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Sterlite Technologies Limited Investor Presentation July 2016
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Disclaimer
Certain words and statements in this communication concerning Sterlite Technologies Limited (“the Company”) and its prospects, and other statements relating to the Company’s expected financial position, business strategy, the future development of the Company’s operations and the general economy in India & global markets, are forward looking statements.
Such statements involve known and unknown risks, uncertainties and other factors, which may cause actual results, performance or achievements of the Company, or industry results, to differ materially from those expressed or implied by such forward-looking statements.
Such forward-looking statements are based on numerous assumptions regarding the Company’s present and future business strategies and the environment in which the Company will operate in the future.
The important factors that could cause actual results, performance or achievements to differ materially from such forward-looking statements include, among others, changes in government policies or regulations of India and, in particular, changes relating to the administration of the Company’s industry, and changes in general economic, business and credit conditions in India.
The information contained in this presentation is only current as of its date and has not been independently verified. No express or implied representation or warranty is made as to, and no reliance should be placed on, the accuracy, fairness or completeness of the information presented or contained in this presentation. None of the Company or any of its affiliates, advisers or representatives accepts any liability whatsoever for any loss howsoever arising from any information presented or contained in this presentation. Please note that the past performance of the Company is not, and should not be considered as, indicative of future results. Furthermore, no person is authorized to give any information or make any representation which is not contained in, or is inconsistent with, this presentation. Any such extraneous or inconsistent information or representation, if given or made, should not be relied upon as having been authorized by or on behalf of the Company.
The Company may alter, modify or otherwise change in any manner the contents of this presentation, without obligation to notify any person of such revision or changes.
Persons should consult their own financial or tax adviser if in doubt about the treatment of the transaction for themselves
These materials are confidential, are being given solely for your information and for your use, and may not be copied, reproduced or redistributed to any other person in any manner. The distribution of this presentation in certain jurisdictions may be restricted by law. Accordingly, any persons in possession of this presentation should inform themselves about and observe any such restrictions
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Contents
Overview of Sterlite Tech
Opportunity Landscape
Financials
Strategic Direction
Key Takeaways
Appendix
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13
20
24
31
32
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Sterlite Tech Overview
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Sterlite Tech: Leading Provider Of Telecom Products & Solutions
3 manufacturing locations – India , China and Brazil with 2500+ full time employees
50 patents in the telecom business across USA, EU, India and China and 73 more under global approval
Rs 2,161 Cr FY16 consolidated net revenues and Rs 465 Cr of consolidated EBITDA
6 of the global top 10 telecom operators use Sterlite’s innovative solutions
25% of FY16 consolidated net revenues comes from international markets
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What Sterlite Tech offers
SYSTEM INTEGRATION
SOFTWARE & SERVICES
Full control over the entire value chain
driven by capacities and capabilities
Raw materials Preform Optic fiber OF cable
Specialty Fibre Products Intrusion Proof Cables
Bend Insensitive Optical Fibre Customized Cables For Varied Applications
• Design, Build & Manage Data Networks
• Specialized team with FTTH experience
• Network engineering, Roll out and O&M
• OSS / BSS software solutions
• Managed Services
End
to
En
d In
tegr
ate
d s
olu
tio
ns
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Sterlite Tech: Business Verticals P
rod
uct
s
• Optical fibers & preforms
• Fiber optic cables
• Structured data cables
• Pre-integrated Fiber to the Home/ Antenna (FTTx)Solutions Kits
• Passive connectivity solutions
Net
wo
rk &
Sys
tem
Inte
grat
ion
• End-to-end project management
• Specialized team with FTTH experience
• Network engineering, Roll out, Integration and O&M
Tele
com
So
ftw
are
• Telecom Operations Support System Products (OSS)
• Telecom Billing Support System Products (BSS)
• Telecom Software: Managed Services
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Products Business
Raw materials
• Silica & Power
• Certain natural gases
Preform
• Integrated Core rod + cladding
Optic fiber
• 22m fkm Capacity
OF cable
• Portfolio catering to diverse end use
System & Network Lab
Glass and reliability Lab
Optical characteristics Lab
Center of Excellence - Dedicated to Nation
• High end technology, fully integrated, global scale operations for manufacturing optical fibers
• Strong patent portfolio 50 granted patents across the globe and break through products
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Network & System Integration Business
Design Build Manage Integrate
Network Layer
Services
ICT Application
Active network
System integration
Network integration
Digital India
Fiber Infra
network
Smart Cities
Access Solution
Opportunities
Passive network 1
2
3
• Sterlite offers end to end integrated services in addition to its product portfolio across the various network layers which presents a multi billion multi year opportunity as India’s broad band infrastructure is built
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Telecom Software Business
Fastest growing IRCM companies
in Gartner MQ IRCM 2014
Global Top 16 BSS vendors
Fastest growing IRCM companies
in Gartner MQ IRCM 2014
Monetization of Next Generation Networks
Real Time Analytics
Real Time Customer Experience management
Core competencies
Elitecore Wins 2015 Deloitte Fast 50 Award
• Sterlite to be able to offer complete suite of products and solutions for telecom service providers and become a partner of choice - fiber and cable portfolio, network creation and OSS / BSS products
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Strong Global Footprint
• Optical Fiber– Aurangabad(India) and Haimen, Jiangsu Province (China)
• Optical Fiber Cable– Silvassa (India) and Curitiba (Brazil)
• Structured data cables – Silvassa (India)
Manufacturing Locations
• China - 75:25 with Tongguang for drawing optic fiber
• Brazil – 50:50 JV with Conduspar for fiber cabling
Joint Ventures
Sales
Manufacturing
Market presence
• China, India, Netherlands, Russia, South Africa, Turkey, UAE, UK
Sales Offices
Services and Solutions • NFS Project execution in J&K • Smart City Project in Jaipur &
Gandhi Nagar
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Sterlite Tech: Revenue Profile – Q1FY17
Europe 30%
Latin America 6%
China 35%
Middle East 9%
CIS 0%
Asia 15%
Africa 4%
Others 1%
Export by Region
India 73%
Export 27%
Revenue Profile
Revenues from International Market :27% China & Europe are our key International markets
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Opportunity Landscape
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Our Product Business: Global Opportunity Landscape
Global Demand for Optical fiber remains strong and continues to show annual growth
India remains highly under fiberized compared to other geographies
Global Data Traffic (In Extabytes)
0
800
600
400
200
1,200
1,000
+205%
2013 2015 2020e
1 Extabyte is equal to 1,000 Gigabytes Includes both fixed and mobile traffic
48 53 57 61 6323
3342
80 87 9924
2530
2932
39
38
2526
30
2729
38
3734
40
44
413735322922733
13220
20
1512
20
+17%
203
16
2006
95
2005
75
17
2014
311
15
156
2013
263
9
2012
246
6
121
2011
218
4
2010
189
2015 2009
173
9
2008
7 9
2007
118
364
140
Others Europe China India North America
Optical Fiber Cable (OFC Consumption- Mn fkm)
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India Broadband Space
• Total Cumulative Fiber Deployed to Population Ratio in US is 1.3x, China is 0.8x while India is just 0.1x
India highly under-invested in Digital Infrastructure Unique Opportunity to capitalize on Digital India & Telco’s Investment
% users above >4 Mbps Population (Mn) vs Cumulative Fiber Deployed (Mn Fkm)
1,3811,320
323
1,060
99
417
China India US
Cummulative Fiber Deployed Population
China
41%
India
17%
US
83%
• India just has 17% of users which enjoys 4 mbps and above speed
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Our e2e System Integration: India Opportunity Landscape
Unprecedented capital investments planned over the next 5 years by Telcos and Government
STL will continue to be integral partner for initiatives such as “Digital India”, “Make in India” and “Smart Cities”
Private Telco’s Opportunity
Government Opportunity
Residential Enterprise
Mobile access (2G/3G/4G)
Small-cells and WiFi
Mobile Core
Fixed access & backhaul
and network build
$19 Bn $3.5 Bn
$3 Bn
$18.5 Bn
BharatNet Smart cities
$12 Bn $4 Bn
Next 5 years Opportunities
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System Integration Opportunities FY’17
Pipeline:FY17 Bid-Participated-Result Awaited
Under Execution
SI Projects
Total
Values in INR Cr.
India market envisaged to provide continued large SI opportunities of similar size in next 3-4 years
>10,000
>16,000 >5,000
>1,000
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Our Telecom Software Business: Global Opportunity Landscape
Way to Play
Laye
r P
rese
nce
Own product business Partnering for solutions Integration
Network & Control
OSS & Middle-
ware
BSS & Business
Appz
System Integrators (SIs)
Telecom Equipment Manufacturers (TEMs)
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2
3
4
Middleware (MW)
Pure play BSS/OSS players Typically build on their
strong integration skills
Specialized
BSS/OSS players
Leverage their network and
control core capabilities to
offer solutions with own
and partner products
Selectively partner for
solutions and don't offer
integration services
Landscape in Telecom OSS/BSS Space Sterlite Tech addressable :
Current Global OSS-BSS Market
(In USD Mn)
Increased network complexity, due to heterogeneity of technology and vendors
Increased competition, demanding agility of BSS/OSS systems to deploy new offers and monitor success in real-time
8,177
FY15 (Current Market)
12,296
FY’18 (New Geo’s)
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Our Market Strategy
Glass Fiber Cable
Sustained Cash flows
Products
Network Integration
System Integration
Solutions & Services
OSS BSS
Telecom Software
End to End Integrated Telecom Play
Profitable Growth
Global Telco Focus
Grow Capabilities
India Telco’s/ Govt. Focus
Build/Acquire Capabilities
Execution Excellence
E2E Software & Services
Global Telco Focus
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Financials
Notes: • On May 24th, 2016, Sterlite Tech had
announced a demerger effective from the appointed date of 1st April, 2015. Post demerger, FY 16 performance is representative of only Telecom business.
• The FY 15 reported numbers would not be comparable to FY 16 reported financial numbers.
• The following information is prepared for the like to like comparison of telecom consolidated financials.
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5 year journey - Telecom Business : Consolidated P&L
Continued growth in Revenue, last 4 Year CAGR growth at 28%
Stronger growth in EBITDA, last 4 Year CAGR growth at 36%
Expanding ROCE with expanding margin for the business
2,161
1,619
1,096799
1,148
+28%
FY 16 FY 15 FY 14 FY 13 FY 12
465
345
181151137
+36%
FY 16 FY 15 FY 14 FY 13 FY 12
334
249
949088
+40%
FY 16 FY 15 FY 14 FY 13 FY 12
EBITDA
EBIT
Revenue
FY 16
18%
FY 15
18%
FY 14
8%
FY 13
7%
FY 12
8%
ROCE
IGAAP numbers & Values in INR Cr.
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5 Year Journey - Telecom Business : Volume Analysis
Volume of OF continues to growth @ of 15% CAGR levels
Cabling volume also continues to growth @ of 15% CAGR levels
OFC Volume decline on YoY basis due to shift in the product mix and solutions positioning
20.1
17.7
13.812.511.7
+15%
FY 16 FY 15 FY 14 FY 13 FY 12
OF Volume (Mn Fkm)
6.5
7.7
5.24.6
3.7
+15%
FY 16 FY 15 FY 14 FY 13 FY 12
OFC Volume (Mn Fkm)
Values in Mn fkm
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Annual Financial Performance: Consolidated Telecom Business
P&L FY 15
(Adj. proforma)
FY16
( Audited)
Revenue 1,619 2,161
EBIDTA 345 465
EBITDA % 21% 22%
Depreciation 96 131
EBIT 249 334
EBIT % 15% 15%
Interest 75 113
PBT 173 221
Tax 55 64
PAT (After minority
Interest) 119 151
EPS (Diluted) in Rs. 2.99 3.75
Balance sheet FY 15
( Adj. proforma)
FY16
(Audited)
Net Worth 577 699
Minority Interest 23 31
Net Debt 674 1,008
Total 1,274 1,738
Fixed Assets 984 1,318
Net Working
Capital 290 420
Total 1,274 1,738
Return on Equity
(Post Tax) Na 22%
Values in INR Cr.
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Strategic Direction
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Strategic Direction
D) Defined principles for Inorganic Growth:
Capability addition
A) Market focused approach to drive sustained profitable growth: End to end solutions
& services
B) Focus on Research & Development: Increasing patent portfolio
C) Expanding ROCE for the business~20%
E) Consistent Returns to the Shareholders:
30% of PAT as dividend
Strategic Direction
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A) Market Focused Approach
New Fiber & Cables Products
Smart Networks
Unique Offerings
Fiber network as a Core to CSP
Offer pre-connected intelligent products and
services to Telco’s
Building Fiber networks as brain and heart of
CSP
Increase capacities through minimal Capex &
Debottlenecking initiatives
Enabling Government to rollout citizen centric
services by offering end to end System
Integration service
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B) Focus On Research & Technology
Center of Excellence, Aurangabad
Strong Patent Portfolio
Customer Experience Center, Gurgaon
Sterlite Academy
Strong focus on the Glass Research
Strong Patent portfolio of 123 patents :50 granted and 73 under evaluation
Building advance technologies : 5G, Pre-connected Solutions , IBS/DAS :Customer Experience Center at Gurgaon
Sterlite Academy : Sterlite Certified Fiber Installers : Skilled FTTH workforce required for sophisticated Fiber to the Home Technology rollout
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C) Targeted Expansion Of RoCE
Increase proportion of Higher value products from 10% currently to 20% in 2018 on growing revenue base
Cost leadership in manufacturing through increasing manufacturing yields through analytics
Strong in-house design and engineering capabilities for creating high performance, long life networks for customers, thereby reducing TCO:
o Working with leading international firms to bring world class practices and technologies for fiber network creation
Increased proportion of cabling mix in business ~ OFC Capacity ramped up to 15 Mn
Brownfield & Debottlenecking capex with a focus on increased asset sweating
7%
18%
FY13 FY16
ROCE
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D) Inorganic Growth : Defined Principles
Enhancing core competency & market access ( Design, Engineering, R&D, Global Customer Access)
Buying decision driven by capability augmentation and not adding scale/capacity
Tuck in acquisitions to elevate competitiveness of offerings
Target Strategic Fit
EPS Accretive to STL
Business ROCE
Innovative product or technology
20%-30%
< 36 Months
Technology innovation: IoT, Education,
Healthcare, NFV, & SDN
OSS/BSS innovative portfolio
System Integration (targeted)
Product & Solutions (core)
Telco Software
(new)
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E) Consistent Returns to Shareholders
Consistent Dividend payment history
Increasing ratio of profit sharing
Stated Dividend Policy going forward
o Board will endeavor to maintain a
Dividend pay-out of around ~ 30% of
profits after tax (PAT) on Consolidated
financials basis
FY’12
31% 31%
FY’14 FY’13 FY’16
28%
34%
29%
FY’15
Dividend Payout History
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KEY TAKEAWAYS Sterlite Tech is well placed to strengthen its leadership
positon for connectivity enhancing products and solutions
High ROCE & ROE business profile
Focused on Customers & Stakeholders value creation
Demerged company allows simplicity in business and focused Telecom play
Implementing Customer centric alignments to transform go-to-market approach
New organization effective from April 1, 2015 and the record date for the Demerger tentatively expected to be in Mid-June, subject to regulatory approval
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Appendix
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Quarterly Financial Performance – Consolidated Telecom Business
565608572
518463
+22%
Q1 FY17* Q4 FY16 Q3 FY16 Q2 FY16 Q1 FY16*
Revenue
124134
115114102
+21%
Q1 FY17* Q4 FY16 Q3 FY16 Q2 FY16 Q1 FY16*
40
52
333731
+30%
Q1 FY17* Q4 FY16 Q3 FY16 Q2 FY16 Q1 FY16*
EBITDA
PAT
Revenue profile reflect 22% growth on YoY basis
EBITDA grew by 21% on YoY basis
Net profit of 40Cr (post minority interest) for Q1FY 17 (30%
YoY growth) Notes:* numbers are in Ind AS & Values are in INR Cr.
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Quarterly Financial Performance : Products
5.55.55.44.74.5
Q1 FY17 Q4 FY16 Q3 FY16 Q2 FY16 Q1 FY16
+21%
OF Volume(MnFkm)
1.61.61.3
2.01.9
-14%
Q1 FY17 Q4 FY16 Q3 FY16 Q2 FY16 Q1 FY16
OFC (Mn Fkm)
Quarterly volumes for OF have consistently crossed the 5.5 million mark for the last 2 quarters- annualized rate of 22
Mn fkm
OF capacity ramp -up to 25 Mn FKM by mid of FY 17 through debottlenecking initiatives-accelerated expansion
Capacity of 30 Mn OF volumes by mid of the next financial year
OFC volume expected ramp up in H2 through increased demand in India and acquisition of new customers globally
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Consolidated Financials: Q1FY16 Vs Q1FY17
P&L (Rs. Cr.) Q1 FY16
Ind AS
Q1 FY17
Ind AS
Revenue 463 565
EBIDTA 102 124
EBITDA % 22% 22%
Depreciation 24 35
EBIT 78 89
EBIT % 17% 16%
Interest 28 32
PBT 50 57
Tax 19 13
PAT (After minority Interest) 31 40
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Demerger Concludes: Sterlite Tech Now A Pure Play Telecom Focused Company
New Company structure to accelerate
execution and enable demonstration of
superior performance
Leaner structure to allow for simplicity and
focus while enabling greater agility
Implementing Customer centric alignments
to transform go-to-market approach
New organization effective from April 1, 2015
Record date to be announced soon
Pre- Demerger
Sterlite Technologies Ltd.
Telecom Power
Post -Demerger
Sterlite Technologies Ltd. (Pure Play: Telecom
Company)
Sterlite Power Transmission Ltd.
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Sterlite Tech: Pre Vs Post Demerger-key Financial Metric
Sterlite Tech is pure play Telecom focused company post Demerger
PAT surges to Rs 151 Cr. Vs losses at Consolidated level last year
151
-3
Consol. FY15
Consol. FY16
465
512
Consol. FY15
-9%
Consol. FY16
2,161
3,097
Consol. FY15
-30%
Consol. FY16
Revenue EBITDA PAT
Values in INR Cr.
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Sterlite Tech: Pre Vs Post Demerger- Balance Sheet Metric
Significant deleveraging of the balance sheet, considerable reduction in Net Debt
Interest burden reduces by almost 1/3rd from Rs 327 Cr to 113 Cr
Leverage ratio improves substantially
1.4x
-69%
Consol. FY15
4.5x
Consol. FY16
113
327
-65%
Consol. FY16
Consol. FY15
1,008
4,882
Consol. FY15
Consol. FY16
-79%
Values in INR Cr.
Net Debt Interest Cost Net Debt to Equity
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Sterlite Tech: Pre Vs Post Demerger- Return Profile Metric
0%
22%
Consol. FY16
Consol. FY15
Consol. FY15
Consol. FY16
5%
18%
1,819
6,835
Consol. FY15
Consol. FY16
Capital Employed ROCE (Pre-Tax) ROE (Post-Tax)
Capital Employed post demerger pertains to Telecom business only
Significantly improved ROCE & ROE post restructuring
Values in INR Cr.
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Options For Shareholders As A Part Of The Demerger
5 share
Option A
5 share in Sterlite Technologies Limited
Sterlite Technologies Limited Telecom (Listed) SPTL (Unlisted equity)
5 Redeemable Preference shares to be redeemed at the end of 18
months (includes 8% dividend p.a -Rs 123.5)
SPTL Listed RPS Option B
SPTL Listed RPS Option C
5 Redeemable Preference shares to be redeemed within 30 days of the
allotment date
Scheme offers multiple options to cater to investor’s preference
• Option A : Continue to hold equity shares and partner in the value creation of the power sector
In case shareholder is unable to hold shares due to conflict with their investment mandate then will be issued Redeemable Preference Shares (RPS)
• Option B : Provides a liquidity event at the end of 18 months
• Option C : Provides an initial liquidity window for 30 days
Note : * Representative for resident shareholders options for other shareholders and Promoters may be different and is covered in the scheme document.
or
or
5 equity share
(Value fixed at Rs 112.3 per share)
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Post Restructuring Company Structure
Sponsors
Sterlite TechnologiesL
imited
Telecom division
Power Products division
Grid Projects subsidiary
Public shareholders
45.2% 54.8%
Standard Chartered PE
Demerger of power products division and transmission grid
business undertaking Sterlite Power
Transmission Ltd
100%
Pre-Demerger Post Demerger
Sponsors
Sterlite TechnologiesL
imited
Telecom Business
Public shareholders
45.2% 54.8%
Sponsors
Sterlite Power Transmission Ltd.
(SPTL)
Power Products Business
Grid Projects subsidiary
Public shareholders
Standard Chartered PE
27.1% fully diluted
27.1% fully diluted
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Thank You