Buy Sterlite Technologies Ltd For Target Rs. 350 - Yes Securities
Our view
It is expected to benefit from the network creation cycle led by 5G and FTTX which has taken off. The growth in orderbook has started picking up with improving deal pipeline. Realization remains stable for the company due to its long term nature of contracts, through there has been some uptick in spot prices of optic fiber. Network integration business is expected to scale up as it expands globally; while it continues to invest in its Access solutions business. It trades at attractive valuation of 9.5x EV/EVITDA on FY23E EBITDA. We maintain BUY rating on the stock with target price of Rs 350.
Result Highlights
* Revenue was down 11.2% sequentially to Rs 13,092 mn on account of 2nd covid wave disruption at its manufacturing plants. It recorded double digit revenue growth in optical interconnect business on QoQ basis in Q1FY22. Capacity utilization was 68% in optic fibre and around 70% in case optic fibre cable. Its market share has grown from 4.5% in Q1FY21 to 6.5% in Q1FY22 in optical fiber business; with total addressable market growing to $40 bn (5x over last 5 years).
* Focus on cost optimisation helped it to post marginally higher EBITDA margin at 17.7% vs 17.4% in Q4FY21.
* Net income declined 7% QoQ Rs 1157 mn, led by lower revenue, party compensated by other cost optimisation measures.
* Recently, announced its plans to expand optic fibre cable capacity from 33 mn fkm to 42 mn fkm by FY23 and to achieve Rs 100bn annual revenue run rate by Q4FY23 and D/ E of 0.5 x from current 1x.
* Also announced the acquisition of UK based network integration company, Clearcomm, at total enterprise value of GBP 15.5mn, to augment its presence in Europe.
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