ICICI Direct is bullish on Sterlite Technologies has recommended buy rating on the stock with a target price of Rs 350 in its research report dated January 25, 2019.
ICICI Direct's research report on Sterlite Technologies
Sterlite Technologies’ (STL) revenues came in at Rs 1334.9 crore, up 59.8% YoY, ahead of our expectation of Rs 1155 crore. Services formed ~30%+ (vs. 25% in Q2FY19) of the topline, with remaining being product. Exports contributed 40% to overall revenues. EBITDA was at Rs 293.9 crore (I-direct estimate: Rs 288.8 crore) with EBITDA margin of 22%. EBITDA margin was lower than our estimates of 25.0% due to higher proportion of services revenues (Navy order execution commenced in Q3) that have lower margin profilePAT came in at Rs 145.6 crore (up ~61.6% YoY) against our expectation of Rs 140.5 crore, aided by beat at EBITDA level and higher other income (Rs 10.4 crore vs. Rs 7 crore estimated).
We are enthused by STL’s progressive approach to focus on unified network solution thereby increasing its targeted addressable market. It remains a key play on rising data demand globally and subsequent need for network densification and deep fibreisation. However, current weak demand sentiments from China (China Telecom fibre demand has been deferred) and pledging of shares (currently ~97% of promoters holding is pledged) on the back of M&A activities in other businesses, needs to be monitored closely. While we maintain our BUYrecommendation on the stock, we now value the company at 22x FY20E P/E (vs. 25x earlier) to arrive at a target price of Rs 350. Lower multiple is on account of pledge overhang as well Chinese growth uncertainty.
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