Buy Sterlite Technologies; target of Rs 210: YES Securities

YES Securities' research report on Sterlite Technologies

Sterlite Technologies (SOTL) reported inline operating performance for the quarter. Both, the sequential revenue growth and EBITDA margin were as per expectation. It reported revenue growth of 0.5% QoQ, led by 1.3% QoQ increase in Global networking segment; the Global Services segment declined by 7.6% QoQ as it continues to realign its Services segment with higher focus on profitability. There was sequential improvement in EBITDA margin(up 76 bps QoQ) led by control on direct cost. Order book was down 3% YoY to Rs 111bn. SOTL is expected to benefit from multi‐year digital creation cycle led by 5G, FTTx and fibre demand from hyperscalars. Also, optical cable prices are steady globally and provides revenue visibility. It has been gaining market share in global OFC market. The rise in revenue mix from international clients is in right direction. It plans to increase attach rate to 40% by Q4FY25. We expect EBITDA margin to improve going ahead led by easing off certain cost pressure related to raw material and logistics. It has been able to pass some increase in cost to customers. The moderation in capex intensity will help to keep debt under control.

Outlook

We estimate revenue CAGR of 14.3% over FY23‐25E with average EBITDA margin of 15.8%. We maintain our BUY rating on the stock with target price of Rs 210/share based on EV/EBITDA of 7.5x on FY25E. The stock trades at EV/EBITDA of 8.0x/6.1x on FY24E/FY25E.