• MAY 8, 2002

Aksh Optifibre: Signs of revival

For full year ended March '02, Aksh Optifibre has continued to report a healthy growth in topline. Over the past two financial years, the company has more than doubled net sales. Growth in turnover is likely to have been generated by ramp up in operating rates.

 QoQ YoY 
(Rs m)3QFY024QFY02Change4QFY014QFY02Change
Net Sales 431 526 22.0% 515 526 2.2%
Other Income 3 4 44.6% 10 4 -56.3%
Expenditure 402 466 16.0% 365 466 27.8%
Operating Profit (EBDIT) 29 60 103.7% 150 60 -60.1%
Operating Profit Margin (%)6.8%11.4% 29.1%11.4% 
Interest 9 10 3.3% 5 10 85.2%
Depreciation 16 12 -25.8% 11 12 8.2%
Profit before Tax 7 42 547.6% 143 42 -70.6%
Tax (7) 11   13 11  
Profit after Tax/(Loss) 14 32 126.7% 131 32 -75.9%
Net profit margin (%)3.2%6.0% 25.4%6.0% 
No. of Shares 22.0 22.0   22.0 22.0  
Diluted earnings per share* 2.5 5.7   23.7 5.7  
P/E ratio     10.2  

Having said that, much of the stabilisation in operations seems to have been achieved in 4QFY01. The quarter constituted 40% of full year sales. Consequently, the YoY effect has been wiped out, which impacted growth in 4QFY02. Further, with a meltdown in the telecom service sector, especially long distance telephony, telecom companies dramatically scaled back their network expansion plans over 2001. Write offs of high priced acquisitions made during the go-go years of 2000 & large capacity installations for projected demand in voice, data & video transmission, which never materialised, seems to have led to near bankruptcy of U.S companies. Across the Atlantic, much of these reasons plus exorbitant bids for 3-G licenses in 2000 led to strained balance sheets. Consequently, over the past year, several telecom companies hived off divisions to increase liquidity.

(Rs m)FY01FY02Change
Net Sales 1,274 2,032 59.5%
Other Income 24 12 -47.2%
Expenditure 1,039 1,723 65.7%
Operating Profit (EBDIT) 234 309 31.9%
Operating Profit Margin (%)18.4%15.2% 
Interest 26 31 20.9%
Depreciation 23 54 134.0%
Profit before Tax 209 236 13.0%
Tax 18 47  
Profit after Tax/(Loss) 191 189 -0.9%
Net profit margin (%)15.0%9.3% 
No. of Shares 22.0 22.0  
Diluted earnings per share 8.7 8.6  
P/E ratio  6.8  

The cutback in telecom equipment demand severely dented demand-supply equation of optic fibre cables leading to a sharp drop in cable prices in FY02. Making matters worse for industry was global capacity additions during FY01. Consequently, the industry took a double hit, as demand evaporated and additional supply came onstream. The sharp dip in optic fibre prices was a reflection of the challenging dynamics.

OPM of the company came under pressure, as expenses increased at a faster clip compared to sales. Growth in expenditure is largely due to higher production during the fiscal. The decline in OPM suggests that raw material prices did not fall commensurately with OFC prices. Having said that, the sequential improvement in operating margins is a silver lining, reversing the deteriorating trend over 2Q and 3QFY02. This could indicate that the industry has bottomed out and certain amount of pricing power has returned. Also, higher sequential sales figure compared to the previous two quarters suggests an improvement in demand for optic fibre cables.

At Rs 58, the scrip trades on a multiple of 6.8x FY02 earnings. Over the past four quarters the stock has traded in a valuation band of 5x-8x. Global telecom service providers are not yet out of the woods. A recovery can be expected in 2003. Having said that, network rollout of private sector operators and incumbent players -- BSNL & MTNL -- could lift domestic demand. Also, China could be the wild card.

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