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We do not see any challenge in maintaining 40% market share in India: Anupam Jindal, Sterlite Tech

5G is a long-term opportunity and Sterlite is well placed, says the CFO.

ET Now|
Sep 11, 2019, 03.34 PM IST
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Anupam Jindal, Sterlite Tech-1200
We currently operate in a $20-billion market which we are looking at expanding to about $75 billion by 2023, says Anupam Jindal, CFO, Sterlite Technologies. Excerpts from an interview with ETNOW.

What is the opportunity size as well as the addressable market for Sterlite Technologies in India with respect to backhaul tower connectivity for incumbent providers, fiber direct to home penetration and of course rural connectivity and smart cities?
At Sterlite, we continue to be excited with the opportunities both in India as well as global level, driven by the humongous data growth and the technology shifts which is being seen by everyone around us and in India as you said connectivity is continuously improving and in terms of both private and government initiatives continue to be there. We have seen some of the large telecom companies announcing plans connecting millions of homes and enterprises and we continue to look at those opportunities, work with those customers and in terms of the overall addressable market, we currently operate in a $20-billion market which we are looking at expanding to about $75 billion by 2023. Three to four years is the kind of expansion of total addressable market for Sterlite at a global level. We continue to develop a product solutions and products around that so that we can address the larger opportunity.

If you already have a 40% market share for optic fiber in India, do you really see any challenges to growth? What are the triggers or revenue drivers for the company over the next couple of years?
We have been maintaining the 40% market share in India for a long time and we do not see any challenge in maintaining that kind of leadership at India level. As India continues to grow in the short as well as the long term, we do not see any challenge. As far as overall export is concerned, we have recently taken up expansion of facility from 30 million km to 50 million km which is now complete and ready for commissioning. We will see more exports coming in because we see more growth at global level than we see in India and therefore export will continue to be a major focus for us. We are opening up new geographies, other than Europe and China in a big way and that will continue.

Current utilisation levels are at 85% to 100%. The company is coming to the end of a heavy capex cycle. What are the asset turnovers for the next capex? Do you have orders from day one?
Yes, the current capacity is fully utilised at 30 million km annually and we have downstream facility of 18 million kilometre on fiber cable which is again fully utilised at the current moment. As far as the expanded capacity of 50 million km is concerned, that is getting commissioned and we will see its gradual utilisation in next two-two and a half years.

We will have this cable capacity doubling up by June 2020, taking the capacity up to 33 million km. We have capex to revenue ratio of about 1.25. I think it is quite a healthy ratio and we will see good return on capital coming in from this investment over the next few years.

PE and EV/EBITDA multiples have severely compressed for Sterlite. The company has lost about two-thirds of market over the last year. What do you attribute this to?
The overall macro economy affecting the midcap, smallcap multiples is one fundamental reason. Apart from that, we have seen some negative news coming in from China which has not impacted the performance of the company as significantly as we have seen the impact on the share price of the company. But at a fundamental level, we do not see any major shift happening on the negative side. Rather, we continue to see this challenging time as opportunities to further strengthen our positioning in markets like Europe and various other new territories.

We have spread our investment in technology, development of new products, new solutions and these are the things which are really getting us excited. 5G is starting to happen all across the world now and these will definitely give tremendous thrust to the company’s growth.

There are some concerns on the heightened working capital on the systems integration business. That will raise debt levels and interest expiry for the company. How big a concern is this internally as well and what is it that you are doing to deleverage?
The services business by design has about 30 days additional working capital than the product business. . Products typically have 60-65 days kind of working capital, but this business on services side has about 100 to 110 days of working capital and since that is the only capital we invest in this business, the business cost is slightly more and that affects the overall working capital by about 10 to 15 days at a blended level.

We have seen that number in March 2019 balance sheet. Our working capital at a company level was 77 days as against 63 days last year, where we had a lower contribution from the services business. But internally, we do not really have any concern on this business. We continue to execute the project in a timely manner. We are also able to collect money against the work which we are doing and not seeing any delay or hold up on payments.

We have interest coverage of seven-eight times to EBITDA. From that perspective, we are well within our limit. We have set an annual limit of 1:1 for debt-equity and we are confident that we will be able to achieve or maintain that on an ongoing basis. We do not really see any major concern. We continue to focus on cash flow definitely and try to optimise at every possible juncture. We will see wherever we can do better working capital management in terms of improving the numbers from here.

Where do we stand in relation to 5G implementation? Is it still a distant dream for India? How can Sterlite leverage its capabilities and take a larger chunk of the global market share which is currently about 6% or so?
5G is a global opportunity and we are very happy to see a lot of countries announcing and starting to work on that. Some of the countries have started trial runs of 5G -- the US, some parts of China, Korea. That is a very exciting, large and long-term opportunity and Sterlite is well placed.

Unfortunately in India, we still do not see major action happening on 5G as such. The government is still taking some time and partly the current financials of the telecom companies are also not affording that opportunity to them. But at a global level, since we have a good amount of exposure, we continue to look at those opportunities and increase our foothold on those sides. We are getting good traction from most of our customers. We are getting engaged with them even during the planning stage for the network build.

75% of global brokerages have a buy on Sterlite. They say that given the return profile and the overall financial position, the stock should not trade at such a significant discount. What do you say to that?
The market has its views and our analysts who have given positive views around us probably understand better and at our level, we continue to deliver on things. We have shown very resilient strong performance over the last few years in spite of some of the challenges we have seen in China. We continue to work on delivering what we need to do in terms of delivering strong growth on a long-term basis with a sound balance sheet and strong positive cash flow. Our dividends’ commitments continue to be consistent. These are the things we continue to do and we are sure that market will start reflecting the fundamental performance of the company and the potential we have going forward.

Also Read

Despite weakness in China, global demand has grown: Anupam Jindal, Sterlite Tech

China issue temporary, won't hit Sterlite big: Anupam Jindal

Growth this quarter has come from fibre and cable business: Anupam Jindal, Sterlite Tech

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