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STERLITE TECHNOLOGIES LIMITED
Q2FY11 EARNINGS CALL COMMENTARY
Date: October 21, 2010
Speakers: Dr Anand Agarwal (CEO & Director)
Mr Anupam Jindal (CFO)
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Dr. Anand Agarwal
Good afternoon friends, I welcome you to the Sterlite
Technologies Q2 Earnings Call. I do hope you have had
an opportunity to look at our results that were declared
earlier today.
I would first like to update you on the overall global
industry scenario:
Firstly, I would talk about the Telecom business:
• We continue to see good momentum in the fiber
demand at a global level. The H1 data on the fiber
demand indicates a trend towards spending on
telecom infrastructure and optical networks climbing
back to pre-recession levels in most of the developed
parts of the world.
• As per the latest report from CRU, the global demand
for fiber in the first half of 2010 was around 92 Mn-fkm,
which was 2% higher than the demand in the
corresponding period of 2009. Notable factors being:
 Strong recovery in non-China markets (up 7% this
H1 compared to last year)
 Europe and North America have witnessed
double-digit growth this year, with incumbents
planning new deployments on FTTx for offering
triple play services and high speed internet to their
subscribers.
 China continues to hold on to its demand levels of
2009. The H1 demand in China showed a decline
of only 3% vs last year after a very strong growth
witnessed in last 4-5 years
 After over 5 years of double digit growth (over
20%), the global consumption has stabilized at
current levels in the first half of the current year.
• These recent developments at the global front
reinforces our belief that with growing consumption of
bandwidth, the incumbent operators are realizing the
need to strengthen their network both at backbone and
Sterlite Technologies Limited – Q2FY11 Earnings Call Commentary (October 21, 2010)
last mile, to deliver the high speed & reliable
connectivity to their existing and potential customers.
• Additionally, we are witnessing a growing awareness
and appreciation by federal government of many
countries, that broadband penetration is crucial to the
growth of the economy and which is getting reflected in
new announcements coming from across globe on
national broadband policies being framed for their
countries.
• The America Recovery and Reinvestment Act (ARRA)
has allocated a funding of US$ 7.2 Bn for broadband
infrastructure under administration by two agencies.
The key objectives for this stimulus is aimed to
strengthen rural network connectivity, broadband
mapping projects and support education, training and
public centres via virtual network connectivity.
• Another notable trend that we see surfacing in the
industry is substantial shift towards fiber production
capacities.
• Historically, China has always witnessed strategic tie-
ups and JVs between local players and glass
manufacturers for drawing fiber in the country and
catering to the huge increase in demand in the China
market.
• More recently, there have been talks of Japanese
players looking at shifting their glass capacities in
China and new green-field projects coming in China.
However there are still no confirmed reports on the
same.
• The fiber prices have been stable at around 7.5-8 $ in
the last 2-3 years, but the industry is showing some
signs of drop in prices because of some sluggishness
in China demand which accounted for 40% of the total
fiber market last year. The long term effect of the same
and its impact on global prices will be seen in the next
few quarters.
• The India market continues to show robust growth and
has witnessed a growth of 14% yoy on H1 basis.
o With huge outflow of funds by incumbents
and new operators on getting the 3G
licenses, many of them are cash-strapped at
the moment and it is yet to be seen, when
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 the 3G capex deployment will kick-off,
leading to incremental demand of fiber in the
country.
o The much awaited tender from Indian
Defence was opened last quarter, which will
further add to the fiber demand in the
country by another 3 mn-fkm in the next 2-3
years for their deployment of a 60,000 km
network.
o The Indian Government continues to
maintain a focus on increasing broadband
penetration in the country and is planning to
come up with a revised broadband policy
with new targets very soon.
Now, moving to the power conductor business
• PGCIL, the nodal transmission utility in the country
continues with its mega plans of building pan India
high capacity transmission super highways in the
country to transfer power from new generating
stations. This comes over and above their XIth
investment plan target of Rs 55,000 Cr
• However similar to the generation sector, we continue
to see a lag in targets achievement and in the first
three years, PGCIL has only achieved 46% of the
planned capex for the 11th five-year plan.
• The change in bid evaluation system of PGCIL from
the one stage process to a two stage process has also
led to some major delays in project being awarded as
the lead time has increased on account of more parties
being evaluated at the technical stage.
• Ordering of conductors was only 12% of total orders
awarded in FY10 as compared to 26% in FY09 We
expect bulk of ordering on conductors to happen in
H2FY11 and FY12 to meet 11th year plan target.
• The share of private segment in the overall
transmission capex of the country is expected to
increase going forward. The XIth plan accounts for Rs
19000 Cr investments by private segment, which we
see moving up substantially in the XIIth five-year plan.
• The SEBs are also planning to invest to build and
upgrade their existing transmission infrastructure.
o Orissa Power Transmission Corporation
Limited (OPTCL) plans to invest Rs 33 billion
Sterlite Technologies Limited – Q2FY11 Earnings Call Commentary (October 21, 2010)
by 2013-14 on upgrading its existing power
transmission network.
o AP Transco, plans to invest Rs 55 billion in
the next three years to strengthen the state’s
transmission and distribution network.
The developments at global front on the power side are
also noteworthy from Sterlite point of view
• We see good amount demand coming from other
emerging markets like Latin America, Africa and
Central and Eastern Europe. Some of the key projects
announced recently are as follows
• Brazil, is launching bids for 3,000 km of electricity
transmission lines by November, 2010. These lines will
offer interconnection between Brazil's south,
southeast, and center-west regions.
• Brazil and Uruguay have signed an agreement for the
US$ 320 million Brazil-Uruguay interconnection
project. The line is expected to be operational in 2013.
• The Ethiopian Electricity Power Corporation (EEPCo)
is constructing a interconnection line between Ethiopia
and Djibouti, as well as lines connecting Ethiopia to
Kenya and Sudan which are expected to come online
by end of 2011.
• As a result of these market developments and our
efforts over the last couple of years, we have received
orders worth around Rs 160 Crores from Latin America
to be supplied during the current year and next year.
The above global developments have started to show as
good leading indicators for our business:
• We start Q3FY11 with an order book of almost Rs
2,200 Crores as compared to Rs.1,725 Crores in the
corresponding period last fiscal year. This Qtr has
been low as compared to usual order book trend. This
is on account of delays at PGCIL end in releasing
substantial amount of new orders. Also the IPP
segment has been slow in releasing orders.
• On sales side, we have been able to achieve a
balanced mix in sales segmentation as a result of our
business development efforts. Our sales to Indian
government customers account for 45%, sales to
Indian private customers account for 25% and
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 international sales account for 30% of our total sales
revenues for the first half of this year.
• Our business progress has also been recognized
through the receipt of several awards that include
EEPC Star Performer (for Conductor Exports),
V&D100 2010 Award (for Top Telecom Cables
Company in India), Asia’s Best Employer Brand Award
2010, Asia Pacific HRM Congress Award 2010 and
CMAI INFOCOM National Telecom Award 2010 (for
the Fastest Growing System Integrator).
• To give you an update on our new business initiatives
o We have finalized the EPC contracts for our
ultra mega transmission project won early
this year and the financial closure is
th
expected to close by 30 Nov. We are well
on track to achieve our project completion
target by FY 13
o We have completed the capacity installation
of 5000 km/year for OPGW cables and are in
process of executing a pilot order for the
same.
o We believe that all these new initiatives will
open up new growth verticals for us in the
coming years.
We continue to be excited by the numerous opportunities
that we see developing in the power and telecom space
that would increasingly focus on cross-country ‘high-
capacity’ electricity & ‘high-capacity’ data transfer.
However, we would like to indicate that we see some short
term shift in volumes and profits from the current fiscal to
next on account of delays in receipt of power orders and
stabilization of 12 m fkm capacity. We are though very
confident on the mid to long term industry prospects for us
and continue to build a strong sustainable business model
for both our businesses.
I now hand you over to Anupam, who would take you
through the financial highlights for the quarter.
Mr Anupam Jindal:
Thank you Anand. Good afternoon friends. I do hope you
have had an opportunity to look at our Q2
results.
Sterlite Technologies Limited – Q2FY11 Earnings Call Commentary (October 21, 2010)
• We ended Q2 with revenues of Rs 509 Crores, versus
Q2FY10 revenue of Rs 466 Crores.
• EBITDA and net profit for the period were Rs. 94
Crores and Rs. 58 Crores respectively. This translates
into an EBITDA growth of 3% and net profit growth of
5% over Q2 of the last fiscal.
• The operating profit margin for the Company stands at
18% and net profit margin at 11% for Q2 this fiscal.
• Revenue from international sales during the period
accounts for Rs. 178 Crores, which is about 35% of net
revenues.
• Our international sales were a right mix of growing
economies and the more developed economies. Sales
to China and Africa were about 41% of the total
international sales. Our major international revenues
were from Europe & the Americas. For the first time,
Europe and Americas contributed 42% to our total
international Revenues, against 6% in corresponding
quarter of last year.
• Good Tier-1 clients were added and strategic product
approvals were received for all businesses, across
geographies.
• Significant progress was also made in the Indian
private sector for telecom and power businesses, with
about 25% of revenues earned from this industry
segment.
• With the expanded capacities coming online, for the
half-year period under discussion, our optical fiber and
fiber optic cables business did the highest ever sales
volumes.
• Sales volume for H1 of this year for optical fiber was
4.5 million kilometers with 13% y-o-y growth. In the
fiber optic cable business, the sales volumes stood at
1.6 million kilometers representing a growth of 60% y-
o-y. Data Cables business did sales of 135,000 boxes.
In the power business, we sold close to 54,000 metric
tonnes of conductors.
To update you on our segmental performance:
• Our power business earned revenues of Rs. 330
Crores in Q2FY11. This was at an EBITDA margin of
13%.
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• Our telecom business earned revenues of Rs. 179
Crores in Q2FY11; a growth of 31% year-on-year.
This was at an EBITDA margin of 29%.
• Going forward in H2 this fiscal, we expect lower than
expected volumes for both our core businesses of
conductors and Optical fiber on account of
o Delayed order flow from our main power
transmission customers
o Stabilization issues in getting 12 million fiber
capacity fully on board.
On the balance sheet front
• The gross debt at the end of H1 was around Rs 792
Cr with Cash and Investments of Rs 256 Cr The
increase in borrowing has been on account of
ongoing capex commitments and increase in working
capital. We expect to bring down the level of debt to
approximately 500-550 Crores in next two quarters
We continue to be positive on the fundamental of the
business, however as discussed, we are seeing a short
term shift in volumes and profitability from the current year
to next year. We are taking proactive measures to address
this shift and minimize the impact of the same for this
fiscal. However we do see a shortfall in meeting with our
earlier indicated guidance. Considering the dynamic
situation in terms of receipt of orders over the next few
months, we would come back soon with our revised
guidance for this year.
I would also like to update you on our ongoing capacity
projects:
• Our capacity expansion project for power conductors
from 115,000 MT to 160,000 MT has been completed
and we should see the utilization of this capacity in
the coming quarters.
• We intend to further expand this capacity to 200,000
MT. which would make Sterlite, the largest
manufacturer of power conductors in the world
• The optical fiber project is in pipeline to increase
capacity from 12 million kms to 20 million kms. At this
capacity Sterlite would be amongst the largest global
manufacturers of optical fibers by FY12 end. However
the full effect of 12 million capacity is still not realized
Sterlite Technologies Limited – Q2FY11 Earnings Call Commentary (October 21, 2010)
as there have been some delays on account of
stabilization of the entire process – we are currently
operating at about 80% of our 12 million capacity and
the same should get stabilized close to 100% within
the next two quarters.
• Our fiber optic cable capacity is also being
simultaneously increased from 2 million kms to 6
million kms, and we are currently operating at a range
of about 4 million kms.
All these expanded capacities which come on stream
during the current year and next year, will start yielding
good volumes and profits as we go into FY 12.
Dr Agarwal
“I would like to thank everyone for attending this call and I
sincerely hope that we have been able to answer your
queries. We encourage you to continue to dialogue with
our IR team, to address any additional queries that you
may have.
And I will reiterate that we will continue to drive our
business through scaling of volume, enhancement of our
global client footprint, stringent focus on costs and
advances in infrastructure and technology. We also
ensure a strong connection with the needs of our
stakeholders, which enables us to make strategic
decisions, investments, and organizational moves to
support the future.
We have had several good achievements in H1 of FY11
that are significant for our future growth. Although we
foresee a couple of slower quarters than usual, we are
very bullish about the growth indicators within the telecom
and power industries. Our integrative growth strategy
remains unchanged and we remain committed to our
mission – to make it faster, easier and more cost effective
for service providers to build telecom and power
infrastructures
We hope to continue our association and dialogue in the
future. Once again I would sincerely like to thank you for
sparing your time and for attending this call.”
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