The stock of Sterlite Technologies is a good buy for investors wanting to bet on the ‘digital India’ theme and data boom. The company has a leadership position in the domestic optic fibre/cable space, with about 40 per cent market share.

It offers system and network integration services to private telecom companies and government (for smart cities and ‘Digital India’ projects).

After the acquisition of Elitecore Technologies, a global IT product company with presence across 40-plus countries in 2015, Sterlite has set foot in software solutions too. The company has a manufacturing capacity of 25 million kilometre in optic fibre and 15 million km in optic fibre cable. Operating profit margins stand at around 21 per cent — the highest in the industry. Its peer, Vindhya Telelinks, also a listed player, reports margin of 17 per cent.

Sterlite has grown sales at a compounded annual rate of 28 per cent between 2011-12 and 2015-16 (revenue in 2015-16 was at ₹2,265 crore). Profits (before interest and tax) have grown by 40 per cent, helped by margin expansion.

With investment by global telecom companies in fibre infrastructure expected to witness a big jump in the next few years due to the roll-out of 4G and 5G, there is a good opportunity for optic fibre makers such as Sterlite.

The company exports its optic fibres to Europe, China and other countries. Contribution of export revenues increased from 24 per cent of the overall revenues in 2015-16 to 37 per cent in the first nine months of 2016-17. In the domestic market too, demand outlook for optic fibres is strong.

With the Centre wanting to ramp up the BharatNet project, Sterlite will benefit as it is one of the suppliers of OFC for the project.

Further, as the company is also working on a few smart city projects as a system integrator, revenue will grow strongly. In the Gandhinagar Smart City project, the company is creating a Wi-Fi city with 400-500 access points together with smart parking, setting up 200+ CCTV cameras and a central control room.

In the first half of 2016-17, Sterlite saw a slowdown in the products business but in the recent December quarter, it revved up. The overall revenue growth in the quarter was 23 per cent (volume growth in optic fibre of 26 per cent and optic fibre cable was 17 per cent).

The order book stood at ₹2,674 crore in the December quarter, up from ₹2,324 crore in the September quarter and ₹2,099 crore in the June quarter.

At the current market price, the stock of Sterlite Technologies discounts its estimated earnings for 2017-18 by 20 times.

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