Km) 10 10 12 16 20
India 10 10 12 16 16
China 0 0 0 0 4
Source: Company, CRISIL Research Source: Company, CRISIL Research
Improvement in profitability of both segments... ...To drive the overall margins (standalone)
FY10 FY11 FY12 FY13E FY14E
Conductor segment
(EBITDA per tonne) 16,540 9,120 6,187 8,750 9,200
Telecom segment margin 22.7% 25.6% 17.5% 20.3% 21.6%
Source: Company, CRISIL Research Source: Company, CRISIL Research
Standalone returns ratios to improve from current FY12 level Fair value movement since initiation
Source: Company, CRISIL Research Source: NSE, BSE, CRISIL Research
15,370 16,07319,210 20,577
25,777
9,264 6,588
7,9479,469
10,711
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
FY10 FY11 FY12 FY13E FY14E
(Rs mn)
Power Transmission Business Telecom segment
3,813 2,709 1,996 3,214 3,925
15.7%
12.0%
7.3%
10.9%10.9%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
FY10 FY11 FY12 FY13E FY14E
(Rs mn)
EBITDA EBITDA margin (RHS)
33.4%
14.4%
4.0%
9.2% 9.6%
27.8%
14.7%
7.4%
11.9% 12.4%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
FY10 FY11 FY12 FY13E FY14E
RoE RoCE
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
0
10
20
30
40
50
60
70
80
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
('000)(Rs)
Tot al Traded Quant ity (R HS) C RISIL F air Value
Sterlite Tech
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