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Optic Fibre: Valuations slide - Views on News from Equitymaster
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  • Mar 20, 2001

    Optic Fibre: Valuations slide

    The telecom equipment companies have been hitting the upper circuit over the last three trading sessions. However, these companies have fallen sharply over the last one month. Sterlite Optical Ltd. (SOTL) and Aksh Opticfibre are down 47.3% and 27.3% respectively over a one month period. Over this period the Sensex has fallen 17%.

    Both, SOTL and Aksh, are in the optic fibre cabling (OFC) business. However, Sterlite Optical is an integrated OFC manufacturer. The company produces optic fibre, which is the main raw material for OFC. It also is present in the jelly filled telecom cable business, which is copper based. On the basis of OPM and NPM, the margins of SOTL are 2.5x and 3x respectively that of Aksh Opticfibre.

    Quarter ended Dec'00
    (Rs m) St Optic** Aksh x times
    Net Sales 3,222 312 10.3
    Operating Profit (EBDIT) 988.9 38.5 25.7
    Operating Profit Margin (%) 30.7% 12.3% 2.5
    Profit after Tax/(Loss) 895 29 31.1
    Net profit margin (%) 28% 9% 3.0
    No. of Shares (eoy) (m) 55.9 11.0 5.1
    Diluted earnings per share* 64.0 10.5 6.1
    P/E ratio 6.8 9.7 0.7
    *** Sterlite Optical Ltd.

    Global optical equipment companies, Corning and Ciena, are still trading at an earnings multiple of 49x and 123x respectively. This is despite the meltdown in valuations of telecom services and equipment companies.

    Based on comparison on global basis, valuations of both companies look compelling. However, in the Indian scenario there could be some mis-pricing between the two stocks as Sterlite Optical is trading at 30% discount to Aksh Opticfibre.



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