Buy Sterlite Technologies Ltd For Target Rs.210 - Yes Securities
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Sequentially improved operating performance; continues to gain market share in OFC market
Result Synopsis
Sterlite Technologies (SOTL) reported sequentially improved performance for the quarter. Both, the sequential revenue growth and EBITDA margin were as per expectation. It reported revenue growth of 12.3% QoQ, led by 15.5% QoQ increase in Global networking segment, and 10.5% QoQ increase in Global Services segment. There was sequential improvement in EBITDA margin(up 255 bps QoQ) led by lower logistics cost and better realization. Order book grew 4.4% QoQ to Rs 117bn
SOTL is expected to benefit from multi?year digital creation cycle led by 5G, FTTx and fibre demand from hyperscalars. Also, optical fibre cable prices are on the rise globally and should benefit Sterlite Technologies. It has been gaining market share in global OFC market. The rise in revenue mix from international clients is in right direction. We expect EBITDA margin to improve going ahead led by easing off certain cost pressure related to raw material and logistics. 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 20.1% over FY22?24E with average EBITDA margin of 14.2%. We maintain our BUY rating on the stock with target price of Rs 210/share based on EV/EBITDA of 8x on FY24E. The stock trades at EV/EBITDA of 10.7x/6.7x on FY23E/FY24E.
Result Highlights
* Reported revenue of Rs 17.7bn( up 12.3% QoQ, up 17.3% YoY). The growth was led by 15.5% QoQ increase in Global networking segment, and 10.5% QoQ increase in Global Services segment; While Digital and Technology segment was flattish ( down 2% QoQ).
* It has ramped down its Wireless solutions business to cut down on losses in the segment.
* EBITDA margin increased by 255 bps QoQ to 9.8% on lower logistics costs and passing on of certain costs to customers.
* Order book grew 4.4% QoQ to Rs 117bn.
* Its market share in Global ex- China OFC market grew from 9% in FY22 to 11% in H1FY23.
* Reported PAT( after MI) of Rs 440mn vs net loss of Rs 200 mn in Q1FY23.
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