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Result Synopsis

Sterlite Technologies (SOTL) reported mixed operating performance for the quarter. The sequential revenue growth was below expectation; while EBITDA margin was as per estimates. Revenue declined by 18.7% QoQ, led by 26.7% QoQ decrease in Global networking segment; the Global Services segment grew by 0.3% QoQ as it continues to realign its Services segment with higher focus on profitability. There was sequential improvement in EBITDA margin(up 39 bps QoQ) led by focus on cost optimization. Order book was up 4.1% YoY to Rs 109bn. SOTL is expected to benefit from multi?year digital creation cycle led by 5G, FTTx and fibre demand from hyperscalars. Also, optical cable prices are broadly steady globally and provides revenue visibility. It has been gaining market share in global OFC market. However, we expect that revenue from the US market would continue to be muted over next 2-3 quarter and that would have an impact on overall revenue for FY24. It plans to increase Interconnect attach rate to 40% by Q4FY25. We expect EBITDA margin to improve going ahead led by continued focus on cost optimization and easing off certain cost pressure related to raw material. It has been able to pass some increase in cost to customers. The moderation in capex intensity will help to keep debt under control. We estimate revenue CAGR of 13.5% over FY23?25E with average EBITDA margin of 15.7%. We change our Rating on the stock from BUY to ADD with revised target price of Rs 177/share based on EV/EBITDA of 6.5x on FY25E. The stock trades at EV/EBITDA of 7.9x/5.8x on FY24E/FY25E.

Result Highlights

* Reported revenue of Rs 15.2bn (down 18.7% QoQ, up 2.5% YoY). The Global networking segment decreased by 26.1% QoQ, however Global Services segment increased by 0.3% QoQ. While Digital and Technology segment grew by 77% QoQ on account of low base.

* EBITDA margin increased by 39 bps QoQ to 14.1% due to decrease in overall direct cost by 19.1% QoQ.

* Order book was up 4.1% YoY to Rs 109bn.

* Its market share in Global ex- China OFC market YoY remained flat at 11% in H1CY23.

* Reported PAT (after MI) of Rs 540mn (down 16.9% QoQ) vs Rs 650mn in Q4FY23. ? Revised FY24 guidance: Revenue growth at 7 to 9% & Net debt to EBITDA at 2.5x.

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