Sterlite Technologies provides transmission solutions for telecom and power sectors. It manufactures power conductors, optical fibers, telecom cables, access equipments, and provides telecom integration & management services. The stock is currently trading at 9 x FY11E EPS of Rs 8.14 and 6.9x FY12E EPS of 10.87. We recommend a buy on the stock with a target of 141 based on 13 x FY12E earnings over a period of 9 -12 months.
Highlights
The demand for optical fibers has been rising globally (21% CAGR in last 3 yrs) due to growing demand for bandwidth (51% CAGR in last 3 years). The surge in demand for bandwidth has been driven by rising teledensity, launch of new applications and large scale roll out of FTTX networks.
The power transmission & distribution (T&D) infrastructure in India will grow rapidly due to ramp up in power generation capacities and increasing efforts to plug huge T&D losses. Also in other countries of the globe a large part of total infrastructure spending will be channelized in creating power grids.STL has drawn large scale expansion plans in key products like optical fibres, power conductors and fiber optic cables over next two years. The fiber capacity will double to 20 mn kms and that of conductors will increase by a quarter to 200000 MT.
The order book has almost doubled in last five quarters largely due to revival in global demand and STL's foray in new markets. STL finds place in the coveted list of integrated optical fiber manufacturers in the world. It is also integrated in its power conductor business which not only keeps a tight check on the value chain but also generates higher margins.
STL is the market leader in both optical fiber (45% share) and power conductors (25%) in India. Further, it also enjoys decent market share in other markets like China, Russia, and Africa.
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