Buy Sterlite Technologies Ltd For Target Rs.355 - Yes Securities
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Strong execution on both revenue and margin front
Our view
Overall, strong execution on both revenue and margin front. 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 expect revenue to grow at CAGR of 22.9%(on low base of FY21) over FY22E‐ FY24E with average EBITDA margin of 18.4% over the period. We maintain our current BUY rating on the stock with revised target price of Rs 355/share.
Result Highlights
* Reported revenue of Rs 15.1 bn( up 15.1% QoQ) as the operations returned to normalcy after the impact from 2nd Covid wave. Orderbook grew by 7.4% YoY to Rs 115bn
* Utlization level was 70% for optical fibre on 50 mn fkm capacity and 85% for optical cable on 33 mn fkm capacity. Working to increase cable capacity to 42 mn fkm by Q1FY23
* EBITDA margin was17.4% for the quarter( down 28 bps QoQ), broadly in line with average EBITDA margin of last 4 quarters.
* Pricing remains stable for the company due to long term contracts though there has been some increase in spot prices recently.
* Capex of Rs 5bn for FY22( Rs 3 bn has been spent and Rs 2 bn would be spent in H2FY22. Has guided for capex of Rs 3bn for FY23.
* Net debt has increased by Rs 4bn over H1FY22 to Rs 28.1 bn. As per management, it has peaked and should decrease going ahead.
Valuation
The stock trades at EV/EBITDA of 8.3x 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 rollover to FY24E estimates and value the stock at EV/EBITDA of 9.5x on FY24E EBITDA, arriving at target price of Rs 355/share.
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