Neutral Sterlite Technologies; target of Rs 156: YES Securities

YES Securities' research report on Sterlite Technologies

Sterlite Technologies (SOTL) reported mixed operating performance for the quarter. The sequential revenue growth was below expectation; while EBITDA margin was as per estimates. Revenue declined by 1.8% QoQ, led by 2.5% QoQ decrease in Global networking segment; the Global Services segment grew by 6.2% QoQ as it continues to realign its Services segment with higher focus on profitability. There was sequential improvement in EBITDA margin (up 20 bps QoQ) led by focus on cost optimization. Order book was down 3.9% YoY to Rs 105bn. 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 broadly steady globally and provides revenue visibility. It has been gaining market share in global OFC market. However, we expect that revenue from the US market would continue to be muted over next 2-3 quarter and that would have an impact on overall revenue for FY24. We expect EBITDA margin to improve going ahead led by continued focus on cost optimization and easing off certain cost pressure related to raw material. 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 9.1% over FY23‐25E with average EBITDA margin of 15.6%. We change our Rating on the stock from ADD to NEUTRAL with revised target price of Rs 156/share based on EV/EBITDA of 6.5x on FY25E. The stock trades at EV/EBITDA of 9.0x/6.4x on FY24E/FY25E.