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Sterlite Opt: Acceleration continues - Views on News from Equitymaster
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  • Apr 24, 2001

    Sterlite Opt: Acceleration continues

    The global telecom sector is in the midst of a turmoil with the telecom majors cutting back on their expansion plans to pay for 3-G licenses. Consequently, markets expected the orders of telecom equipment makers to take a hit. Despite the challenging external environment Sterlite Optical Technologies Ltd. (SOTL) has been able to report an impressive growth in topline.

    On YoY basis the sales for 3QFY01 have risen by 55.2%, which could be due to optic fibre (OF) prices continuing to remain favourable as compared to the previous year. However, QoQ the sales have declined as optic fibre prices could have softened over this period with global demand witnessing a setback. The company is susceptible to trends in the international markets, as exports contribute a sizeable proportion of the turnover. For 3QFY01 and 9m FY01 exports contributed 37.9% and 36.6% to the turnover respectively.

    (Rs m) 3QFY00 3QFY01 Change 9m FY00 9m FY01 Change
    Net Sales 1,466 2,275 55.2% 5,074 7,543 48.6%
    Other Income 39 83 116.4% 51 136 166.2%
    Expenditure 1,017 1,144 12.5% 3,653 4,651 27.3%
    Operating Profit (EBDIT) 449 1,131 151.8% 1,421 2,891 103.5%
    Operating Profit Margin (%) 30.6% 49.7%   28.0% 38.3%  
    Interest 16 63 288.3% 180 214 18.9%
    Depreciation 52 49 -6.7% 145 142 -2.1%
    Profit before Tax 419 1,103 163.0% 1,147 2,671 133.0%
    Tax - 100   - 203  
    Profit after Tax/(Loss) 419 1,003 139.1% 1,147 2,469 115.3%
    Net profit margin (%) 28.6% 44.1%   22.6% 32.7%  
    No. of Shares (eoy) (m) 55.9 55.9   56 56  
    Diluted earnings per share* 30.0 71.7   27 59  
    P / E ratio   4.7     5.8  

    Export sales have shown a meteoric jump for both 3Q and 9m FY01 on YoY basis. The company is clearly focusing on becoming a key player in the international markets. Domestic sales have remained stagnant over this period. This could be due to the company reducing its focus on jelly filled telecom cables (JFTC). Also, QoQ basis, the drop in sales could be due to the Department of Telecom (DoT) completing majority of their purchases in the third quarter of fiscal 2001.

    (Rs m) 2QFY01 3QFY01 Change
    Net Sales 3,222 2,275 -29.4%
    Other Income 39 83 112.5%
    Expenditure 2,233 1,144 -48.8%
    Operating Profit (EBDIT) 989 1,131 14.4%
    Operating Profit Margin (%) 30.7% 49.7%  
    Interest 35 63 79.3%
    Depreciation 46 49 6.3%
    Profit before Tax 947 1,103 16.4%
    Tax 53 100  
    Profit after Tax/(Loss) 895 1,003 12.1%
    Net profit margin (%) 27.8% 44.1%  
    No. of Shares (eoy) (m) 55.9 55.9  
    Diluted earnings per share* 64.0 71.7  
    P / E ratio 13.7 4.7  

    A possible indicator of optic fibre prices remaining firm over previous year levels is the strong growth in operating profits. The YoY growth in sales is significantly higher than the rise in expenditure. Consequently, OPM has increased by 19.1 percentage points in 3QFY01 and 10.3 percentage points for nine months ended March '01. Also, the shift in revenue mix towards OF and OFC could have led to the hike in OPM, as this segment is more lucrative than JFTC.

    The interest costs, which decline substantially in 2QFY01, have increased considerably in 3QFY01. This could indicate volatile cash flows and the company resorting to short term borrowings to overcome gaps in working capital. Effective tax, QoQ, has increased from 5.5% to 9.1%.

    At Rs 339 the company is trading at a valuation of 4.7x 3QFY01 annualised earnings and 5.8x 9m FY01 annualised earnings.



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