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Mixed operating performance in the quarter

Our view

Overall, mixed operating performance, led by this one off provision in the quarter. We expect it to be a minor blip and performance should pick up from Q4FY21. It is expected to be a major beneficiary of digital upcycle trend over the next decade, led by 5G and FTTx. Capex intensity will decline going ahead and it will lead to deleveraging of the balance sheet. We maintain our current BUY rating on the stock with revised target price of Rs 330/share.

Result Highlights

* Reported revenue of Rs 13.5 bn, down 10% QoQ, led by one off provision of Rs 480 mn in a old contract and some ramping up delay in few contracts. Capacity utilization was 75-80% for optic fibre business and 80-85% for optic fibre cable business.

* North American revenue share has grown to 13% as of Q3FY22. Investing in OFC capacity in South Carolina which would commence operation by Q2FY23.

* Reported EBITDA loss of Rs 507 mn, led by lower revenue and one time provision of Rs 1.15 bn

* Order book grew to Rs 117 bn from Rs 115 bn as of Q2FY22.

* Completed integration of Clearcomm as it ramped up its UK talent base to more than 150 employees.

* Optical interconnect attach rate has grown to 14% in Q3FY22 from 8% in Q2FY22 and on way to achieve attach rate of 100%.

Valuation

The stock trades at EV/EBITDA of 7.2x on FY24E EBITDA. Besides optical fiber business, the focus on system integration business and wireless solutions would help to drive revenue growth going ahead. It is expected to gain market in its total addressable market($40bn) going ahead. We value the stock at EV/EBITDA of 9.5x on FY24E EBITDA, arriving at target price of Rs 330/share

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