Aksh Optifibre: Optic fibre prices take toll - Views on News from Equitymaster

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Aksh Optifibre: Optic fibre prices take toll

Oct 19, 2001

Aksh Optifibre Ltd. has continued on the growth path. However, this seems largely due to stabilising of operating rates at higher levels. Also, the company operates from a small base. This has led to the year-on-year effect.

(Rs m) 1QFY02 2QFY02 Change 2QFY01 2QFY02 Change
Net Sales 599 554 -7.6% 288 554 92.4%
Other Income 3 2 -30.8% 9 2 -78.3%
Expenditure 454 480 5.6% 255 480 87.8%
Operating Profit (EBDIT) 145 75 -48.7% 33 75 129.0%
Operating Profit Margin (%) 24.3% 13.5%   11.3% 13.5%  
Interest 5 7 39.5% 7 7 -2.1%
Depreciation 10 16 56.4% 4 16 316.0%
Profit before Tax 134 54 -59.5% 31 54 73.1%
Tax 33 10   3 10  
Profit after Tax/(Loss) 100 44 -56.3% 28 44 53.8%
Net profit margin (%) 16.7% 7.9%   9.9% 7.9%  
No. of Shares (eoy) (m) 22.0 22.0   20.4 22.0  
Diluted earnings per share* 18.2 7.9   5.2 7.9  
P / E ratio 5.6 8.3     8.3  
* annualised            

That said, the YoY growth is also on a decline. In 1QFY02, the company reported a topline growth of 180%, which has reduced to 92.4% in 2QFY02. But the real Mc Coy is the decline in QoQ financials across the board. Operating margins, which were 16.4% in FY01 rose to 24.3% in 1QFY02 and have crashed to 13.5% in the quarter ended September '01. The precipitous drop in margins, QoQ, seems to be the upshot of a sudden fall in optic fibre prices. We have mentioned earlier about the likelihood of optic fibre prices weakening. With major telcos cutting back on network expansion to pay for 3G licenses and the slowdown in general have upset the demand supply balance for optical fibre.

Aksh claims to have been the lowest bidder for Bharat Sanchar (BSNL) tender issued for 60,000 Ckms of 12-F (optic fibre specs) but was not awarded any part of the contract. However, for the 12,000 Ckms 24-F tender the company was awarded the contract for quoted quantity of 5,500 Ckms. The company believes that 15,000 Ckms of 6-F and 12-F tenders are due over the next eight months from decentralised centres of BSNL. Although volume growth could continue, realisations have come under severe pressure eroding operating margins.

(Rs m) 1HFY01 1HFY02 Change
Net Sales 475 1,074 126.0%
Other Income 10 5 -47.6%
Expenditure 429 854 99.0%
Operating Profit (EBDIT) 46 220 378.3%
Operating Profit Margin (%) 9.7% 20.5%  
Interest 14 12 -14.9%
Depreciation 7 26 245.7%
Profit before Tax 34 188 446.7%
Tax 3 44  
Profit after Tax/(Loss) 31 144 356.9%
Net profit margin (%) 6.6% 13.4%  
No. of Shares (eoy) (m) 20.4 22.0  
Diluted earnings per share* 3.1 13.1  
P / E ratio 5.0  
* annualised      

The order book position of the company stands at Rs 600 m representing 28% of 1HFY02 annualised sales. The company has declared an aggregate dividend of Rs 1.75 (35%) for the fiscal year to date. Valuations of telecom equipment companies have tumbled over the past twelve months with the fizzle down in laying data pipelines, optic fibre prices weakening and perceived profile of such companies changing to commodities. At Rs 66 the scrip is trading on a multiple of 8.3x.

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