Sterlite Tech.

Sterlite Technologies reported a quarter of sequential improvement in Q1 FY25, with consolidated revenue reaching ₹1,218 crores. The company's consolidated EBITDA stood at ₹93 crores, translating to an EBITDA margin of 7.6%. Despite these improvements, the company reported after-tax losses of ₹47 crores. A notable financial achievement was the reduction of net debt by ₹769 crores from FY24, and the open order book remained strong at ₹9,883 crores at the quarter's end.

The Optical Networking Business generated ₹810 crores in revenue, achieving an EBITDA margin of 10.9%. While cable volumes were flattish QoQ, the connectivity segment saw positive growth, leading to a record optical connectivity attach rate of 23%. Management acknowledged a 7% global decline in OFC consumption in 2023 but projected a robust recovery, with optical fiber cable volumes expected to grow from 536 million fiber kilometers in 2023 to 662 million by 2028.

The Global Services business contributed ₹355 crores to revenue, with an EBITDA margin of 6.9%, driven by a focus on value-added services and project mix. The STL Digital business recorded ₹71 crores in revenue, showing year-on-year growth despite a quarter-on-quarter decline attributed to the broader IT industry slowdown^🌐. This segment reported an EBITDA loss of ₹17 crores, which is trending downwards on a year-on-year basis.

Sterlite Tech's strategic priorities include expanding OFC market share, increasing optical connectivity attach rates, and rapidly developing a data center product portfolio, aiming for 25% of total revenue from this segment in the medium term. The demerger of the global services business is progressing as planned, having received 99.98% approval from equity shareholders and 100% from secured and unsecured creditors. Final NCLT approval is anticipated within the next three to four months, with the resulting company expected to be listed by year-end.

The company is committed to aggressive cost optimization, targeting a 4-5% reduction in fixed costs on a sustainable basis across all business units. Management explained that current lower ONB margins are primarily due to factory utilization being below 50%. They expressed strong confidence in achieving 20%+ EBITDA margins for the optical business once utilization rates recover to 75-80%, which is expected as demand picks up in key markets like the US and Europe over the next 1-2 quarters.

AI and machine learning are identified as transformative forces driving significant demand for data center connectivity. Management highlighted that AI data centers are estimated to require up to 18 times higher fiber content compared to traditional CPU-based data centers. This presents a massive opportunity, with North American data center capacity projected to grow at over 10% CAGR between 2024 and 2029, and India's capacity expected to more than triple by 2028.

Beyond AI, global demand is bolstered by 5G network expansion and FTTx deployments, with India's FTTx installations projected to grow at a 26% CAGR between 2023 and 2028. Government-funded projects, such as the BEAD project in the US and BharatNet in India, are expected to further stimulate demand. While the BEAD project's impact on cable requirements is slightly delayed by 3-4 months, it is bipartisan and not expected to be affected by political situations.