ICICI Direct recommended hold rating on Sterlite Technologies with a target price of Rs 95 in its research report dated May 13, 2020.
ICICI Direct's research report on Sterlite Technologies
Sterlite Tech’s (STL) Q4FY20 performance was weak on the operating front on account of fibre demand slowdown and some impact of Covid-19 led disruption. Revenues came in at Rs 1,160 crore, down ~35% YoY with Covid-19 led disruption impacting revenues by ~Rs 170 crore and OF pricing/demand accounting for remaining decline. EBITDA was at Rs 216 crore, down ~31% YoY, impacted by revenue decline with margins at 18.6%, up 103 bps YoY. Reported PAT came in lower at Rs 80.3 crore, down 51.4% YoY, on account of a weak operating performance and higher depreciation and interest costs from new OF capacity.
We highlight that Covid-19 led disruption coupled with demand challenge are expected to result in a washout FY21. Meaningful earnings growth is expected to be seen from FY22. The continued traction in network services is, however, heartening and remains a partial hedge in a volatile product demand scenario. We await a meaningful demand recovery before turning constructive. We maintain HOLD rating on the stock, valuing it at Rs 95/share (implying 5x FY22E EV/EBITDA and 8.5x FY22E P/E).
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