Sterlite Technologies Limited — Q4 FY24 earnings call

Call held 8 May 2024

Management summary

Sterlite Technologies reported a challenging Q4 and full year FY24, with consolidated revenues of ₹1,140 crores and ₹5,478 crores respectively, primarily impacted by lower optical fiber cable sales volumes. Despite the tough market, the company made significant progress on strategic priorities, including a ₹334 crore net debt reduction and a ₹1,000 crore QIP fundraise. Global Services improved its full year EBITDA margins from 3.1% to 7.6%, and STL Digital quadrupled its revenues year-on-year. Management anticipates market normalization in 1-2 quarters, driven by inventory digestion and increasing demand.

Highlights

  • Consolidated Q4 FY24 revenue at ₹1,140 crores.

  • Consolidated full year FY24 revenue at ₹5,478 crores.

  • Consolidated Q4 FY24 EBITDA at ₹67 crores.

  • Consolidated full year FY24 EBITDA at ₹627 crores.

  • Net debt reduced by ₹334 crores during FY24.

  • QIP fundraise of ₹1,000 crores completed in April 2024.

  • Optical connectivity attach rates increased to 13% from 10% last year.

  • Open order book at end of Q4 FY24 is ₹10,290 crores, with ₹2,064 crores added in Q4.

Concerns

  • Challenging demand environment and inventory digestion in optical business.

  • Sub-optimal factory utilization impacting profitability.

Key financials

2 periods

Headline

  • Consolidated Revenue
    ₹1,140 Cr
  • Consolidated EBITDA
    ₹67 Cr
  • Consolidated After Tax Loss
    ₹83 Cr

FY24

  • Net Debt Reduction
    ₹334 Cr

What they filed

Q1 FY27: revenue up 87.4%, net profit up 1870.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,074 998 1,052 1,019 1,034 −4%1,257 +26%1,441 +37%1,910 +87%
EBITDA117 106 125 132 129 +10%120 +13%195 +56%385 +192%
Net profit-14 -24 -40 10 4 +129%-17 +29%59 +248%197 +1870%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of Q4 FY24 Revenue
₹1,178 Cr Total
  • Optical Networking Business ₹777 Cr 66.0%
  • Global Services Business ₹323 Cr 27.4%
  • STL Digital Business ₹78 Cr 6.6%

Guidance & targets

Capacity

  • Optical Network Business Utilization for Profitability Capacity · future · High confidence 60-65%
    So, Vipul at above about 60% kind of utilization, we see that at 60-65% of utilization we should be back on track in terms of the profitability for the optical network business from OFC perspective.

    — Tushar Shroff, CFO, STL

Market Outlook

  • Market Normalization Market Outlook · near term · Medium confidence 1-2 quarters away
    So that's where we continue to believe that we are probably one to two quarters away from the market normalizing.

    — Ankit Agarwal, MD, STL

Demand

  • BEAD Project Initial Demand Demand · FY25 · Medium confidence Q3 or Q4 FY25
    the visibility is probably Q3/Q4 of our financial year, is where we can see some initial impact or benefit and then meaningfully next year onwards.

    — Ankit Agarwal, MD, STL

  • BEAD Project Meaningful Demand Demand · CY25 · Medium confidence Calendar year FY25
    most people are factoring in probably meaningful demand coming in next year, so calendar year FY25, is where they see meaningful demand for the connectivity.

    — Ankit Agarwal, MD, STL

  • BharatNet Tender Visibility Demand · near term · Medium confidence next 1-2 months
    current visibility is probably in the next one to two months, there could be a response to the tenders and then there could be some more work around that.

    — Ankit Agarwal, MD, STL

  • BharatNet Ground Activity Demand · FY25 · Medium confidence Q3 and Q4 FY25
    So, broadly we do think that there will be some activity on the ground, probably by Q3 and Q4 of our financial year.

    — Ankit Agarwal, MD, STL

  • India Fiberization Demand Demand · next 3-5 years · Bullish confidence increases over next 3-5 years
    we are bullish on India. It's our home market and we do hope that that demand increases over the next three to five years.

    — Ankit Agarwal, MD, STL

Market Development

  • Data Center Business Presence Market Development · next 2-3 years · Medium confidence next 2-3 years
    But this is something which will take little bit more time probably over the next 2-3 years. We will look to build this and make more of a presence in this market.

    — Ankit Agarwal, MD, STL

Market Share

  • Optical Connectivity Attach Rate Increase Market Share · next 1-2 years · Medium confidence next 1-2 years
    We are continuing to focus on our solution offering of cable plus connectivity together, which will help us increase our attach rate and profitability in the next 1-2 years.

    — Ankit Agarwal, MD, STL

Profitability

  • IT Services Breakeven Profitability · near term · Medium confidence quickly
    the intent is certainly first to get to break even quickly, and then look at profitable growth.

    — Ankit Agarwal, MD, STL

Debt

  • Interest Costs Debt · current year · High confidence come down to some amount
    On the interest part definitely at least a STL it's been positive to the extent with our fundraise now, we will be utilizing that for our debt reduction. And to that extent, our interest costs will come down to some amount for the current year.

    — Ankit Agarwal, MD, STL

Market context

  • Global Services EBITDA Margin Margin · future · High confidence 8-10%
    directionally we have shared that we want to keep this business somewhere in the range of at least 8-10% with the right mix.

    — Ankit Agarwal, MD, STL

Risks & concerns

  • Challenging demand environment and inventory digestion in optical business.

    high

    OFC consumption declined 7.1% globally in 2023, with 12% in North America, due to inventory at multiple layers.

    Management acknowledged

  • Sub-optimal factory utilization impacting profitability.

    high

    Utilization levels were below 50% in Q4 FY24, which is below the 60-65% needed for profitability in optical business.

    Management acknowledged

  • Tough industry environment for IT services.

    medium

    Overall IT services sector is currently challenging, though management aims for profitable growth.

    Management acknowledged

  • Impact of US elections on BEAD project funding.

    low

    The BEAD project is bipartisan, so no negative impact is expected from US elections.

    Analyst downplayed

Areas of evasion (1)

  • Specific financial guidance for FY25 growth and margins

Q&A highlights

2 direct, 1 evasive
Market share loss and negative growth in North America compared to peers. Direct
More than 9 million homes have been deployed which is one of the highest ever in history. And that is also leading to strong reduction of the inventory, especially with our end customers and distributors. So that's where we continue to believe that we are probably one to two quarters away from the market normalizing.

Addresses concerns about underperformance in a key market and provides a timeline for potential recovery based on inventory digestion.

Asked by Nikhil Choudhary

Update on BEAD project timelines and expected contribution to US spectrum. Direct
broadly our sense is that somewhere in the timeframe of probably our Q3 or Q4 is where we can see some initial demand coming in. But when we look at our discussions with customers and even what we see with our peers, most people are factoring in probably meaningful demand coming in next year, so calendar year FY25, is where they see meaningful demand for the connectivity.

Provides specific, albeit approximate, timelines for a significant government-backed project that could drive future demand.

Asked by Nikhil Choudhary

Guidance for FY25 growth and margin. Evasive
No, currently we are not looking to give any specific guidance, because we are still in that phase as I have been sharing that principally, in our optical business we have made all the right investments in our capacities, in our team product capability, but our utilization levels are still on the lower side.

Highlights management's reluctance to provide concrete financial targets for the upcoming fiscal year, indicating continued uncertainty despite some positive outlooks.

Asked by Darshil Zaveri

2 min read 6 chapters

Detailed narrative

Q4 & Full Year FY24 Performance Overview

Sterlite Technologies reported consolidated Q4 FY24 revenue of ₹1,140 crores and full year FY24 revenue of ₹5,478 crores, reflecting a challenging market environment. Consolidated EBITDA for Q4 stood at ₹67 crores, with the full year at ₹627 crores. The company recorded after-tax losses of ₹83 crores in Q4 FY24 and ₹58 crores for the full year, primarily due to lower optical fiber cable sales volumes.

Optical Networking Business Update

The optical networking business saw Q4 FY24 revenue of ₹777 crores and full year revenue of ₹3,830 crores, impacted by lower volumes, particularly in the US and Europe. Q4 EBITDA was ₹60 crores (7.7% margin), while full year EBITDA was ₹621 crores (16.2% margin). Management noted sub-50% utilization levels in Q4 and expects market normalization in 1-2 quarters as inventory digestion continues, with a target utilization of 60-65% for profitability.

Global Services & STL Digital Growth

The Global Services business achieved Q4 FY24 revenue of ₹323 crores and full year revenue of ₹1,456 crores. EBITDA margins significantly improved year-on-year from 3.1% to 7.6% for the full year, reaching 12.1% in Q4, driven by a favorable project mix. STL Digital quadrupled its revenues year-on-year to ₹298 crores for FY24, with Q4 revenue at ₹78 crores, though it reported an EBITDA loss of ₹83 crores for the full year.

Strategic Priorities & Fundraise

Sterlite Tech. focused on strategic priorities including increasing optical connectivity market share, cost optimization, and scaling digital services. The company successfully reduced net debt by ₹334 crores during FY24 through internal accruals. Additionally, a ₹1,000 crore QIP fundraise was completed in April 2024, onboarding marquee institutional investors to strengthen its balance sheet and support future growth initiatives, which is expected to reduce interest costs for the current year.

Market Outlook & Demand Drivers

Despite a 7.1% global decline in OFC consumption in 2023, CRU projects a healthy 4.4% annual growth rate from 2023 to 2028, reaching 666 million fiber kilometers by 2028 (8% excluding China). Key demand drivers include 5G network creation, FTTH deployments (100 million homes awaiting FTTH in the US), and new-age data center buildouts, with AI data centers potentially requiring 5-8x higher fiber demand. The BEAD project in the US is expected to generate initial demand in Q3/Q4 FY25, with meaningful demand in calendar year FY25.

Demerger Status & ESG Initiatives

The company is progressing with the demerger of its services business, with the first NCLT hearing conducted in April 2024, and is working on next steps for shareholder and creditor approval. On the ESG front, Sterlite Tech. diverted over 245,000 metric tons of waste from landfills and reduced 30,000 tons of CO2 equivalent emissions since FY19. It also recycled 830,000 cubic meters of water and remains committed to becoming a carbon-neutral company by 2030.

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