Quick Take | Release of pledged promoter shares in Sterlite Technologies could ease investor worry

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26 Aug, 2025 12:21

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Jitendra Kumar GuptaMoneycontrol Research

Pledged promoter shares in Sterlite Technologies has been one of the biggest overhangs on the stock apart from apprehension on the company’s balance sheet. So it was no surprise the stock gained nearly 5 percent in early trades on December 18 on news the pledge on promoter stake totalling 52.07 percent of the share capital has been released.

Capacity expansion

The other key development that helped build positive sentiment was the news that the telecom regulator is preparing the ground for the rollout of 5G technologies by August 2019. Sterlite, which is expanding capacities in optical fibre cables to 50 million fibre kilometre (fkm) by June 2019 as against the current capacity of 33 fkm, could be the key beneficiary. Moreover, the planned capacity expansion would also lead to better margins (value products) and improvement in return ratios (return on equity) as capital invested in the new projects will start yielding returns.

Strong revenue visibility

Shift to 5G alone is expected to lead into an additional $300 billion capex globally. Sterlite, which enjoys 8-10 percent global market share is eyeing big opportunity in both the domestic and international markets. Capacity expansion would not only help the company tap the opportunities in the 5G space, but it would also help in scaling up the business. The company is currently operating at a high capacity utilisation with an order book of Rs 9,455 crore which is almost three times its FY18 revenues.

Valuations

Strong order book and capacity expansion would translate to higher earnings growth. Analysts are expecting strong 30-35 percent growth in earnings over FY19-20. In September quarter the company reported 39 percent year-on-year (YoY) growth in revenues and 85 percent growth in net profits. High earnings growth is a key crucial for the stock price and would support valuations. At the current market price of Rs 300, Sterlite’s stock is trading at 16 times its FY20 estimated earnings.

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