1
Power & Telecom Transmission
Sterlite Technologies Bloomberg Code: SOTL IN
BUY July 21, 2014
Analyst Contact
Prashant Kanuru
+91-40-44857894
Research Desk - Stock Broking
Key Financials Particulars (Rs. Mn.) FY12 FY13 FY14 FY15E FY16E
Net Sales 26217.50 30923.40 25638.50 39281.03 47154.71
EBIDTA 1885.90 2228.50 2753.80 5619.25 9248.87
Adjusted Net Profit 396.40 251.90 -355.10 -2339.66 964.00
EPS (Rs.) 1.01 0.64 -0.90 -5.94 2.44
EPS Growth (%) -74.56 -36.49 -240.84 -558.29 na
P/E (X) 38.13 35.88 na na 24.23
EV/EBITDA (x) 12.36 13.92 17.99 14.92 10.13
Dividend Yield 0.78 1.31 1.30 0.49 0.49
ROE (%) 3.68 2.19 -3.13 -23.74 10.70
ROCE (%) 9.82 6.10 4.12 6.44 10.40
Book Value (Rs.) 29.11 29.46 28.19 21.83 23.86
P/BV(x) 1.32 0.78 0.82 2.71 2.48
Net Debt/equity 0.71 1.86 3.44 6.79 7.35
Equity/Total Assets 0.35 0.22 0.16 0.10 0.09
Source: Karvy Research, Company Note: E= Estimates
Robust volume growth & improving cash flows Sterlite Technologies is a leading player in Telecom (Optic Fibre and
Cables) and Power Conductors with domestic market share of 35% and
25% respectively. It also has a portfolio of 6 Power Transmission projects
on build, own, operate and maintain (BOOM) basis.
We expect 15% plus growth in Optic Fibre volumes. Power Conductors
business is expected to report normalized sales volume of 130,000 mt per
annum & EBITDA of Rs. 8000-9000 per tonne, which would lead to a
healthy growth in NOPLAT from these two business segments.
We expect annuity cash inflows from transmission business would lead to
generation of free cash flow (enterprise level) from FY16 onwards.
Adding to these, a stable and conducive macro economic situation
increases the possibility of refinancing of significant amount of debt.
Valuation and Outlook We valued Sterlite Technologies based on SOTP valuation methodology by
summing up valuations of products business (Optic Fibre & cable and Power
Conductors) and upcoming Power Transmission Projects business as two
separate parts. Products business has been valued using the EV/EBITDA
multiple and the projects business is valued by discounting the net future cash
inflows after including all the long term debt repayments. Based on the above
methodology, we arrived at a target price of Rs. 99.56 per share (Rs. 65.01 from
the Products business and Rs. 34.55 for the Projects business). We initiate
coverage on the Company with "BUY" recommendation and a target price of
Rs. 99.56 per share, which represents an upside potential of 67.75%.
Key Risks to the Call 1. Slower than expected volume growth in Optic Fibre and power
conductors business segments.
2. Delay in commissioning of Transmission Projects.
3. Delay in Annuity receipts.
Recommendation
CMP (Rs) 59.35
Target Price (Period) (Rs) 99.56
Previous Target Price (Rs) NA
Upside/Downside (%) 67.75
Stock Information
Mkt Cap Rs.bn/US$ mn 23.37/387.59
52-wk H/L 73.45/15.75
3M Avg. daily volume (mn) 2.89
Beta (x) 1.19
BSE Sensex 25715
Nifty 7684
Stock Performance (%)
1M 3M 12M YTD
Absolute -15.5 91.5 186.0 140.8
Relative to Sensex -17.5 69.5 124.2 98.3
Performance (%)
Technical View: SOTL has made a
3-1/2 year high at 73.50 during last
month and has corrected to take support
around 60 levels. The stock is in
momentum since March this year and
has gained multifold from 20 odd levels
to 70 levels. The massive price increase
was supported by huge volumes
indicating accumulation of the stock by
strong hands. The medium term trend
looks positive and can drive the stock
towards its next resistance of 76 levels
and sustenance above the same can pull
the counter towards its next resistance
of 100-110 levels in the coming months.
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2
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June 23, 2014
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Sterlite Technologies
Company Financial Snapshot Company Background
Exhibit 1: Profit & Loss (Rs. Mn.)
Particulars FY14 FY15E FY16E
Net Sales 25638.50 39281.03 47154.71
Op Exp 22884.7 33461.8 37590.8
EBITDA 2753.80 5619.25 9248.87
Depreciation 1333.10 2240.00 2511.00
Interest Expense 1797.80 5679.54 5756.82
PBT -305.00 -2325.29 1096.05
Tax 243.10 259.46 352.04
PAT -355.10 -2339.66 964.00
Profit & Loss Ratio EBITDA Margin (%) 10.74 14.31 19.61
Net Margin (%) -1.39 -5.96 2.04
P/E(x) NA NA 24.23
EV/EBITDA (x) 17.99 14.92 10.13
Dividend Yield (%) 1.30 0.49 0.49
Exhibit 2: Balance Sheet (Rs. Mn.)
Particulars FY14 FY15E FY16E
Total Assets 69268.8 90446.2 100784.2
Net Fixed Assets 52740.2 70358.1 77151.0
Current Assets 14289.8 17680.0 21708.9
Total Liabilities 69268.8 90446.2 100784.2
Net Worth 11308.8 8812.7 9620.2
Debt 41445.3 60770.6 72834.3
Current Liabilities 21185.6 27362.9 28249.5
Balance Sheet Ratios (%) ROE (%) -3.13 -23.74 10.70
RoCE (%) 4.12 6.44 10.40
Net Debt/Equity 3.57 6.86 7.31
Equity/Total Assets 0.16 0.10 0.10
P/BV(x) 0.82 2.71 2.48
Exhibit 3: Cash Flow (Rs Mn.)
Particulars FY14E FY15E FY16E
EBITDA 2753.80 5619.25 9248.87
Other Income 225.00 200.00 315.00
Interest 1797.80 5679.54 5756.82
Tax 243.10 259.46 352.04
Change in WC 1749.90 -1778.45 -2070.53
CF from Operations 4080.25 3519.35 7083.59
Capex -19361.90 -15950.00 -6500.00
Investment -2111.00 199.40 915.00
CF from Investing -21472.90 -15750.60 -5585.00
Change in Equity 0.70 0.70 0.70
Change in Debt 15415.10 17740.29 7233.19
Dividend 137.04 137.16 137.29
CF from Financing 12702.84 11498.61 714.37
Change in Cash -4689.81 -732.65 2212.96
Sterlite Technologies (SOTL) shares the same lineage as
that of Vedanta Resources Plc, a globally diversified
natural resources group. SOTL operates in 3 business
segments: Telecom, Power Conductors and Power
Transmission Projects. In Telecom transmission space,
it manufactures optic fibre cables, data cables and is
present in the System integration space
(Communication Network); SOTL is the country’s only
fully integrated manufacturer of Optic Fibre. In the
Power Transmission segment, SOTL’s presence is at the
two extreme ends of the value chain. In the Upstream
segment, it is into manufacturing of aluminium power
conductors and power cables (principally) and in
downstream, it has six Power Transmission Projects
being executed on BOOM basis.
It has Optic Fibre manufacturing plants in
Aurangabad, India (Waluj and Shendra); China
(through a 75% owned JV) & Brazil (through 50% JV)
and Optic Fibre Cables manufacturing facility in
Silvassa. Power Conductors manufacturing facilities
are located in Silvassa, Haridwar & Jharsuguda and
Power cables unit in Haridwar. The six Power
Transmission Projects are located across North, East
and Central India. Out of these, three transmission
projects (ENICL, BDTCL and JTCL) with a total
transmission line length of 2100 KMs are expected to
progressively come on stream in FY15 and the
remaining three projects are expected to come on
stream progressively starting from FY18. SOTL has
sales and marketing presence across the continents of
Asia, Africa, Europe and Latin America.
Exhibit 4: Segmental Revenue Contribution
40.24%
57.79%
1.97%
Optic Fibre & Cables Power Conductors Power Transmission Grid
Note: E= Estimates
3
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Sterlite Technologies
Exhibit 5: Revenue Breakup (FY14, Rs. Mn.)
Exhibit 6: Share Holding Pattern (%) (June 30, 2014)
Company Snap Shot (Ratings)
Low High
1 2 3 4 5
Quality of Earnings
Domestic Sales
Exports
Net Debt/Equity
Working Capital req
Quality of Management
Depth of Management
Promoter
Corporate Governance
11048.6
15868.7
541.3
Optic Fibre & Cables Power Conductors
Power Transmission Grid
54.71%
2.69% 5.51%
0.23%
1.20%
27.93%
6.18% 1.55% Promoter & Promoter Group
Mutual Funds/UTI
Financial Institutions/Banks
Other DII's
FII's
Individuals
Bodies Corporate
others
Going forward, contribution
from Telecom and power
transmission projects will
increase significantly and
thus reduce the
predominance of power
conductors in revenue
contribution.
Entities controlled by the
promoter family hold 54.71%
stake (0% pledging) and LIC
and Reliance capital are
among the prominent
institutional investors.
4
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Sterlite Technologies
Valuation
Absolute Valuations Sterlite Technologies has been valued using SOTP method as the nature of Telecom & Power Conductors’ (products)
businesses are very different from the progressively being commissioned Power Transmission Concessions (Projects).
Products business being cyclical in nature, has been valued using EV/EBITDA multiple and Projects business has been
valued using DCF method because of high certainty in its annuity based cash inflows. Valuations of these two businesses
have been added up to arrive at the final Price Target.
Exhibit 7: Valuation Summary
Business segments
(A+B) Capacity/Description COD
Valuation
Methodology
Equity Valuation
(Rs. Million) for
FY15
Valuation per
Share (Rs.)
A. Optic Fibre/Cable
(OF/C) andPower
Conductors
Optic Fibre – 20.5 million ofkm and Power Conductors
– 160,000 MT Operational EV/EBITDA 25624.9 65.01
B. Power Transmission Projects
East North Interconnection
Transmission Company Ltd.
(ENICL)
ENICL involves establishment of two 400 kV Double
Circuit transmission lines (with a total line length of
450 kms) that would pass through the Indian States of
Assam, West Bengal and Bihar. This project has 18
identified beneficiaries (mainly SEBs in the states of
Rajasthan, Punjab, Haryana, Uttaranchal and the city
of Delhi), who would be directly benefited by this
project. They would pay transmission tariff to Sterlite
for a period of 25 years
FY15 DCF
13616.9 34.55
Bhopal Dhule Tranmission
Company Ltd. (BDTCL)
BDTCL involves establishment of four 765 kV Single
Circuit and two 400 kV Double Circuit Transmission
lines that would strengthen the transmission system in
the Indian states of Madhya Pradesh, Maharashtra and
Gujarat. Line Length of this project is 992 kms.
FY15 DCF
Jabalpur Transmission
Company Ltd. (JTCL)
JTCL involves establishment of a 765 kV Double
Circuit and a 765kV Single Circuit transmission line
each, that would strengthen the transmission system in
the Indian states of Chhattisgarh and Madhya Pradesh.
Line Length of this project is 610 kms.
FY15 DCF
Rajasthan Atomic Power Plant
Transmission Company Ltd
(RAPP)
RAPP involves establishment of 400kV Double Circuit
transmission line that would strengthen the
transmission system in the Indian states of Rajasthan
and Madhya Pradesh.
FY18 DCF
Purulia & Kharagpur
Transmission Company
Limited (PKTCL)
PKTCL involves establishment of two 400 kV Double
Circuit transmission lines that would strengthen the
transmission system in the Indian states of West
Bengal and Jharkhand.
FY18 DCF
Northern Regions
Strengthening Scheme 29
(NRSS 29)
Northern Region Strengthening Scheme Project (NRSS
29) is a part of the National Grid and is designed to
carry over 1000 MWs of electricity from Punjab to the
Kashmir Valley The project consists of one-substation
and 800 circuit kilometers of 400 KV lines in the states
of Punjab and J&K.
FY20 DCF
Sum of the parts (A+B) 39241.8 99.56
Note: All the above Transmission Power Projects are held through 100% owned subsidiary Sterlite Grid which in turn holds 100% stake in these SPVs. The recent
issue of convertible securities to Standard Chartered has been considered as debt as conversion to equity (if any) will be happening later.
5
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1. Valuation for Telecom and Power Conductor
Businesses based on EV/EBITDA Multiple:
The EV/Ebitda Multiples of FY11 and FY12 have
been considered for valuing the products
businesses. This selection has been made
considering the fact that consolidated balance sheet
of the company did not have any long term debt in
FY12 and the debt levels started increasing only
from FY13 due to start of significant capex for
commissioning of Power Transmission Projects.
Thus, EV/EBITDA multiples for FY11 and FY12
would be the right representative set for
ascertaining the value of the products businesses.
Out of these two years, FY11 would be more
appropriate for ascertaining a multiple because, the
power conductors business saw a significant drop in
per tonne EBITDA margin in FY 12 and FY13, which
was less than the normalized Ebitda margins of Rs.
8500-9000 per Metric Tonne. Hence, the EV/EBITDA
multiple for valuing the products businesses has
been taken as 9.5.
Methodology:
FY15 Ebitda for the businesses of Optic Fibre and
Power conductors has been projected to be Rs. 3434.2
Million. Taking the EV/EBITDA Multiple of 9.5
would lead to an Enterprise Value of Rs. 32624.9
Million.
Long term and Short term borrowing assumptions:
Long Term Borrowing for these businesses would be
very low (only for Chinese JV) in long term as it was
zero in FY12 on standalone balance sheet and short
term borrowings can be assumed to be a bit less than
the FY12 proportions, say around 21% of sales, as the
contribution from PGCIL orders is low and thus this
parameter can be benchmarked to the FY14 levels.
Thus, the total borrowings can be assumed to be
around Rs. 8000 Million for FY15. For the completion of
calculations, assume cash of around Rs. 1000 Million for
FY15 (the closing level in FY11).
Valuation Calculations: Equity Value (Market Capitalization) =
32624.9 – 8000 + 1000 = Rs. 25624.9 Million.
Per Share Term: Total outstanding shares are 394.2
mn and thus the per share valuation comes out to be
Rs. 65.01
Exhibit 8: Segmental Break-up & Consolidated EV/EBITDA
Particulars FY11 FY12 FY13 FY14
OF (million fKm) 8.8 11.7 12.5 11.4
OFC (million fKm) 3.7 3.6 4.6 5.2
Conductors (MT) 124653 135658 137750 94587
Sales (Rs. Mn.) 22630 27270 33540 27260
Combined Ebitda (Rs. Mn.) 2820 2230 2600 2710
Tax outgo (Rs. Mn.) 379.6 129.3 182.9 243.1
NOPLAT (Rs. Mn.) 2440.4 2100.7 2417.1 2466.9
Optic Fibre & Cable
Sales (Rs. Mn.) 6570 8040 10560 10770
Blended realization per Ofkm(Rs.) 746.59 687.18 844.8 944.74
Ebitda (Rs. Mn.) 1680 1390 1660 1870
Realization per OF fKm (USD) NA NA NA 7
Realization per OFC fKm (USD) NA NA NA 20
Conductors
Sales (Rs. Mn.) 16060 19230 22300 15870
Ebitda (Rs. Mn.) 1140 840 940 850
Ebitda/Tonne (Rs.) 9145.39 6192.04 6823.96 8986.44
Closing Price on FY Ending date 56.46 38.44 22.97 23.15
Enterprise Value (Rs. Mn.) 26799.9 23317.8 31027 49541.6
EV/Ebitda 9.50 10.46 11.93 18.28
Exhibit 9: EBITDA Projections
FY15E FY16E
OF (million fKm) 15.87 18.25
OFC (million fKm) 6.0 7.0
Conductors (MT) 130587 135587
Sales (Rs. Mn.) 36981.0 41454.7
Combined Ebitda (Rs. Mn.) 3434.2 3833.9
Tax outgo (Rs. Mn.) 259.5 352
NOPLAT (Rs. Mn.) 3174.8 3481.8
Optic Fibre & Cable
Sales (Rs. Mn.) 1520.71 1921.57
Blended realization per OfKm 958.23 1052.92
Ebitda (Rs. Mn.) 2259.0 2681.4
Realization per OF fKm (USD) 7.5 7.5
Realization per OFC fKm (USD) 22.96 22.96
Conductors
Sales (Rs. Mn.) 21773.9 22239.0
Ebitda (Rs.Mn.) 1175.3 1152.5
Ebitda/Tonne (Rs.) 9000.00 8500.00
6
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Sterlite Technologies
2. Valuation for Transmission Business
Assumptions for the Discounted Cash Flow
Long term Borrowing Repayment Schedule:
The total tenor of the debt has been taken as 14.5 years from the start of construction and the principal repayment
being spread over 11.5 years from the start of the power transmission project. It is assumed that the last 3 projects i.e.
NRSS 29, ERSS and PKTCL will be fully commissioned by the end of FY20.
65% of the debt is assumed to be repaid in quarterly installments and the remaining 35% will be repaid as bullet
repayments.
Discount rate: The discount rate for the 25 to 35 year net cash inflow has been assumed to be 8.75% which is the long term
Govt. bond yield. The reason for assuming 8.75% is the high certainty of cash inflows as these are annuity cash payments.
Annuity payments: Annuity payments have been assumed to be Rs. 2300 Million for FY15, Rs. 5700 Million for both FY16
& FY17 and Rs. 6900 Million for both FY18 & 19. Rs. 11300 Million from FY20 to FY40; from there on, till FY50 it has been
assumed to be Rs. 9400 Million; Rs. 8400 million for FY51 & 52, and Rs. 4400 million till FY55.
Interest Rates have been assumed at 10.5% for FY15, 10% in FY16 to FY18, 9.5% for FY19, 8.5% for FY20 and 8% till FY53.
Ebitda margins have been assumed to be uniform at 95% throughout the years
Tax outgo have been assumed to be zero till FY29, considering heavy losses at PBT levels till FY19 and section 80IA
exemptions. Tax out go in FY30 has been assumed to be at MAT rate. For subsequent years assumed to be 30% till FY55.
Present Value of Net Future Cash Inflows: Based on the above assumptions, the net present value of these cash inflows
comes out to be close to Rs. 13616.9 Million which on a per share basis, based on the projected paid up capital of FY15,
comes out to be Rs. 34.55 per share.
Valuation: Adding 1 and 2, the Target Price comes to Rs.99.56 per share
Sensitivity Analysis
Parameters which are sensitive to the forward projections and valuations are as follows:
Delays in commissioning of Power Transmission projects
Less than expected volumes in Power Conductors business
Delays in commissioning of Power Transmission Projects: This parameter will have the maximum impact in terms of
Revenue and Ebitda projections for FY15 and FY16 on a consolidated basis. The impact of this parameter on absolute
valuations of the company will however be low because the company has been valued using the Sum of the Parts
methodology and in that Power Transmission Project has been valued using the Discounted Cash Flow Method. As the
positive Net Cash Inflows will start only from FY20, thus the net impact of delays in commissioning will be minimal on
the target price.
Less than expected volumes in Power Conductors Business: This parameter is the most sensitive parameter in terms of
its impact on absolute valuation of the company. Any drop here will impact the EV/EBITDA valuation given to the
products businesses. Based on the financial model developed for Sterlite Technologies, its sensitivity is highest in terms
of change in volumes of power conductor business. For every 10,000 tonne drop in volume, the enterprise value will come
down by around 2% and the target price would come down by approximately Rs. 2 per share.
Valuation for Telecom and
Power Conductor Businesses
(Rs.65.01 per share)
Valuation for Power
Transmission (Rs.34.55
per share)
Target
Price of Rs
99.56 + =
7
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Less than expected EBITDA Margin per tonne in Power Conductors Business: If the Per Tonne Ebitda margin comes
down by around Rs. 1000 per tonne, based on the expected volumes, the valuation target per share would come down by
approximately Rs. 0.325 per share.
Thus, the company is relatively more sensitivity to volume drop than the Ebitda margins in Power Conductors business.
Sensitivity to volume and price realization in Optic Fibre & Cable business has not been considered because, the estimates
used for the volume growth in this business is significantly less than what has been guided by the management and also
price strength is not a concern here as the existing demand scenario provides it with sufficient protection from any
significant downside in Optic Fibre segment.
Cross Cycle Valuations Company is expected to see a P/B rating revision post the improvement expected in FY15 and FY16. This will be the case
more so, starting from FY16, when the first 3 Power Transmission Projects are expected to fully come on stream.
Company is then expected to go back into the 4x and above band. This would also be supported by bullish demand
scenarios being seen in Optic Fibre and Cable businesses and an expected revival in PGCIL order inflow for Power
Conductor business starting some 2 to 5 quarter away from now.
Investment Argument
Higher Operational Profitability and Improving Cash Flows
1. Optic Fibre (OF) and Optic Fibre Cable (OFC) volume increase
2. Higher realization from Optic Fibre Cable business.
3. Sustenance of higher operating margins (per tonne basis) for Power Conductor business
4. Higher NOPLAT levels for the Telecom (OF + OFC) and Power Conductors business
5. Transmission income
1. Higher Optic Fibre & Cable Volumes and Power Conductor Volumes:
Optic Fibre and cable volumes: Company is expected to reap the benefit of higher OFC volumes owing to the following
factors – National Optic Fibre Network (NOFN) (4 lakh Kilometers), Defense Optic Fibre Network/NFS (60,000 Kms),
Increasing volumes for FTTH (Fibre to the Home) due to digitization of cable services and the most important and the
biggest factor is the increasing data usage which is expected to get an increased boost by the roll-out of 3G & 4G networks
ably supported by increasing rollout of Wi-Fi hotspots thus increasing the need for FTTA (Fiberization of Telecom towers
as a part of the back haul network). These domestic market dynamics along with export demand from Europe, Middle
East and Latin America will support the demand growth for OFCs and OFs.
Exhibit 10: I Yr forward P/B
4x
3x
2x
1x
0
20
40
60
80
100
120
140
Jul-
2009
No
v-2
009
Mar
-201
0
Jul-
2010
No
v-2
010
Mar
-201
1
Jul-
2011
No
v-2
011
Mar
-201
2
Jul-
2012
No
v-2
012
Mar
-201
3
Jul-
2013
No
v-2
013
Mar
-201
4
Jul-
2014
8
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Volume Potential: i) National Optical Fibre Network (after netting off the existing networks of BSNL, RailTel, PGCIL and
GAILTel) requirement is estimated to be around 400,000 kms (approx.) which at an average fibre count of 50 makes it an
opportunity of 20 million Optic Fibre Kilometers. Sterlite Technologies presently has a market share of 22% in this segment.
ii) NFS (Network for Spectrum) is the Optic Fibre network to be laid for the defence forces in the country in lieu of 150 MHz
of spectrum to be surrendered by Defense Forces in the 1700-2100 MHz band. This is a 60,000 km network connecting 129
army, 162 air force and 33 navy stations. This will need OFC’s which will fetch higher per Optic Fibre Cable KM realization.
iii) FTTA potential is very high because presently only 7% of the towers are fiberized.
The NOFN and NFS present 23 million Optic Fibre kilometer opportunities for which the tendering has already started. In
case of NFS almost half of the OFC requirements orders have already been placed. Considering the present stated market
share of (22%) Sterlite Technologies in the NOFN, this comes out to be around 4.4 Million of Km opportunity. In NFS
space, Sterlite Technologies has already bagged an order for 1.5 Million Fibre Kms of Optic Fibre Cable.
The spurt in domestic demand will increase the revenue contribution from India which presently stands at around 40% of
the revenues. This is expected to go up to 50%.
Volume Numbers: The present capacities of the company in OF and OFC are 20 Million of Km (including the China JV)
and 6 Million of Km respectively. Sales volumes in FY14 were 13.8 million Fibre Kilometers and 5.2 million OFC Kms.
This is expected to increase by at least 15% on yearly basis for the next two years.
Power Conductor Volumes: Power Conductor volumes were anemic in FY14. This was on the back of a very weak
operating environment in FY13.
Revival in Power Conductor Volumes: Company has an order book of Rs. 22000 Million in this segment which was at Rs.
16000 Million at the beginning of FY14.
Exhibit 11: Order Book (beginning of FY)
Order Book (Rs. Mn.) FY12 FY13 FY14 FY15
Power Conductors 19500 20500 15500 22000
Telecom 2500 2500 3500 3500
Total 22000 23000 19000 25500
Export Strength: The revival in order book is due to increase in export orders which constitute 51% of the current order
book. SOTL was able to win a big 32,000 MT order from Latin America. This is a positive sign in terms of higher capacity
utilization considering the present low order inflow from PGCIL.
The following two exhibits indicate the decreasing order inflow from PGCIL and also a decrease in top-line contribution
from PGCIL orders. The ability of the company to increase its international market penetration augurs well for the
company. And, this is expected to help increase the capacity utilization in the next two years.
Exhibit 12: Total PGCIL ordering (Rs. Mn.) Exhibit 13: Sterlite Technologies PGCIL Dependence History
FY Overall Conductors FY PGCIL(MT) Exports & Non PGCIL(MT)
11 184000 29840 11 54 70
12 222000 53740 12 73 62
13 161000 9720 13 74 63
14 107600 11500 14 36 58
Source: Company Investor Presentation
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Domestic Order Inflow recovery: Probability of PGCIL order inflow recovery after 3 to 5
quarters is high as going forward, the inventory of conductors with PGCIL is expected to
come down and thus we expect increased order inflow from PGCIL. The below exhibit
which shows the progress of CWIP (Capital Work in Progress) of conductors with PGCIL
leads to this inference.
2. Higher NOPLAT in Telecom and Power Conductors businesses on the back of higher volumes and margins:
The power conductors business is expected to report higher volume of sales on the back of order book visibility, higher
international market penetration and an expected demand revival in the domestic market on the back of higher expected
ordering from PGCIL.
Exhibit 15: NOPLAT (Net operating profit less adjusted tax)
FY11 FY12 FY13 FY14 FY15E FY16E
OF (million fKm) 8.8 11.7 12.5 11.4 15.87 18.25
OFC (million fKm) 3.7 3.6 4.6 5.2 6.0 7.0
Conductors (MT) 124653 135658 137750 94587 130587 135587
Sales (Rs. Mn.) 22630 27270 33540 27260 36981.0 41454.7
Combined Ebitda (Rs. Mn.) 2820 2230 2600 2710 3434.2 3833.9
Tax outgo (Rs. Mn.) 379.6 129.3 182.9 243.1 259.5 352.0
NOPLAT(Rs. Mn.) 2440.4 2100.7 2417.1 2466.9 3174.8 3481.8
Optic Fibre & Cable
Sales 6570 8040 10560 10770 15207.1 19215.7
Blended realization per Ofkm (Rs.) 746.59 687.18 844.8 944.74 958.23 1052.92
Ebitda 1680 1390 1660 1870 2259 2681.4
Realization per OF fKm (USD) NA NA NA 7 7.5 7.5
Realization per OFC fKm (USD) NA NA NA 20 22.96 22.96
Conductors
Sales (Rs. Mn.) 16060 19230 22300 15870 21773.9 22239
Ebitda (Rs. Mn.) 1140 840 940 850 1175.3 1152.5
Ebitda/Tonne (Rs.) 9145 6192 6824 8986 9000 8500
Note: The Ebitda and Sales projections of Telecom Segment does not include the Rs. 1500 Crore Turnkey Project being executed for BSNL
Till FY14, revenue contributions from Chinese operations (started in 2nd half of FY13) have not been included. In FY15 & 16, contribution from Chinese
subsidiary has been assumed to 2.4 million Optic Fibre Kilometers.
Reasons for Sustained Higher Operating Profits: In the Power Conductors segment, Ebitda per tonne is expected to be
maintained at around Rs. 8000 to 9000 per tonne, as we see a revival in product demand and also because SOTL has been
able to increase its international presence. In case of Optic Fibre, the realization per Optic Fibre Kilometer is expected to
remain stable in the range of USD 7.5 to 8.5 (it has been stable in this price band for the last few quarters). In Optic Fibre
Cable segment, the 1.5 million Optic Fibre Cable order from BSNL is at a realization of close to USD 55 per Optic Fibre
Kilometer (leading to a value of Rs. 5000 Million). The higher per Fibre Km realization for the Optic Fibre order under
NFS will increase per fKm realization from USD 20 to 22.96.
3. Transmission Projects Cash Flow
SOTL is going to see an increasing cash inflow from Power Transmission Projects starting from FY15 and reaching the
level of Rs. 11000 Million starting from FY20. The first three projects namely, East North Interconnection (ENICL)
Transmission Project; Bhopal Dhule Transmission Company Ltd and Jabalpur Transmission Company Ltd are expected to
see cash inflows starting from the second half of FY15. Similarly the remaining three projects are expected to see full
potential cash inflows progressively starting from FY18. Based on the outflow assumptions explained in the absolute
valuation section, this business has been valued at a per share valuation of Rs. 34.55.
Exhibit 14: PGCIL - CWIP
(Rs. Mn.) – Conductor
FY Rs. Mn.
11 28000
12 40640
13 70380
14 40500
10
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ABB India
July 21, 2014
Sterlite Technologies
Key Downside Risks
1. Lower than expected volumes in Power Conductors business.
2. Drop in per Tonne Ebitda margin of Power Conductors business.
3. Delay in commissioning of Power Transmission Projects and thus annuity cash inflows.
Exhibit 16: Business Assumption
(Rs mn) FY13 FY14 FY15E FY16E Assumptions
India Business (Standalone)
1. Optic Fibres and Cables:
realizations for OF stood at USD
7.5/ofKm and OFC at USD
22/ofKm.
2. Power Conductors: Normalized
Ebitda per tonne of Rs. 8500 per
metric tonne.
Revenue 30923.40 24288.50 35981.03 40454.71
Revenue Growth (%) 17.95 -21.46 48.14 12.43
EBITDA 1957.10 2245.35 5121.15 8457.37
EBITDA Margins(%) 6.33% 9.24% 14.23% 20.91%
Global OF Plants + Power Transmission
Revenue Na 1350.00 3300.00 6700.00
Revenue Growth (%) Na na 144.44 103.03
EBITDA Na na 2281.00 5465.00
EBITDA Margins(%) na na 69.12 81.57
Consolidated
1. Chinese operations are expected
to contribute Rs. 1000 Mn. to the
top-line with volume
contribution of 2.4 million Ofkm
and Ebitda margins of 5%.
2. Power Transmission Projects are
expected to contribute Rs. 2300
Mn. for FY15 and Rs. 5700 Mn
for FY16 with Ebitda Margins of
95%.
3. Turnkey Contract of BSNL:
These revenues and profits do
not include Rs. 15000 Mn.
turnkey order from BSNL as it is
not a recurring business.
Revenue 30923.4 25638.5 39281.0 47154.7
Revenue Growth(%) 17.95 -17.09 53.21 20.04
EBITDA 1957.10 2600.90 5394.25 9048.87
EBITDA Margins (%) 7.21 10.74 14.31 19.61
PAT (normalized) - for OF/OFC & Power Conductors 778.80 457.22 1167.87 1151.06
Normalized PAT Margins for OF/ Power Conductors(%) 2.52 1.88 3.25 2.85
Normalized PAT Earnings for Transmission Power Projects 0 -487.5 -4075 -913.2
Combined Normalized PAT 778.80 -30.28 -2907.13 237.86
Fully Diluted EPS (le) 1.98 -0.08 -7.38 0.60
Fully Diluted EPS Growth(%) -9.88 -103.89 -9490.89 NA
Capex (ex. Acquisition) - cash capex 14588.7 19361.9 15950 6500
Net CFO 2829.80 4080.25 3519.35 7083.59
Net Debt 21989.50 40425.10 60483.03 70333.69
Free Cash Flow -11758.90 -15281.65 -12430.65 583.59
Source; Karvy Research
11
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June 23, 2014
ABB India
July 21, 2014
Sterlite Technologies
Financial Overview Net sales to start growing again after a year of de-growth
Sterlite Technologies is expected to report a significant
increase in net sales in FY15 on the back of higher volumes
in Optic Fibre and Cable space and also higher capacity
utilization in power conductors segment. Power
conductors’ business segment is also well supported by an
order book which has increased by close to 40% on year-
on-year basis. In FY16, Power conductors business is
expected to continue to benefit from export orders as well
as an imminent pick-up in orders from PGCIL.
Growth in EBITDA
Company has been incurring a huge capex for its
Transmission projects starting from FY13. This capex
infusion will start showing results in terms of higher
operating profits starting from FY15 and will scale up
significantly starting from FY16. Added to this, higher per
tonne Ebitda earnings in power conductors business
segment will also aid in Ebitda growth.
Revival in Profits
Company’s net income is expected to bottom out in FY15
and see a revival starting from FY16. This will reverse the
decline in profits seen for three consecutive years. Decline
in profits was because of fall in per tonne Ebitda margin
for Power Conductors business and high interest cost
being incurred for long term borrowings taken for Power
Transmission Projects (BOOM basis).
Improving profitability ratios
With the commissioning of transmission power projects,
company will be seeing a significant improvement in
profitability ratio. Return on Capital Employed is expected
to improve after bottoming out in FY14. This is due to
commissioning of transmission projects and sustenance of
margins in the existing businesses. Ebitda margins are
expected to go up significantly as the Power Transmission
Projects progressively come on stream.
Exhibit 17: Net Sales & Growth
Exhibit 18: EBITDA & Growth
Exhibit 19: Profit & Growth
Exhibit 20: RoCE & EBITDA
-40%
-20%
0%
20%
40%
60%
0
10000
20000
30000
40000
50000
FY12 FY13 FY14 FY15E FY16E
Net Sales (Rs.
Million) Growth (%) (RHS)
-50%
0%
50%
100%
150%
0
2000
4000
6000
8000
10000
FY12 FY13 FY14 FY15E FY16E
Ebitda (Rs. Million)
Growth (%) (RHS)
-600%
-500%
-400%
-300%
-200%
-100%
0%
-3000
-2500
-2000
-1500
-1000
-500
0
500
1000
1500
FY12 FY13 FY14 FY15E FY16E
Profit (Rs.
Million)
Growth (%)
0%
5%
10%
15%
20%
25%
0%
2%
4%
6%
8%
10%
12%
FY12 FY13 FY14 FY15E FY16E
ROCE (%) (LHS)
EBITDA Margins (%)
12
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June 23, 2014
ABB India
July 21, 2014
Sterlite Technologies
Financials - Consolidated
Exhibit 21: Income Statement
Data Source: Company, NSE, Karvy Research, Bloomberg
YE March (Rs. Mn.) FY12 FY13 FY14 FY15E FY16E
Revenues 26k217.50 30923.40 25638.50 39281.03 47154.71
Growth (%) 15.90 17.95 -17.09 53.21 20.04
EBITDA 1885.90 2228.50 2753.80 5619.25 9248.87
Growth (%) -28.98 18.17 23.57 104.05 64.59
Depreciation & Amortization 715.30 890.90 1333.10 2240.00 2511.00
EBIT 1021.00 1066.20 1267.80 3154.25 6537.87
Growth (%) -44.13 14.27 6.21 137.86 99.39
Interest 924.00 1062.80 1797.80 5679.54 5756.82
Other Income 271.40 152.90 225.00 200.00 315.00
EBT 368.40 156.30 -305.00 -2325.29 1096.05
Income Taxes 129.30 182.90 243.10 259.46 352.04
Extra-ordinary items 0.00 0.00 0.00 0.00 0.00
Reported net income 388.7 244.8 -395.2 -2359.76 944.00
Adjustments -7.7 -7.1 -40.1 -20.1 -20
Adjusted net income 396.4 251.9 -355.1 -2339.66 964.00
Growth (%) -71.93 -36.45 -240.97 -558.87 NA
Adj. EPS (Rs.) 1.01 0.64 -0.90 -5.94 2.44
Growth (%) -74.56 -36.49 -240.84 -558.29 NA
Exhibit 23: Cash Flow
YE March (Rs. Mn.) FY12 FY13 FY14E FY15E FY16E
PBT 518.00 427.70 -152.10 -2100.29 1296.05
Depreciation 715.3 890.9 1333.1 2240 2511
Interest Expense 924.00 1062.80 1797.80 5679.54 5756.82
Other adjustments 258.70 179.80 -405.35 -261.99 -57.70
Change in debtors 875.10 1248.30 -19.40 -3041.49 -2528.29
Change in inventories -792.30 -289.80 -185.30 -1018.55 -241.23
Change in loans & advances -61.60 72.70 853.80 554.00 551.20
Chg in other current assets -1.6 -106.1 580.3 -571.2 -304.4
Change in current liabilities 934.8 -274.9 525.1 2405.15 452.06
Change in provisions 26.3 -171.2 -4.6 -106.36 0.12
Change in working capital 980.70 479.00 1749.90 -1778.45 -2070.53
Direct taxes paid -163.50 -210.40 -243.10 -259.46 -352.04
Cash Flow from Operations 3233.20 2829.80 4080.25 3519.35 7083.59
Purchase of fixed assets -6534.20 -14588.70 -19361.90 -15950.00 -6500.00
Purchase of investments 1980.10 -362.20 -2111.00 199.40 915.00
Cash flow from investing -4554.10 -14950.90 -21472.90 -15750.60 -5585.00
Issue of equity 902.2 35.1 0.7 0.7 0.7
Proceeds from borrowings 2452.3 17834.7 15415.1 17740.29 7233.20
Interest Paid -636.00 -2284.90 -2850.00 -6379.54 -6656.82
Dividend Paid, including
taxes -219.30 -136.00 137.04 137.16 137.29
Cash Flow from Financing 2499.20 15448.90 12702.84 11498.61 714.37
Net Cash Generated 1178.30 3327.80 -4689.81 -732.65 2212.96
Cash at beginning 999.7 2162.4 5712.1 1020.2 287.55
Cash at end of year 2178.00 5490.20 1022.29 287.55 2500.51
Exhibit 22: Balance Sheet
YE March (Rs. Mn.) FY12 FY13 FY14 FY15E FY16E
Inventories 2720.70 3010.50 3195.80 4214.35 4455.58
Sundry debtors 6687.10 5761.00 5780.40 9181.89 11310.18
Loans & Advances 1854.4 1781.1 1957.5 1850.5 2210.5
Other Current Assets 215.10 586.70 2335.90 2145.70 1232.00
Cash & Cash Equivalents 2162.4 5712.1 1020.2 287.55 2500.6
Current Assets 13639.70 16851.40 14289.80 17680.04 21708.88
Net Fixed Assets 16852.3 32977.2 52740.2 70358.1 77151
Non Current Investments 0.00 0.00 0.00 0.00 0.00
Long term loans and
advances 1236.6 3077.2 2047 1600 688.8
Other Non Current Assets 1205.7 739.5 182 752.8 1065.7
Deferred tax Asset 0 21.7 9.8 55.3 169.8
Total Assets 32934.30 53667.00 69268.80 90446.2 100784.2
Short Term Borrowings 6643.70 8586.00 6589.70 8050.00 11404.15
Trade Payables 5383.50 6068.80 5943.90 8365.45 9397.71
Other Current Liabilities 3763.00 6956.60 8366.90 10810.45 7310.45
Short Term Provision 153.00 190.00 285.10 137.04 137.16
Current Liabilities 15943.2 21801.4 21185.6 27362.94 28249.48
Long-Term debt 3720.00 19115.60 34855.60 52720.59 61430.13
Other Long Term Liabilities 597.60 21.90 1016.40 1100.00 1219.80
Long Term Provisions 398.50 158.00 58.30 100.00 100.00
Deferred tax liability 735.10 849.80 844.10 350.00 164.50
Shareholder's Equity 11539.90 11720.30 11308.80 8812.70 9620.24
Total Liabilities 32934.30 53667.00 69268.80 90446.2 100784.2
Exhibit 24: Ratios
YE March (Rs. Mn.) FY12 FY13 FY14 FY15E FY16E
EBITDA margin (%) 7.19 7.21 10.74 14.31 19.61
EBIT margin (%) 3.89 3.45 4.94 8.03 13.86
Net Profit margin (%) 1.51 0.81 -1.39 -5.96 2.04
ROE (%) 3.68 2.19 -3.13 -23.74 10.70
ROCE (%) 9.82 6.10 4.12 6.44 10.40
Receivables (Days) 91.82 67.07 81.16 84.15 86.35
Inventory (Days) 37.36 35.05 44.87 38.62 34.02
Payables (Days) 107.69 104.43 136.29 135.60 149.62
EV/Sales (x) 0.89 1.00 1.93 2.13 1.98
EV/EBITDA (x) 12.36 13.92 17.99 14.92 10.13
P/E (x) 38.13 35.88 na na 24.23
P/BV (x) 1.32 0.78 0.82 2.71 2.48
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ABB India
KARVY STOCK BROKING - RESEARCH DESK
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Disclosures Appendix
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recommendation(s) or views contained in this research report.
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