Sterlite Technologies | Digital India play

Sterlite Technologies Limited Q1 FY24 Earnings Conference Call Transcript July 27, 2023 [Rephrased for my understanding]: Source

• Based on current US OFC industry situation, new revenue guidance is growth of 7% to 9% % [was 10 ~ 12% earlier] while targeting net debt to EBITDA to be at 2.5 times.

• CAPEX: Last year about 400. This year talked about 350, 400, but looking very closely at net debt, EBITDA, etc. Want to make sure that generate cash as a business and then reduce our debt.

• Optical Network: Working capital-light but more CAPEX-heavy, needs more investment in the manufacturing. Grow the optical business by increasing OFC market share and the connectivity attach rate. Engaged a tier-one management consulting firm to further optimize our operating costs. The 5G deployments continue to remain strong globally. Also, fiber-to-the-home deployments continue to remain strong. The Biden administration has recently announced the distribution of funding of over $4.2 billion, the BEAD program. The funding shall be used to primarily deploy last mile fiber networks. The funds expected to flow to states early next year and shall start to fund projects by the middle of 2024.

  • North America: High channel inventory. Depletion will still take 2~3 quarters, Slow deployment by the operators, and higher interest rates and inflation.
  • Optical fiber interconnect business: Underestimated the cycle of development and approval. In trials with various customers. After successfully passing this trial phase, expect good volumes. Invested both in the product development as well as the team development. Also, at the customer end, adding resources who are very comfortable with this product portfolio. Expect improvement in sales by Q3, Q4 and certainly into next year. Margins on interconnect are closer to 30%.
  • US operations helps in terms of branding and positioning. Ensures quick service to the customers.
  • US quarterly revenue dropped from 750 to 450 Cr. in Q1FY24. By when old run-rate possible? Not sure. It is a function of both volume and realization. Could have some reduction in realization. Putting our all the efforts to ensure that we are at this kind of a margin although we may have challenges to make the volumes. If realizations are at the current level, overall margins shall improve.
  • China Mobile has announced the results for 2023-24 tender. The tender volume is 108 million fiber kilometers. The tender war might mitigate any price risk that we see out of China in the near term. In addition to the China Mobile, China Telecom has also announced a tender of 50 million fiber kms.
  • In the short-term global OFC demand contracted by 3.4% in H1 2023, particularly in North America, demand contracted by 11%. Strongly feel that new products in the connectivity business should see a jump in attach rate from H2’24 onwards.

• Global Service: Working capital-heavy. Do large scale deployment of networks and system integration. Expect BharatNet phase-III tenders to be released in second-half of this FY. That will be a large 3-4-5 year, execution and then maintenance of that going forward. Consolidate global services, build new capabilities for value added services, and improve the UK operations profitability. Would be demerged by end of next FY.

• Digital: Acquired new customers in the US and India across technology and service industry verticals. 20 plus active customers at the end of Q1 FY24. Delivery team scaled to 950 plus consultants. Open order book is at 900 plus crores [3~5 Yrs. duration]. Focus is to make the business breakeven by Q4. Build the digital business through focused investments in new technologies and capabilities.