Sterlite Technologies Ltd – Stock Analysis

Sterlite Technologies Promoter Pledging Issue Resolved

Introduction

Sterlite Technologies shares surged almost 12% after the company’s promoters removed entire pledged shares with immediate effect. In this article, we are going to analyse the stock in detail.

Company Overview

• Sterlite Technologies Ltd is a global leader in end-to-end data network solutions. It designs and deploys high-capacity converged fibre and wireless networks.
• With expertise ranging from optical fibre and cables, hyper-scale network design, and deployment and network software, the company is industry’s leading integrated solutions provider for global data networks.
• It caters products to various sectors such as telecom, defense, oil and gas, railway, roadways, power, aviation and broadband
• They partner with global telecom companies, cloud companies, citizen networks and large enterprises to design, build and manage such cloud-native software-defined networks.

Promoter Pledging Issue Resolved

• Sterlite Technologies Ltd scores well in terms of their business, but he only negative thing about the company were their promoters. The promoters of the company had pledged 96% of their holding in the company. The promoters had pledged their share with the holding companies. As a result of this, the stock of Sterlite Technologies Ltd never received a good share price.
• But, on 10^th June 2019, the promoters have freed their pledged shares. All the pledging of their stake in the company have been cleared up. Because of this the stock of Sterlite Technologies Ltd experienced a rally of 10%-15% in the past few days.
• On 10th June, the stock closed at Rs.174.45 and on 11th June, it had seen a jump of almost 12% (Rs.195.80).

Business Details of Sterlite Technologies Ltd

• The business services provided by the company include connectivity solutions, network services and software services.
• Their customers include companies who require cloud and content services, communication services, network software services.
• It has strong global presence with next-gen optical preform, fibre and cable manufacturing facilities in India, Italy, China and Brazil and two software-development centres.
• Sterlite is India’s largest and only fully integrated optical fibre cable manufacturer with Optical Fibre and optical fibre cable (OFC) capacity.

Financial Details of Sterlite Technologies Ltd

The financial performance of the company has been very phenomenal in the last 3 years.

• Order Book : The order book of the company has grown significantly in the last 3 years. In FY2019, the company has an order book of close to Rs 10,000 Cr, which stood at Rs. 5,200 Cr in FY2018.
• Revenue : The revenue of the company was Rs. 2,275 Cr in FY2016, and now in FY2019 it was close to Rs. 5,100 Cr. That is the revenue of the company has become almost 2.5 times in the last 3 years. Revenue of the company has grown 31% and EBITDA by 35% in the last 3 years.
• Net Profit : Not only revenue, but even the profitability and margins of the company have improved. From a net profit of around Rs. 154 Cr in FY2016, the net profit of the company has reached close to Rs. 563 Cr in FY2019. A growth of 54% in the last 3 years.
• ROCE : ROCE of Sterlite Technologies Ltd is 34%. The company has increased their ROCE gradually. The company has been improving their ROCE all the while having a high DE ratio, which is a very positive sign of the company. The ROCE number is very crucial one and it particularly has additional importance in such sectors which are capital-intensive and also have Debt-to-Equity (DE) ratios more than 1.
• D/E Ratio : The DE ratio of Sterlite Technologies Ltd is 1.12. Even after having such a high DE ratio if the company has a an Interest Coverage Ratio (ICR) of 9.11. This is a very positive sign.
• PE Ratio : With a Price-to-Earnings (PE) ratio of 14.75, the stock of Sterlite Technologies Ltd look a little bit attractive.

Summary

• The business prospects of the company are strong.
• From a financial perspective, the company has very healthy numbers which they have maintained and also improved.
• The only negative thing about the company has the promoter pledging. But now, this too has been cleared by the promoters.
• There are a lot of growth expectation from the optical fibre sector, in which the company is involved. In the next 10 years, this sector can be termed as the high growth sector.
• Thus, their order book will keep improving in the coming years.

Notes: –

• The numbers that are used are approximate and have been rounded for presentation purposes.
• We are not in any way saying that this is a bad company or that the stock of this company is bad.
• We are also not suggesting anyone to immediately go and buy this stock or invest in the stock markets.
• Only an analysis has been presented here. No judgments or final statements are being made here.