Sterlite Technologies - Results below expectations; Telecom Products plays spoilsport! - Nirmal Bang

Sterlite Technologies Ltd. (STL) posted a mix set of numbers for Q3FY13. The below expected performance of STL was on account of lower demand of optical fibre (OF) and optical fiber cable (OFC) from China and USA, while the Power segment remained stable.

Revenues for the quarter stood at Rs. 829 cr, up 24.9% on a yoy basis and flattish sequentially. Sales from the Power Transmission business were up by 21.3% (volume of 34500 MT v/s 32600 MT), yoy and sales from the Telecom business were up by 34.7% (-10% yoy volume growth in OF and +11% yoy growth in OFC). Lower volumes in this segment were due to softening in demand in China and some rescheduling of demand in USA.

EBITDA for the quarter was Rs. 56.5 cr, up 8.3% yoy and down 25.8% qoq. EBITDA margin for the quarter was lower at 6.8% as compared to 7.9% in Q3FY12 and 9.0% in Q2FY13. This can be attributed to lower margins of 12.0% in the Telecom segment (16.6% in Q3FY12) due to reduced volumes coupled with higher fixed cost base. Though volume has been impacted, pricing remains stable. EBITDA/MT for the power conductor business was stable at Rs 9000/MT.

PAT for the quarter was Rs. 10.1 cr, up 6.3% yoy and down by 66.6% qoq (adjusted for exceptional item of Rs 25.9 cr in Q2FY13). Adj PAT margin worsened to 1.2% as compared to 1.4% in Q3FY12.

Management expects demand situation to improve hereafter, with the upcoming defense order, pick up in PGCIL orders and better demand from China telcos post their new year, leading to a better CY2013. On the Power segment front, focus will be on margin improvement.

Order book at the end of Q3FY13 stands at Rs 2000 cr as compared to Rs 2400 cr in Q3FY12, down 17%. Of this, power conductors business accounts for Rs 1600 cr whereas Rs 400 cr is for Telecom. The dip in the orderbook is attributed to lower orders in the Power business on lower ordering from PGCIL this year. In this segment, STL is focusing on profitability than on volumes in this segment.

Valuation & Recommendation

Total capex done towards its BOOM projects is Rs 1,500 cr and its first BOOM project - East North Interconnection is on track to be completed by March 2013 and will start generating revenues from Q1FY14. This should support the stock price in the short term. We believe the business operations and margins should start stabilizing with the coming quarter, and with the commencement of its first BOOM project nearing, we believe that the downside in the price from here is limited. Though the company's operating performance has been under pressure since last few quarters, the long term outlook of STL's business prospects continues to remain positive. Hence, we recommend investors to HOLD the stock for a revised target price of Rs. 36.8 (earlier Rs 42) based on FY14E numbers.

Source : Equity Bulls

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