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Mixed operating performance in the quarter

Our view

Overall, mixed performance for the quarter. While, revenue growth was above estimate, EBITDA margin was below estimate on higher raw material, freight cost and other investments in UK business. 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. Besides optical fiber business, the focus on system integration business and wireless solutions would help to drive revenue growth going ahead. It is expected that EBITDA margin should rise to normalized level by H2FY23, led by price increase and other cost optimization measures. Capex intensity will moderate going ahead and it will keep debt under control.

We maintain BUY rating on the stock with revised target price of Rs 269 per share at 8.5x EV/EBITDA on FY24E. Trades at EV/EBITDA of 7.0x on FY24E

Result Highlights

Reported revenue of Rs 15.8bn ( up 16.7% QoQ, up 7.3% YoY). In terms of Revenue mix, Optical products accounted for 68% of revenue; Services accounted for 32% of revenue.

Capacity utilization was 74% for optic fibre and 81% for optic fibre cable.

EBITDA margin was 5.7% for Q4 compared to normalized EBITDA margin of 17%  from Q2FY21 to Q2FY22, led by higher raw material inflation and increase in logistics cost due to global supply  chain disruption. Increased investment in UK Services, Digital and Wireless also contributed to dip in margin in the quarter

Reported order book of Rs 116.4bn( up 8% YoY, flat QoQ).

Now, it accounts for 10% of Global( ex China)  OFC market, up from 8% in FY21.

For FY23, it has guided for 25% revenue growth for FY23 and expects it to reach sustainable quarterly margin of around ~17% by H2 FY23.

Recommended final dividend of Rs 0.25/ share( of face value of Rs 2 each)

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