CMP: Rs89, 1-yr Target: Rs116, Upside: 30%
² Sterlite Technologies Ltd (STL) delivered topline growth of 19% yoy (for demerged telecom business) during Q4 FY16, marginally higher than our estimate owing to higher than expected sales of Optic Fibre (OF).
² EBITDA Margins stood at 22% (decline by 90 bps yoy) in Q4 FY16 owing to increase in contribution of low margin OF segment in the overall revenues. EBITDA margins were largely inline with our estimates.
² During the quarter, the Company sold 5.5 mn fkm of OF and 1.5 mn fkm of Optic fibre cables (OFC). STL has now achieved an annual run-rate of 22 mn fkm production of OF and is operating at full capacity. The Company has recommended a dividend of Rs.1 per share for FY16.
² The overall performance was marginally above our estimates for the demerged entity (telecom business). We have revised our forecasts marginally higher inline with the strong performance. We believe STL would be huge beneficiary of BharatNet program as well as the 4G roll out by the telcos. Also STL would be in a position to capitalize on the opportunity emerging from developing smart cities. We remain bullish on the stock and maintain our BUY rating.
² The Company has completed the demerger process of power business which would be effective from mid June 2016 subject to certain pending approvals. Post demerger, the current stock price and target price would reduce by Rs.22.5 per share. The shareholders would be paid Rs.22.5 for each share held as on the record date or they can choose other other available options like redeemable preference shares for the power business.
² The detailed financials for Q4 FY16 are not comparable on yoy basis owing to the demerger of power business in current year. We have provided below the consolidated proforma financials of telecom business for comparison purpose.
² Post the demerger of the power business, the Company is expected to witness strong growth with operating margins of close of 20% levels.
Warm Regards,
Amar Ambani
Head of Research
IIFL
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