Sterlite Technologies - "Strong revenue growth led by higher volume and improved realization..." - K R Choksey

Sterlite Technologies Ltd (STL) reported another quarter of healthy sales growth led by improved realization in both power conductor and telecom products segment. EBITDA margins inched up further on account of margin expansion for cable business.

- Net revenues showed robust growth of 58.2% YoY driven by mix of higher volume and improvement in realization.

- EBITDA stood at Rs 69.6cr, a stellar growth of 130.5% YoY on account of execution of high margin order. Operating margins improved by 250bps YoY on account of 270bps margin improvement in power segment. However margins for telecom segment declined 760bps.

- Net profit increased by ~245% YoY on the back of improved operating margins. Increase in interest expense and depreciation dented net profit margin which grew by 110bps YoY to 2.1%.

- Order book stood at Rs 2300cr at the end of Q1FY13 Of which Rs 2000crs orderbook constitute of Power segment and Rs 300crs of telecom products segment

Power- Volume growth inched up, EBITDA/MT remains under pressure: Revenues increased by 6.2% QoQ to Rs 569.5cr led by 2.5% growth in volume and 3.5% improvement in realization. Power conductor segment reported volume of 36200 MT in Q1FY13. However EBITDA /ton declined 6% QoQ from Rs 7932 to Rs 7459. EBITDA margins stood at 4.7% during the quarter. The management is confident to achieve EBITDA/ton of Rs 9000 in FY13E.

Telecom - Strong volume growth followed by marginal improvement in EBITDA margin: Telecom segment reported healthy growth of 5.8% QoQ to Rs 276.3crs. EBITDA margins improved by 10 bps on QoQ to 16.9%. We believe telecom segment will drive strong sales growth on the back of incremental volume due to capacity expansion and higher realization. The management has indicated margin improvement in telecom segment as plant stabilization issues are over.

Increase in interest cost and higher tax rate to dent net profitability: Increase in debt to fund transmission project and higher tax rate as one of the facility at Haridwar has come out of tax benefit which will dent net profitability. The management has guided ~ Rs 500crs capex for FY13E & FY14E each for further capacity expansion and equity funding for transmission business. We believe leveraged balancesheet would play as a spoilsport.

Our View: Sterlite Technology reported another quarter of volume and realization improvement for power conductor and telecom segment. Management has guided EBITDA margins improvement for its core business. The stock is available at attractive valuation of 7.4x PE to FY14E earnings. We maintain our BUY recommendation with a target price of Rs 47.

Source : Equity Bulls

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