Buy Sterlite Tech; target of Rs 53: Nirmal Bang

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Buy Sterlite Tech; target of Rs 53: Nirmal Bang

Nirmal Bang is bullish on Sterlite Technologies and has recommended buy rating on the stock with a target of Rs 53 in its September 2, 2011 research report.

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Nirmal Bang is bullish on Sterlite Technologies and has recommended buy rating on the stock with a target of Rs 53 in its September 2, 2011 research report.

"Sterlite Technologies Ltd (STL) is India's only fully integrated optical fiber manufacturer and the fifth-largest globally. The company is also the third-largest global manufacturer of power conductors and is a leader in the local market with 25% market share.

"The company has embarked on a capacity expansion for its power conductors and optical fiber business units. In the power conductor segment, it has increased capacity from 75000 Mtpa in FY07 to 160000 Mtpa in FY10 and is further expanding to 200000 Mtpa by FY12. This would make STL the world's largest integrated manufacturer of power conductors. In the optical fiber segment, the company is increasing its capacity to 20 mn kms from its current 12 mn kms. This would make STL among the largest global manufacturers of optical fibers by FY12. The impact of these expansions will be seen in FY13. STL has ventured into bidding for independent power transmission projects and has won a BOOM project of East North Interconnection mega transmission whereby it will get fixed revenues every year. This would provide additional revenue stream after 3-5 years. This project has achieved financial closure and is on schedule. The company has 2 other BOOM projects under this portfolio for which it is targeting the financial closure in FY12."

"In 2010, the global demand for optical fiber cable reached 182 mn fiber-km and this is expected to cross 200 mn fiber-km in 2011 on the back of developed country's efforts to build FTTx networks. Chinese demand saw a flat growth in the previous year. This year, however, all the 3 telecom operators in China together have come up with investment plans of US$ 50 billion for building 3G mobile network and construction of FTTx networks. Sterlite has formed a JV with a Chinese firm with 75% ownership and is in a very good position to capture this demand."

"STL is a leader in the areas of its operations and the end user industries - Power and Telecom are seeing robust growth. We expect revenues to grow by 22% to Rs.2762 cr and PAT to move up by 14% to Rs.160 cr in FY12E. At CMP, the stock is trading at 9.6x of FY12E EPS of Rs.4.08. We assign a multiple of 13x to its FY12E EPS to arrive at price target of Rs.53 and assign a BUY recommendation on the stock," says Nirmal Bang research report.

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To read the full report click on the attachment