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CRISIL IERIndependentEquityResearch

Sterlite Technologies Apollo Hospitals Ltd Enterprise Ltd

Detailed Report

Detailed Report

Enhancing investment decisions

CRISIL IERIndependentEquityResearch

Explanation of CRISIL Fundamental and Valuation (CFV) matrix

The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a fivepoint scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP).

CRISIL Fundamental Grade

5/5 4/5 3/5 2/5 1/5

Assessment
Excellent fundamentals Superior fundamentals Good fundamentals Moderate fundamentals Poor fundamentals

CRISIL Valuation Grade

5/5 4/5 3/5 2/5 1/5

Assessment
Strong upside (>25% from CMP) Upside (10-25% from CMP) Align (+-10% from CMP) Downside (negative 10-25% from CMP) Strong downside (<-25% from CMP)

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YEARS

Sterlite Technologies Ltd

Returning to normal profitability
Fundamental Grade Valuation Grade Industry 3/5 (Good fundamentals) 4/5 (CMP has upside) Technology, hardware and equipment

MAKING MA RK
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July 24, 2012 Fair Value CMP CFV MATRIX

Excellent Fundamentals

Rs 40 Rs 33

Fundamental Grade

Sterlite Technologies Ltd (Sterlite Tech) has stepped into FY13 with better business prospects in both its segments telecom and conductors. The optical fibre plants stabilisation issues have been resolved and the conductor segment has a healthy flow of Power Grid Corporation of India Ltd (PGCIL) orders. However, competition in both segments has increased. We believe that the company will bounce back from FY12 lows and, hence, retain the fundamental grade of 3/5, indicating that its fundamentals are good relative to other listed securities in India. Expanding fibre capacity to capture market growth; profitability to improve According to the company, the stabilisation issues in the newly commissioned capacity in its fibre plant at Aurangabad (Maharashtra) have been resolved in Q4FY12. Further, the capacity expansion from 12 mn fibre-Km to 20 mn fibre-Km and established presence in the global markets will ensure that Sterlite Tech is able to cater to the increase in demand for optical fibre. Driven by these factors, the segments EBITDA is expected to grow at 31% CAGR over FY12-14 to Rs 2,279 mn. Healthy PGCIL order book to drive conductor segments profitability After the gap of one year, PGCIL released the order backlog in H2FY12, resulting in healthy order book of Rs 21 bn (62% from PGCIL) for Sterlite Tech, as of FY12, executable over FY13-14. As PGCIL orders are relatively high margin orders, EBITDA per tonne is expected to improve to Rs 9,200 in FY14 from Rs 6,187 in FY12. However, we do not expect profitability to return to historical levels of Rs 12,000-13,000 per tonne as competition has intensified. Further, the company is expanding its conductor capacity from 1.6 lakh MT to 2 lakh MT by FY13, which will enable it to meet the demand CAGR of 15% over FY13-15 in the domestic conductor industry. Also, the company is executing three transmission grid projects entailing equity investment of Rs 10 bn by FY15. Though returns are low, the projects will provide a steady cash flow to Sterlite Tech. Key monitorables/Risks a) Capacity expansion by Chinese players which could reduce Chinas dependency on imports, (b) PGCILs order flow and increase in competition in the domestic conductor industry, and c) successful execution of the ultra mega power transmission projects. Standalone earnings to grow at a CAGR of 71% over FY12-FY14 Sterlite Techs standalone revenue is expected to grow at a CAGR of 15% to Rs 36 bn in FY14 driven by capacity expansion in both telecom and power transmission segments. Further, following an improvement in both segments profitability, standalone PAT is projected to grow from Rs 438 mn in FY12 to Rs 1,279 mn in FY14. Valuations: Current market has upside We have used the sum-of-the-parts method to value Sterlite Tech and maintain the fair value of Rs 40. Based on the current market price of Rs 33, the valuation grade is 4/5.

5 4 3 2 1

Poor Fundamentals

Valuation Grade
Strong Downside Strong Upside

KEY STOCK STATISTICS

NIFTY/SENSEX NSE/BSE ticker Face value (Rs per share) Shares outstanding (mn) Market cap (Rs mn)/(US$ mn) Enterprise value (Rs mn)/(US$ mn) 52-week range (Rs)/(H/L) Beta Free float (%) Avg daily volumes (30-days) Avg daily value (30-days) (Rs mn) 5118/16877 STRTECH 2 393 10,914/198 15,710/285 59/27 1.6 45.3% 1,033,168 35

SHAREHOLDING PATTERN
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 54.7% 54.7% 54.7% 54.7% 11.6% 2.2% 11.5% 1.8% 11.5% 1.4% 9.9% 2.4% 31.5% 32.0% 32.4% 33.0%

KEY FORECAST- STANDALONE

(Rs mn) Operating income EBITDA Adj Net income Adj EPS-Rs EPS growth (%) Dividend Yield (%) RoCE (%) RoE (%) P/E (x) P/BV (x) EV/EBITDA (x) FY10 24,311 3,813 2,565 7.2 (46.6) 0.6 27.8 33.4 12.2 3.4 8.4 FY11 22,641 2,709 1,405 3.9 (45.4) 1.6 14.7 14.4 7.8 1.1 5.5 FY12# 27,275 1,996 438 1.1 (71.7) 1.0 7.4 4.0 27.5 1.1 8.5 FY13E 29,588 3,214 1,113 2.8 153.8 1.0 11.9 9.2 10.8 0.9 6.4 FY14E 35,931 3,925 1,279 3.3 14.9 1.0 12.4 9.6 9.4 0.9 6.2

Jun-11 Promoter

Sep-11 FII

Dec-11 DII

Mar-12 Oth ers

PERFORMANCE VIS--VIS MARKET

Returns 1-m Sterlite Tech NIFTY 9% 2% 3-m -15% -2% 6-m -6% 3% 12-m -38% -7%

ANALYTICAL CONTACT
Mohit Modi (Director) Pravesh Rawat Vishal Rampuria Client servicing desk +91 22 3342 3561 clientservicing@crisil.com mohit.modi@crisil.com pravesh.rawat@crisil.com vishal.rampuria@crisil.com

Source: Company, CRISIL Research estimates # Based on abridged financials, NM: Not meaningful; CMP: Current market price

For detailed initiating coverage report please visit: www.ier.co.in CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters.

CRISIL IERIndependentEquityResearch
Table 1: Sterlite Technologies: Business environment (Standalone)
Product / Segment Revenue contribution (FY12) Revenue contribution (FY14) Product / service offering Telecom 30% 29% Power transmission conductors 70% 71% Grid projects NA NA Setting up of high capacity transmission lines on a build, own, operate and maintain basis (BOOM) India
Won three out of nine projects

Manufactures optical fibre, fibre Power transmission conductors, optical optic cables, structured data fibre composite overhead ground wire cables, and offers telecom (OPGW ) cables integration and managed services India, China, Middle-East, Africa and Europe
5% market share in global fibre 25% market share in India 8% market share in Africa

Geographic presence Market position industry

24% market share in India for

awarded so far released by the government

optical fibre and cables

8% share in Africa, 7% share in

China and 5% share in Russia for fibre optic cables Sales growth (FY09-FY12 3-yr CAGR) Sales forecast (FY12-FY14 2-yr CAGR) Demand drivers -3%* 17% Domestic Laying out of fibre network in rural areas under the national broadband policy # Increased penetration of FTTx Growth in bandwidth requirement in India due to increase in demand for video content International Increase in FTTx penetration Increase in wireless and broadband network penetration in developing countries Domestic: Aksh Optifibre, Finolex Cables, Birla Ericsson Opticals International: Sumitomo Electric, Prysmian Inc, Nexans Inc, Draka, General Cables, Furukawa, Fujikura, Corning
Competition from global players Increase in fibre capacity in

8% 16% Domestic Increase in power generation PGCILs power transmission corridor project for evacuation of power from surplus regions and supplying it to deficit regions International Improvement in power infrastructure in developing nations Thrust on renewable sources of energy in developed nations Upgradation of national grids of developed nations Domestic: Apar Industries, Diamond Power Infrastructure International: Alcan, ZTT China, Southwire, Midal, Prysmian Inc, General Cables
Competition from domestic players High dependence on PGCIL

NA NA
Increase in power generation PGCILs power transmission corridor

project for evacuation of power from surplus regions and supplying it to deficit regions

Key competitors

PGCIL, Reliance Infrastructure, Simplex Infrastructure

Key risks

Cost overrun Delay in payment from SEBs (state

China Stabilisation of incremental capacity installed

electricity boards)

*Due to the decline in the optical fibre realisation and lower system integration business Note: Revenue contribution of the telecom and power transmission conductor segments is for the respective standalone business #Fibre to the x (FTTx) is a generic term for any broadband network architecture that uses optical fibre to replace all or part of the usual metal (copper) local loop used for last mile telecommunications. The various configurations are FTTN (fibre to the node), FTTC (fibre to the curb), FTTB (fibre to the building and FTTP (fibre to the premise) Source: Company, CRISIL Research

Sterlite Technologies Ltd

Grading Rationale
Last year was tough but future looks promising
Sterlite Tech has stepped into FY13 with better demand prospects and expects profitability to improve over FY12 in both its businesses optical fibre/cable and conductors. FY12 was a subdued year for Sterlite Tech as its newly commissioned optical fibre capacity faced stabilisation issues and the demand for conductors was low due to delay in PGCIL orders. The company has resolved the stabilisation issues in the optical fibre plant and currently holds a healthy order book of Rs 21 bn (62% PGCIL orders) in the conductor segment. Further, demand for both its products optical fibre/cables and conductors - is expected to be healthy over the next two years. The companys prospects have improved from the previous year and we expect standalone earnings to grow at a two-year CAGR of 71% over FY12-14. The growth number appears to be large on account of a low base; the standalone earnings degrew significantly by 59% CAGR during FY10-FY12.

Optical fibre: Expanding capacity to capture demand surge

Capacity expansion
Sterlite Tech is expanding its optical fibre capacity to 20 mn fibre-Km from the existing 12 mn fibre-Km to capture the expected demand growth in the global optical fibre industry. According to the management, the company will become the third largest manufacturer of optical fibre post the expansion from being the fifth largest currently. Of the incremental 8 mn fibre-Km, the company is setting up 4 mn fibre-Km in China in a JV with a local partner to improve its market share. The preform required for this capacity will be imported from India. The capex for the total capacity addition in India (preform manufacturing for 8 mn fibre-Km and 4 mn fibre-Km optical fibre capacity) is estimated to be ~Rs 1.5 bn, which will be largely funded through internal accruals. We expect capacity to come on stream in Q2FY13 in India and in Q1FY14 in China.

Sterlite Tech, with an installed capacity of 12 mn fibre-Km, is currently the fifth largest global and the only domestic manufacturer of optical fibre

Figure 1: Optical fibre and cable capacity expansion trend

(mn fibre-Km) 25.0 20.0 20.0 16.0 15.0 12.0 10.0 6.0 5.0 4.0 3.2 3.2 3.2 4.5 4.5 9.0 10.0 10.0

5.5

5.5

6.0

0.0 FY07 FY08 FY09 FY10 FY11 FY12 FY13E FY14E Optical fibre* Optical fibre cable

*includes 4 mn fibre-Km installed in China for FY14 Source: Company, CRISIL Research

CRISIL IERIndependentEquityResearch
With an established presence in global markets
Over the years, Sterlite Tech has established itself in various geographies. Exports comprise ~85% of total revenues of optical fibre business in FY12. The company exports optical fibre and cables to China, Africa, Middle East, South Africa, Europe and the US. According to the management, the company has ~10% market share in Europe, ~6% in China, ~7% in Latin America and ~2% in North America. It has supplied optical fibre and cables to six of the top 10 global telecom service providers.

Sterlite Tech is an established players in global markets such as China, Africa, Middle East, South Africa, Europe and the US

Figure 2: Geographical break-down of optical fibre sales (FY12)

Europe 26% Middle East and Africa 22%

US 6%

China 34%

India 12%

Source: Company

To equip Sterlite Tech to reap benefits from increase in global demand

CRU a UK based research agency, expects the global optical fibre demand to grow by 9% in 2012 driven by demand from Asia. Compared to earlier expectations of nil growth in CY11, the global demand for optical fibre grew by ~7% to 204 mn fibre-Km, the highest ever recorded by the industry. Strong demand from China, Europe and North America led this growth. Chinese demand, which de-grew by ~8% in 2010, bounced back in 2011. In 2012 too, demand from China is expected to increase driven by fibre capex of the three main Chinese telecom service providers - China Mobile, China Telecom and China Unicom. These players are collectively expected to purchase ~100 mn fibre-Km of optical fibre in 2012. Demand from Australia, Brazil and the US is also expected to be strong. FTTx installations and growth in bandwidth demand are expected to be key drivers for optical fibre demand in most geographies.

Poised to benefit from the global demand of optical fibre

Sterlite Technologies Ltd

Figure 3: Global optical fibre demand

(mn fibre-Km) 250 204 190 200 140 150 90 100 65 50 59 59 62 92 75 95 118 174 222

0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E

Source: CRU, Company, CRISIL Research

Profitability projected to move towards normalcy

We expect the optical fibre segments EBITDA margin to move towards normalcy in FY13 as the company has resolved the stabilisation issues with the new capacity of 2 mn fibre-Km. The company expanded its optical fibre capacity from 10 mn fibre-Km to 12 mn fibre-Km in FY12. This incremental capacity faced stabilisation issues due to which the yields from this capacity were low. This impacted Sterlite Techs profitability in this segment. According to the company, the stabilisation issues have now been resolved and the plant is operating at optimum yields. However, the expansion in EBITDA margin of telecom segment in FY13 is expected to be limited to only 278 bps as we factor in the stabilisation issues in the upcoming capacity of 4 mn fibre-Km, which is coming on stream in H2FY13. Post the expansion, we expect EBITDA margin to expand to 21.6% in FY14.

Stabilisation issue in the optical fibre plant has been resolved

Telecom segments EBITDA margin - yearly trend

30.0% 25.6% 25.0% 22.7% 20.3% 20.0% 16.0% 14.2% 15.0% 21.6% 17.5%

Telecom segments EBITDA margin quarterly trend

35.0% 28.8% 30.0% 24.2% 25.0% 20.0% 15.0% 10.0% 5.0% 21.6% 23.3% 16.8% 28.8%

15.6% 15.9%

10.0%

0.0%

Q1FY11

Q2FY11

Q3FY11

Q4FY11

Q1FY12

Q2FY12

Q3FY12

5.0% FY08 FY09 FY10 FY11 FY12 FY13E FY14E

Note: Telecom segment includes optical fibre, fibre optic cables, data cables and system integration business Source: Company, CRISIL Research Source: Company, CRISIL Research

Q4FY12

CRISIL IERIndependentEquityResearch
Increase in Chinese capacity a threat to profitability
According to Research in China (a China-based research agency), China will become selfsufficient in preform (glass used for making optical fibre) by 2013 driven by capacity expansion by the six small fibre manufacturers in China. Preform imports have already declined from 70% in 2010 to 48.9% in 2011. Since China accounts for ~40% of the global demand for optical fibre, decline in Chinese imports will have an adverse impact on the global players volume growth and their capacity utilisation levels. Also, over the past year, realisations of optical fibre have been stable at US$7.5-8 per fibre-Km since the demand-supply situation has been stable. When the Chinese capacities come on stream, supply will exceed demand and will put pressure on fibre realisation, which will adversely impact profitability of players like Sterlite Tech. According to the management, Chinese manufacturers have not been able to stabilise the preform capacities in the past and, hence, China has always remained an importer of optical fibre. Also, the gestation period for optical fibre capacities is high. Accordingly, the company believes that China will take some time to become self-sufficient.

Reduction in Chinas dependency on imports is a threat

Conductors: Sterlite Tech has the largest capacity in India

Expanding the capacity in conductor business
Sterlite Tech is on track to expand its conductor capacity from existing 1.6 lakh MT to 2 lakh MT by FY13-end, following which, according to the management, it will become the largest global manufacturer of power conductors in terms of capacity. Given the existing healthy order book, we expect the capacity to run at 90% utilisation rate. The total capital expenditure is estimated at ~Rs 500 mn which will be funded through internal accruals only.

Figure 4: Increasing capacity...

(Tonne)
200,000 180,000 160,000 140,000 120,000 160,000 160,000 160,000 160,000 200,000

Figure 5: ... to fuel the growth

(Rs mn)
30,000 2,060 25,000 1,656 20,000 1,137 15,000 838 10,000 5,000 15,370 Revenue (Conductor segment) 16,073 19,210 20,577 25,777 500 1,295 2,000

(Rs mn)
2,500

1,500

100,000 80,000 60,000 40,000 20,000 0 FY10 FY11 FY12 FY13E FY14E

1,000

EBITDA (conductor segment) (RHS)

Source: CRISIL Research

Source: CRISIL Research

Sterlite Technologies Ltd

Sterlite Tech is not only an approved but also one of the largest vendors of PGCIL (which accounts for ~50% of total domestic demand for conductors). As per the company, 25% of Indias national grid uses conductors manufactured by Sterlite Tech. Its other clients include SEBs and a few private players in India. The contracts are awarded based on competitive bidding.

Table 2: Domestic peers installed capacity

Company Sterlite Technologies Apar Industries Diamond power and infrastructure Source: CRISIL Research MT 50,500 Unit MT MT Installed capacity (FY12) 1,60,000 1,35,000

Table 3: Share of players in PGCILs total orders released since 2008

Company Sterlite Technologies JV of Apar, Deepak and Gupta Cables Apar Industries Gupta Power Infrastructure Deepak Cables Others Source: CRISIL Research Till August, 2011 33% 17% 8% 3% 3% 36% Till March, 2012 28% 6% 13% 6% 6% 59%

To benefit from industry-wide opportunities

Sterlite Tech, leveraging its leading position in the industry, is likely to benefit from the upcoming demand in the Rs 60-65 bn conductor industry. Demand for conductors, which account for 25-30% of the total transmission capex, is expected to grow at a CAGR of 15% over FY13-15 to Rs 96 bn, driven by the following factors:

Investment in generation to grow at a CAGR of 14%

CRISIL Research expects 87 GW power capacity to be added over the next five years as compared to only 42 GW added in the past five years. Consequently, the investment in power generation is expected to grow at a five-year CAGR of ~14% to Rs 6,706 bn by FY16.

Investment in transmission to grow at a CAGR of 19%

Investment in transmission is expected to gain momentum due to PGCILs capacity addition plans, which plans substantial augmentation of the inter-state transmission system with high voltage transmission corridors required for evacuating power from the upcoming generation capacities. Private sector projects will also heighten the momentum of investments in the sector. Investments in the transmission sector are expected to rise at a CAGR of 19% over the next five years, aggregating to Rs 1.8 tn, which is almost 2.5 times the investment of Rs 739 bn during the past five years.

Profitability set to improve

We expect the conductor segments EBITDA per tonne to improve from Rs 6,187 in FY12 to Rs 8,750 in FY13 and to Rs 9,200 in FY14, driven by the execution of relatively high-margin PGCIL orders. The profitability (EBITDA per tonne) of the conductor segment has declined significantly over FY11-FY12 due to the delay in orders from PGCIL, which makes up ~50% of the domestic conductor demand. During that period, PGCIL was evaluating new players to include them in its approved vendor list. Sterlite Tech had to take up low-margin orders with shorter lead time to maintain capacity utilisation at an optimum level. This caused the EBITDA per tonne to decline from Rs 16,540 in FY10 to Rs 6,187 in FY12. However, PGCIL released the order backlog in H2FY12 by awarding conductor contracts worth Rs 46.5 bn. As a result, the

Healthy order book from PGCIL; profitability to improve

CRISIL IERIndependentEquityResearch
EBITDA per tonne improved in H2FY12; the company reported EBITDA per tonne of Rs 8,844 (adjusted for bad debt write-off of Rs 50 mn) in Q4FY12. PGCIL constitutes 62% of Sterlite Techs total conductor order book of Rs 21 bn as on March 31, 2012.

Figure 6: Decline in PGCIL contracts...

(Rs bn) 35 30.2 30 25 19.4 20 15 10 5 0
Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12

Figure 7: ...Resulted in decline of EBITDA per tonne

(Rs/tonne) 18,000 16,000 14,000 12,000 16.3 10,000 8,000 6,458 3,591 3,945 2,665 7,890 7,428 16,556 15,407

12.7 11.4 11.5 3.6 1.0 1.4 9.3 6.7 2.1 3.2 4.4 2.4 0.0

6,000 4,000 2,000 -

Q1FY11

Q2FY11

Q3FY11

Q4FY11

Q1FY12

Q2FY12

Q3FY12

Note: There is a lag of close to one year in order winning and the execution of the order. Source: PGCIL, Company Source: PGCIL, Company

But will remain lower than historical high levels

While we expect the profitability to improve due to higher PGCIL order book, it is not expected to return to the historical average of Rs 12,000-13,000 per tonne due to increase in competition in this segment. Over the past one year, a number of new vendors have been included in PGCILs approved vendor list; they have bagged ~5.5% of the orders awarded in FY12. Additionally, the three big players (Sterlite tech, Apar and Diamond Infrastructure) are expanding capacities. The threat of new entrants, since this industry is not high fixed-capital intensive, cannot be ignored. Hence, we expect the competition to intensify in future, which will impact all players profitability.

Figure 8: Market share in PGCIL orders has declined due to competition...

40.0% 35.0% 30.3% 30.0% 25.0% 20.0% 15.0% 10.0% 21.5% 29.5% 37.8%

Figure 9: ... which will keep EBITDA per tonne below historical levels
(Rs) 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 11,603 9,120 6,187 8,750 9,200 14,318 16,540

5.0% 0.0% FY09 FY10 FY11 FY12

2,000 FY08 FY09 FY10 FY11 FY12 FY13E FY14E

Note: There is a lag of close to one year in order winning and the execution of the order. Source: PGCIL, Company Source: Company, CRISIL Research

Q4FY12

Sterlite Technologies Ltd

Table 4: New vendors awarded PGCIL contracts in FY12

Companies ICOMM TELE LTD. Galaxy Transmissions Pvt. Ltd Cabcon India Pvt Ltd Aravali Infrapower Ltd Shashi Cables Limited North Eastern Cables & Conductors Pvt Ltd (NECCON) Source: PGCIL NA Installed capacity (MT) NA 24000 12000 45000 NA

Table 5: Expansion plans of conductor manufacturers

Installed Company Unit capacity (FY12) Sterlite Technologies Apar Industries Diamond power and infrastructure MT 50,500 1,00,000 MT MT 1,60,000 1,35,000 Installed capacity (FY14E) 2,00,000 1,50,500

Source: CRISIL Research

Grid project executions on track; low IRRs a key concern

According to the management, execution of the three ultra mega power transmission projects (UMTP) is on track. The first project is 60% complete and will be operational in FY14. The company has recently received Rs 22 bn as debt syndication for the second and third projects. So far, Rs 6.7 bn has been invested in these projects, out of which Rs 3 bn is contributed by Sterlite Tech as an equity infusion. The company expects to further infuse Rs 3 bn in FY13 and Rs 4 bn in FY14 as equity. The debt-equity for these projects is expected to be 70:30. These projects have been awarded on a BOOM basis wherein post the tenure of the projects, the company will own the assets. Each project is part of a separate special purpose vehicle (SPV). We expect Sterlite Tech to earn an IRR (internal rate of return) of 10-11% from these projects.

Table 6: Details of UMTP projects won by Sterlite Tech

Year of Details of project East North Interconnection Project (project 1) Bhopal-Dhule Transmission Project (project 2) Jabalpur Transmission Project (project 3) commencement FY14 Capex (Rs bn) 10 Levelised tariff (Rs bn) 1.2 Tenure (years) 25 Status of the project 60% complete. The company expects to complete this project by March 2013 and generate cash flows from the same in FY14. Moved from the survey stage to the design and FY15 18 2.3 35 engineering stage, and most key orders related to this project have been awarded. FY15 13 1.5 35 The orders are yet to be finalised and the company expects to award them in H1FY13.

Source: Company, CRISIL Research

Execution is a monitorable
Sterlite Tech is a new player in the asset-heavy business and does not have any track record of setting up transmission lines. Though the company has outsourced the ground work to EPC players and has recruited an experienced team, successful execution of these projects is a key monitorable. Also, given the low IRRs (10-11%), funding mix (including foreign currency funding) is key for value accretion to equity holders. Accordingly, we prefer to wait for further development in the BOOM projects before factoring them into our valuations.

CRISIL IERIndependentEquityResearch
Key Risks
Delay by PGCIL in awarding contracts
Sterlite Techs profitability in the power segment is driven by the contribution of PGCIL orders to the total orders executed. The companys margins in FY11 and FY12 were depressed as PGCIL delayed orders. PGCILs orders for FY12 are strong and we expect the profitability to bounce back, albeit not at historical levels as the competition in this segment has increased. However, any delay in PGCIL orders in the future will impact the conductor segments profitability.

Delay in investments in transmission

The demand for conductors is a function of the governments investments in transmission. Transmission lines are being laid to strengthen the national grid and for evacuation of power from new generation capacities. The generation segment is in troubled times due to shortage of coal and there is uncertainity over policy reforms. Driven by this, there may be some delays in investments in transmission lines.

Crystallisation of contingent liability

Sterlite Tech had received an order from Custom, Excise and Service Tax Appellate Tribunal (CESTAT) upholding a demand of Rs 1.9 bn (17% of shareholders equity in FY12) in a pending excise/custom matter. The companys appeal in the High Court of Mumbai was rejected on grounds of jurisdiction. It has appealed to the Supreme Court against this order and the decision on the matter is pending. The company has made a provision of Rs 50 mn in FY11 against the aforementioned liability. However, its profitability will be impacted in case the Supreme Court rules in favour of CESTAT.

10

Sterlite Technologies Ltd

Financial Outlook
Standalone revenue to grow at 15% CAGR over FY12-14
Sterlite Techs standalone revenue is expected to grow at a two-year CAGR of 10% to Rs 36 bn in FY14 driven by capacity expansion in telecom and power transmission segments. The demand for both products - optical fibre/cable and conductors is expected to remain healthy, hence we expect the company to operate both capacities at optimum utilisation levels.

15% growth in the standalone revenue driven by capacity expansion

Figure 10: Increase in capacity of both segments

Capacity Conductor (Tonne) Optical Fibre (mn fibre-Km)
India China

Figure 11: Capacity expansion to drive revenue growth

(Rs mn)

FY10

FY11

FY12

FY13E

FY14E

40,000 35,000 30,000 25,000 20,000 15,000 25,777 10,000 15,370 5,000 FY10 FY11 FY12 FY13E FY14E Power Transmission segment Telecom segment 16,073 19,210 20,577 9,264 6,588 9,469 7,947 10,711

160,000 160,000 160,000 160,000 200,000 10

10 0

10
10 0

12
12 0

16
16 0

20
16 4

Source: CRISIL Research

Source: CRISIL Research

Standalone EBITDA margin to expand and stabilise at 11% in FY13- FY14

We expect standalone EBITDA margin to improve and stabilise at 11% in FY13 and FY14 from 7.3% in FY12. The EBITDA margin contracted by 460 bps y-o-y in FY12 on account of poor performance in telecom segment (due to stabilisation issues in newly commissioned optical fibre capacity) and the power transmission segment (due to the delay in PGCIL orders). However, the company has resolved the stabilisation issues and has a healthy order book of Rs 21 bn (62% from PGCIL) in the power transmission segment. Also, expected increase in the demand for optical fibre and conductors will support margins.

Figure 12: Improvement in profitability of both segments

FY10 Conductor segment (EBITDA per tonne) Telecom segment margin 16,540 22.7% 9,120 25.6% 6,187 17.5% 8,750 20.3% 9,200 21.6% FY11 FY12 FY13E FY14E

Figure 13: To drive the overall standalone margins

(Rs mn) 4,500 4,000 3,500 3,000 2,500 7.3% 2,000 1,500 1,000 500 0 FY10 FY11 EBITDA FY12 FY13E FY14E EBITDA margin (RHS) 3,813 2,709 1,996 3,214 3,925 8.0% 6.0% 4.0% 2.0% 0.0% 12.0% 10.9% 10.9% 15.7% 18.0% 16.0% 14.0% 12.0% 10.0%

Source: CRISIL Research

Source: CRISIL Research

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CRISIL IERIndependentEquityResearch
Standalone PAT to grow by 71% over FY12 - FY14
Following the growth in sales and improvement in operating performance, standalone PAT is expected to grow to Rs 1,279 mn in FY14 from Rs 438 mn in FY12. PAT margin is expected to expand by 215 bps to 3.8% in FY13. However, we expect a slight contraction in PAT margin in FY14 on account of increase in depreciation and interest expenses. The deprecation is expected to increase y-o-y in FY13 and FY14 as the company capitalises both the optical fibre (FY13) and conductor (FY14) capacities. Further, interest cost is expected to go up in FY13 and FY14 on account of increase in long-term loans, which the company will borrow to fund the equity portion (30% of total capex) in grid projects. Sterlite Tech is expected to report EPS of Rs 2.8 and Rs 3.3 in FY13 and FY14, respectively. The standalone RoE and RoCE are expected to improve from FY12 level but will remain subdued, as the investment in three grid projects will start giving returns from FY15.

Figure 14: Healthy growth in PAT over FY13 and FY14

(Rs mn) 3,000 10.1% 2,500 2,000 6.2% 1,500 3.8% 1,000 1.6% 500 2,461 0 FY10 FY11 PAT FY12 FY13E FY14E PAT margin (RHS) 1,405 438 1,113 1,279 0.0% 2.0% 3.6% 4.0% 6.0% 10.0% 8.0% 12.0%

Figure 15: Standalone RoE to improve from FY12 level

40.0% 33.4% 35.0% 30.0% 25.0% 20.0% 14.7% 15.0% 10.0% 5.0% 0.0% FY10 FY11 RoE 4.0% FY12 FY13E RoCE FY14E 14.4% 7.4% 9.2% 9.6% 11.9% 12.4% 27.8%

Source: CRISIL Research

Source: CRISIL Research

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Sterlite Technologies Ltd

Change in standalone earnings estimate

FY13E Particulars Exchange rate Net Revenue EBITDA EBITDA margin Depreciation Interest cost Other income PAT PAT margin EPS Unit Rs Rs mn Rs mn % Rs mn Rs mn Rs mn Rs mn % Rs Old 49.5 30,798 3,160 10.3% 875 1125 203 1,050 3.4% 2.7 New 52.0 29,588 3,214 10.9% 830 1105 166 1,113 3.8% 2.8 % change 5.1% -3.9% 1.7% 60bps -5.2% -1.8% -18.2% 6.0% 35bps 6.0% Old 51.0 36,835 3,965 10.8% 925 1470 108 1,291 3.5% 3.3 FY14E New 48.0 35,931 3,925 10.9% 880 1477 92 1,279 3.6% 3.3 % change -5.9% -2.5% -1.0% 16bps -4.9% 0.4% -15.2% -1.0% 5bps -1.0%

Source: CRISIL Research

Reasons for changes in estimates

Line item Revenues FY13
Higher than expected depreciation of rupee Lower-than-expected volume for conductor

FY14
Expect rupee to appreciate to Rs 48 per US$ against previous

expectation of Rs 51 per US$

segment due to delay in additional capacity EBITDA margins PAT margins

Higher-than-expected margin in fibre optic cable Higher than expected EBITDA margin Largely maintained Due to lower than expected other income. Based on the

management discussion, we have revisited our assumptions related to cash outflow for grid projects. Source: CRISIL Research

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CRISIL IERIndependentEquityResearch
Management Overview
CRISIL's fundamental grading methodology includes a broad assessment of management quality, apart from other key factors such as industry and business prospects, and financial performance.

Experienced management with strong parent backing

Sterlite Tech has an experienced management headed by Dr Anand Agarwal, CEO and whole-time director, who has been associated with the company for the past 15 years. He is supported by Mr Pravin Agarwal, whole-time director, who has been with the group since its inception. Mr Anupam Jindal is the CFO and has been associated with the Sterlite group since 1998. Additionally, the company can leverage on the management strength of the Sterlite group.

Demonstrated strong capabilities in the past

Sterlite Tech was formed in 2000 to do business of telecom cables. However, due to the slowdown in the telecom segment in 2003-2004, the company posted a net loss of Rs 1 bn in FY03 and Rs 821 mn in FY04. It rebounded with a profit of Rs 164 mn in FY06. In FY07, the company acquired the power conductor division from Sterlite Industries for Rs 1.5 bn. Over the years, the company has shown continuous growth and sustained profitability. In FY10, it reported revenues of Rs 24 bn and a net profit of Rs 2.5 bn. Also, to stay ahead of competition, the company is continuously working towards developing new products and has a research and development facility. It has recently introduced overhead power ground wire (OPGW) cables in the market, which are power cables that can also carry data.

Limited access to the management

Our interaction has been limited to only the CFO and AGM Corporate Strategy and Investor Relations. We have not been able to get access to business heads and other personnel in the second line of management.

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Sterlite Technologies Ltd

Corporate Governance
CRISILs fundamental grading methodology includes a broad assessment of corporate governance and management quality, apart from other key factors such as industry and business prospects, and financial performance. In this context, CRISIL Research analyses the shareholding structure, board composition, typical board processes, disclosure standards and related-party transactions. Any qualifications by regulators or auditors also serve as useful inputs while assessing a companys corporate governance. Overall, corporate governance at Sterlite Tech meets the desired levels supported by reasonably good board practices and an independent board.

Board composition
Sterlite Techs board comprises six members; Mr Anil Agarwal is the non-executive chairman. The company has three independent directors, which exceeds the requirement under Clause 49 of SEBIs listing guidelines. The independent directors have strong industry experience and are highly qualified. Given the background of directors, we believe the board is well experienced.

Boards processes
The companys quality of disclosures can be considered adequate judged by the level of information and details furnished in the annual report, websites and other publicly available data. The company has all the necessary committees audit, remuneration and investor grievance - in place to support corporate governance practices. The audit committee is chaired by an independent director, Mr Arun Todarwal.

15

CRISIL IERIndependentEquityResearch
Valuation Grade: 4/5
We continue to value Sterlite Tech at Rs 40 per share

We continue to value Sterlite Tech based on the sum-of-the-parts method. We have assigned a fair value of Rs 39 to the companys standalone business based on P/E of 12x FY14E EPS of Rs 3.3. The investment in the China subsidiary is valued at book value of Rs 350 mn to arrive at a fair value of ~Rs 1 per share. Accordingly, we maintain our fair of Rs 40. At the current market price of Rs 33, the valuation grade is 4/5.

One-year forward P/E band

(Rs) 300 250 200 150 100 50 0 -50
Apr-06 Jul-06 Oct-06 Feb-07 May-07 Sep-07 Dec-07 Mar-08 Jul-08 Oct-08 Feb-09 May-09 Sep-09 Dec-09 Mar-10 Jul-10 Oct-10 Feb-11 May-11 Aug-11 Dec-11 Mar-12 Jul-12

One-year forward EV/EBITDA band

(Rs mn) 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0
Apr-06 Jul-06 Oct-06 Feb-07 May-07 Sep-07 Dec-07 Mar-08 Jul-08 Oct-08 Feb-09 May-09 Sep-09 Dec-09 Mar-10 Jul-10 Oct-10 Feb-11 May-11 Aug-11 Dec-11 Mar-12 Jul-12

Sterlite Tech

1x

5x

12x

24x

36x

EV

3x

5x

8x

10x

Source: NSE, CRISIL Research

Source: NSE, CRISIL Research

P/E premium / discount to NIFTY

400% 300% 200% 100% 0% -100% -200%

P/E movement
(Times)
70 60 50 40 30 20 10 0 -1 std dev +1 std dev

Oct-06

Oct-08

Dec-07

Dec-09

Oct-10

May-07

May-09

May-11

Dec-11

Jul-06

Jul-08

Jul-10

Apr-06

Feb-07

Sep-07

Mar-08

Feb-09

Sep-09

Mar-10

Feb-11

Aug-11

Apr-06 Jul-06 Oct-06 Feb-07 May-07 Sep-07 Dec-07 Apr-08 Jul-08 Oct-08 Feb-09 May-09 Sep-09 Dec-09 Mar-10 Jul-10 Oct-10 Feb-11 May-11 Sep-11 Dec-11 Mar-12 Jul-12

Premium/Discount to NIFTY

Median premium/discount to NIFTY

1yr Fwd PE (x)

Median PE

Source: NSE, CRISIL Research

Source: NSE, CRISIL Research

Global peers
Adj EPS (US$) Companies Corning Inc General Cable Corp Nexans Sa Prysmian Spa Sumitomo Electric* Fujikura Ltd* Furukawa Electric* Country USA USA Europe Europe Japan Japan Japan CY11 1.8 1.8 0.7 0.7 na na na CY12E 1.4 2.7 3.8 1.5 0.9 -0.2 -0.2 CY13E 1.5 3.5 5.1 1.9 1.3 0.2 0.2 CY11 13.9 5.8 -8.8 -15.1 na na na RoE (%) CY12E 9.7 9.6 5.1 20.0 6.1 -3.5 -7.2 CY13E 10.0 12.2 6.6 22.0 7.8 3.0 5.7 CY11 7.1 14.1 na na na na na P/E CY12E 9.0 9.6 10.0 9.7 15.3 0.0 0.0 CY13E 8.0 7.4 7.5 7.7 8.8 15.1 12.1 CY11 5.8 5.5 4.7 5.8 na na na EV/EBITDA CY12E 5.2 5.4 3.2 6.4 7.7 5.9 9.1 CY13E 4.8 4.6 2.7 5.5 4.9 5.1 7.1 CY11 0.9 0.9 0.6 2.0 na na na P/Book CY12E 0.8 0.8 0.5 2.1 0.9 0.6 1.1 CY13E 0.8 0.8 0.4 1.7 0.7 0.4 0.7

* March ending; Exchange rates considered for the conversion are 1.2 US$/Euro and 78.2 Yen/US$ Source: CRISIL Research, Industry sources

16

Mar-12

Jul-12

Sterlite Technologies Ltd

CRISIL IER reports released on Sterlite Technologies Ltd

Fundamental Date 17-Aug-11 09-Nov-11 01-Feb-12 11-May-12 24-July-12 Nature of report Initiating coverage* Q2FY12 result update Q3FY12 result update Q4FY12 result update Detailed report grade 3/5 3/5 3/5 3/5 3/5 Fair value Rs 68 Rs 55 Rs 51 Rs 40 Rs 40 Valuation grade 5/5 5/5 5/5 5/5 4/5 CMP (on the date of report) Rs 39 Rs 40 Rs 39 Rs 31 Rs 33

Source: CRISIL Research

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CRISIL IERIndependentEquityResearch
Company Overview
Sterlite Tech has three main lines of business: telecom products, power transmission conductors and transmission grid projects. Sterlite Industries entered the telecom cable business in 1988 with copper cables. It started producing fibre optic cables in 1992 and backward integrated into optical fibre production in 1995. In 2000, the telecom cables business was demerged into Sterlite Optical Technologies Ltd. In 2006, the company acquired the power conductor business from Sterlite Industries and the company was renamed Sterlite Technologies Ltd.

Milestones
1988 1992 1995 2000 2006 2006 2010 Started the copper cables business Started the fibre optic cables business Backward integrated into optical fibre manufacturing Telecom business demerged into Sterlite Optical Technologies Ltd Acquired the power conductors business from Sterlite Industries and was renamed Sterlite Technologies Ltd Started manufacturing broadband and access networks Won its first UMTP project

Business segments
Telecom products
Under the telecom products business, the company manufactures copper cables, optical fibre, fibre optic cables, structured data cables and provides telecom integration and managed services. This segment contributed ~30% of total revenues in FY12. The company procures silica, the main raw material used in optical fibre, from China. While optical fibre is a standardised product, fibre optic cables is customised.

Power transmission conductors

Under this business, the company manufactures power conductors, which are used for power transmission. It also manufactures OPGW cables. This segment contributed ~70% of total revenues in FY12.

Ultra mega power transmission projects

Sterlite Tech has diversified into the asset heavy, transmission grid business. It has successfully won three projects on a build, own, operate and maintain basis wherein post the tenure of the projects, it will own the assets.

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Sterlite Technologies Ltd

Annexure: Financials (Standalone)

Incom e statem e nt (Rs m n) Ope rating incom e EBITDA EBITDA m argin Depreciation EBIT Interest Ope rating PBT Other income Exceptional inc/(exp) PBT Tax provision Minority interest PAT (Reporte d) Less: Exceptionals Adjusted PAT Ratios FY10 Grow th Operating income (%) EBITDA (%) Adj PAT (%) Adj EPS (%) Profitability EBITDA margin (%) Adj PAT Margin (%) RoE (%) RoCE (%) RoIC (%) Valuations Price-earnings (x) Price-book (x) EV/EBITDA (x) EV/Sales (x) Dividend payout ratio (%) Dividend yield (%) B/S ratios Inventory days Creditors days Debtor days Working capital days Gross asset turnover (x) Net asset turnover (x) Sales/operating assets (x) Current ratio (x) Debt-equity (x) Net debt/equity (x) Interest coverage Per share FY10 Adj EPS (Rs) CEPS Book value Dividend (Rs) Actual o/s shares (mn) 7.2 8.6 25.8 0.5 355.5 FY11 3.9 5.5 29.1 0.5 356.4 FY12# 1.1 2.9 29.2 0.3 393.3 FY13E 2.8 4.9 32.5 0.3 393.3 FY14E 3.3 5.5 35.4 0.3 393.3 33 102 97 51 2.4 4.2 1.3 2.0 0.4 0.1 8.7 37 138 148 69 2.0 3.4 1.0 2.0 0.6 0.4 4.5 39 123 107 70 2.0 3.3 1.0 1.8 0.6 0.4 1.3 42 123 103 63 1.9 3.0 1.0 1.6 0.7 0.7 2.2 40 118 103 59 2.1 3.5 1.0 1.7 0.9 0.9 2.1 Quarte rly financials (Rs m n) Net Sales Change (q-o-q) EBITDA Change (q-o-q) EBITDA m argin PAT Adj PAT Change (q-o-q) Adj PAT m argin Adj EPS Q4FY11 6,822 18% 490 14% 7.2% 103 103 -40% 1.5% 0.3 Q1FY12 5,473 -20% 302 -38% 5.5% 52 52 -49% 1.0% 0.1 Q2FY12 7,073 29% 504 67% 7.1% 127 127 142% 1.8% 0.3 Q3FY12 6,635 -6% 522 4% 7.9% 95 95 -25% 1.4% 0.2 Q4FY12 8,093 22% 667 28% 8.2% 165 165 74% 2.0% 0.4 12.2 3.4 8.4 1.3 7.2 0.6 7.8 1.1 5.5 0.7 12.7 1.6 27.5 1.1 8.5 0.6 27.4 1.0 10.8 0.9 6.4 0.7 10.6 1.0 9.4 0.9 6.2 0.7 9.2 1.0 15.7 10.5 33.4 27.8 30.3 12.0 6.2 14.4 14.7 16.0 7.3 1.6 4.0 7.4 11.3 10.9 3.8 9.2 11.9 15.7 10.9 3.6 9.6 12.4 17.6 Cas h flow (Rs m n) Pre-tax prof it Total tax paid Depreciation Working capital changes Net cas h from operations Cas h from investm ents Capital expenditure Investments and others Net cas h from inve stme nts Cas h from financing Equity raised/(repaid) Debt raised/(repaid) Dividend (incl. tax) Others (incl extraordinaries) Net cas h from financing Change in cash posiiton Closing cash 441 (1,384) (208) 154 (998) 1,318 2,097 30 2,616 (208) (29) 2,410 (797) 1,301 1,113 446 (120) (301) 1,137 547 1,848 2,500 (118) 281 2,663 (1,085) 763 4,000 (118) (20) 3,862 124 887 (750) (141) (891) (2,396) (941) (3,337) (2,125) 239 (1,886) (2,200) (3,583) (5,783) (250) (4,209) (4,459) FY10 3,169 (562) 483 118 3,207 FY11 1,782 (318) 560 (1,893) 131 FY12# 568 (54) 714 69 1,296 FY13E 1,445 (332) 830 93 2,035 FY14E 1,660 (382) 880 (1,437) 722 6.1 61.0 194.1 (46.6) (6.9) (28.9) (45.2) (45.4) 20.5 (26.3) (68.8) (71.7) 8.5 61.0 153.8 153.8 21.4 22.1 14.9 14.9 FY11 FY12# FY13E FY14E FY10 24,311 3,813 15.7% 483 3,330 381 2,949 220 (104) 3,065 605 2,461 (104) 2,565 FY11 22,641 2,709 12.0% 560 2,149 474 1,675 107 0 1,782 377 1,405 0 1,405 FY12# 27,275 1,996 7.3% 714 1,282 951 331 237 568 129 438 438 FY13E 29,588 3,214 10.9% 830 2,384 1,105 1,279 166 1,445 332 1,113 1,113 1,660 382 1,279 1,279 FY14E 35,931 3,925 10.9% 880 3,046 1,477 1,569 92 Balance She et (Rs m n) Liabilitie s Equity share capital Reserves Minorities Net w orth Convertible debt Other debt Total debt Deff ered tax liability (net) Total liabilitie s As se ts Net f ixed assets Capital WIP Total fixed ass ets Inve stm e nts Curre nt ass ets Inventory Sundry debtors Loans and advances Cash & bank balance Marketable securities Total curre nt ass ets Total curre nt liabilities Net current as se ts Intangibles /Misc. e xpe nditure Total as se ts 1,709 6,574 1,261 2,097 1,000 12,642 6,193 6,448 97 13,343 1,914 9,193 2,062 1,301 1,000 15,469 7,924 7,545 80 17,217 2,727 7,840 3,706 1,848 16,121 9,097 7,023 18,868 2,999 8,512 2,959 763 15,232 9,387 5,846 22,643 3,544 10,336 3,593 887 18,360 10,954 7,407 27,784 6,168 570 6,737 61 6,982 1,608 8,589 1,003 9,671 410 10,081 1,763 10,341 1,110 11,451 5,346 10,462 360 10,822 9,555 711 8,449 9,160 3,582 3,582 602 13,344 713 9,646 10,359 6,198 6,198 660 17,217 787 10,702 11,489 6,644 6,644 735 18,868 787 11,978 12,764 9,144 9,144 735 22,643 787 13,118 13,905 13,144 13,144 735 27,784 FY10 FY11 FY12# FY13E FY14E

# Based on abridged financials Note: FY12 financials are not strictly comparable with that of the previous years due to the new format of disclosure under Schedule VI of the Companies Act Source: CRISIL Research

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CRISIL IERIndependentEquityResearch
Annexure: Financials (Consolidated)
Incom e statem e nt (Rs m n) Ope rating incom e EBITDA EBITDA m argin Depreciation EBIT Interest Ope rating PBT Other income Exceptional inc/(exp) PBT Tax provision Minority interest PAT (Reporte d) Less: Exceptionals Adjusted PAT Ratios FY10 Grow th Operating income (%) EBITDA (%) Adj PAT (%) Adj EPS (%) Profitability EBITDA margin (%) Adj PAT Margin (%) RoE (%) RoCE (%) RoIC (%) Valuations Price-earnings (x) Price-book (x) EV/EBITDA (x) EV/Sales (x) Dividend payout ratio (%) Dividend yield (%) B/S ratios Inventory days Creditors days* Debtor days Working capital days Gross asset turnover (x) Net asset turnover (x) Sales/operating assets (x) Current ratio (x) Debt-equity (x) Net debt/equity (x) Interest coverage Per share FY10 Adj EPS (Rs) CEPS Book value Dividend (Rs) Actual o/s shares (mn) 7.2 8.6 25.8 0.5 355.5 FY11 4.0 5.5 29.1 0.5 356.4 FY12# 1.0 2.8 29.3 0.3 393.3 FY13E 2.5 4.6 32.7 0.3 393.3 FY14E 3.1 6.4 35.4 0.3 393.3 33 102 93 49 2.4 4.2 1.3 2.0 0.4 0.0 8.7 38 139 140 63 2.0 3.4 1.0 2.0 0.7 0.5 4.8 42 146 112 57 1.9 3.0 0.9 1.6 0.9 0.7 1.3 44 180 110 35 1.7 2.6 0.7 1.5 1.7 1.3 2.1 43 141 107 38 1.6 2.3 0.6 1.7 2.5 2.3 1.6 Quarte rly financials - s tandalone (Rs m n) Ne t Sales Change (q-o-q) EBITDA Change (q-o-q) EBITDA m argin PAT Adj PAT Change (q-o-q) Adj PAT m argin Adj EPS Q4FY11 6,822 18% 490 14% 7.2% 103 103 -40% 1.5% 0.3 Q1FY12 5,473 -20% 302 -38% 5.5% 52 52 -49% 1.0% 0.1 Q2FY12 7,073 29% 504 67% 7.1% 127 127 142% 1.8% 0.3 Q3FY12 6,635 -6% 522 4% 7.9% 95 95 -25% 1.4% 0.2 Q4FY12 8,093 22% 667 28% 8.2% 165 165 74% 2.0% 0.4 4.6 1.3 3.5 1.3 7.2 0.6 8.3 1.1 6.1 0.7 12.6 1.5 32.7 1.1 8.8 0.8 29.8 0.9 13.0 1.0 5.3 1.1 11.8 0.9 10.8 0.9 9.3 1.3 9.8 0.9 15.7 10.5 33.2 27.8 30.0 12.0 6.2 14.4 14.0 14.5 7.2 1.5 3.6 5.9 8.8 11.2 3.6 8.2 8.1 9.1 14.0 3.4 9.0 8.6 9.9 Cash flow (Rs m n) Pre-tax profit Total tax paid Depreciation Working capital changes Ne t cas h from operations Cash from inves tm ents Capital expenditure Investments and others Ne t cas h from inve stm ents Cash from financing Equity raised/(repaid) Debt raised/(repaid) Dividend (incl. tax) Others (incl extraordinaries) Ne t cas h from financing Change in cash position Clos ing cash 441 (1,379) (208) 154 (992) 1,324 2,103 30 4,091 (208) (47) 3,866 (294) 1,810 1,113 2,686 (139) (199) 3,461 353 2,162 10,990 (118) 436 11,307 2,035 4,197 13,821 (118) (28) 13,675 (1,647) 2,550 (1,032) (143) (1,176) (4,443) (50) (4,493) (6,578) 990 (5,588) (12,871) 130 (12,741) (14,281) (14,281) FY10 3,168 (562) 483 403 3,491 FY11 1,793 (321) 560 (1,698) 334 FY12# 518 (54) 715 1,301 2,480 FY13E 1,330 (332) 830 1,640 3,468 FY14E 1,619 (415) 1,317 (3,563) (1,042) 6.1 60.9 192.3 165.3 (6.9) (28.7) (44.9) (45.0) 15.8 (30.6) (71.9) (74.6) 5.9 64.3 151.8 151.8 25.8 58.3 20.6 20.6 FY11 FY12# FY13E FY14E FY10 24,311 3,811 15.7% 483 3,328 381 2,947 221 (104) 3,064 605 2,459 (104) 2,563 FY11 22,645 2,717 12.0% 560 2,157 452 1,705 88 0 1,793 380 1.1 1,412 0 1,412 FY12# 26,218 1,886 7.2% 715 1,171 924 247 271 518 129 (7.70) 396 396 FY13E 27,765 3,099 11.2% 830 2,269 1,105 1,164 166 1,330 332 998 998 FY14E 34,921 4,906 14.0% 1,317 3,589 2,284 1,305 313 1,619 415 1,204 1,204 Balance She et (Rs m n) Liabilitie s Equity share capital Reserves Minorities Ne t w orth Convertible debt Other debt Total debt Def erred tax liability (net) Total liabilities Asse ts Net f ixed assets Capital WIP Total fixed ass ets Inve stm ents Current ass ets Inventory Sundry debtors Loans and advances Cash & bank balance Marketable securities Total curre nt ass ets Total curre nt liabilities Ne t curre nt ass ets Intangible s/Misc. e xpe nditure Total as se ts 1,709 6,290 1,280 2,103 1,070 12,452 6,216 6,236 121 13,377 1,928 8,665 2,132 1,810 1,120 15,655 7,964 7,691 114 18,714 2,806 7,859 3,091 2,162 130 16,049 10,296 5,753 34 22,639 2,999 8,512 2,959 4,197 18,667 12,649 6,017 34 34,944 3,544 10,435 3,593 2,550 20,122 12,189 7,933 34 49,824 6,168 852 7,019 6,983 3,926 10,909 10,676 6,176 16,852 10,341 18,552 28,893 19,635 22,223 41,857 3,587 3,587 602 13,377 711 8,474 3 9,188 713 9,664 10,376 7,678 7,678 660 18,714 10,364 10,364 735 22,639 787 10,662 91 11,540 21,353 21,353 735 34,944 787 11,978 91 12,856 35,175 35,175 735 49,824 787 13,036 91 13,914 FY10 FY11 FY12# FY13E FY14E

# Based on abridged financials Note: FY12 financials are not strictly comparable with that of the previous years due to the new format of disclosure under Schedule VI of the Companies Act Source: CRISIL Research

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Sterlite Technologies Ltd

Focus Charts
Expanding capacities of both segments...
Capacity Conductor (Tonne) Optical Fibre (mn fibre-Km)
India China

...To drive revenue growth

(Rs mn)

FY10

FY11

FY12

FY13E

FY14E

40,000 35,000 30,000 25,000 20,000 15,000 25,777 10,000 15,370 5,000 FY10 FY11 FY12 FY13E FY14E Power Transmission Business Telecom segment 16,073 19,210 20,577 9,264 6,588 9,469 7,947 10,711

160000 160000 160000 160000 200000 10

10 0

10
10 0

12
12 0

16
16 0

20
16 4

Source: Company, CRISIL Research

Source: Company, CRISIL Research

Improvement in profitability of both segments...

FY10 Conductor segment (EBITDA per tonne) Telecom segment margin 16,540 22.7% 9,120 25.6% 6,187 17.5% 8,750 20.3% 9,200 21.6% FY11 FY12 FY13E FY14E

...To drive the overall margins (standalone)

(Rs mn) 4,500 4,000 3,500 3,000 2,500 7.3% 2,000 1,500 1,000 500 0 FY10 FY11 EBITDA FY12 FY13E FY14E EBITDA margin (RHS) 3,813 2,709 1,996 3,214 3,925 8.0% 6.0% 4.0% 2.0% 0.0% 12.0% 10.9% 10.9% 15.7% 18.0% 16.0% 14.0% 12.0% 10.0%

Source: Company, CRISIL Research

Source: Company, CRISIL Research

Standalone returns ratios to improve from current FY12 level

40.0% 33.4% 35.0% 30.0% 25.0% 20.0% 14.7% 15.0% 10.0% 5.0% 0.0% FY10 FY11 RoE 4.0% FY12 FY13E RoCE FY14E 14.4% 7.4% 9.2% 9.6% 11.9% 12.4% 27.8%

Fair value movement since initiation

(Rs) 80 70 60 50 40 30 20 10 0
Oct-11 Jan-12 Nov-11 Dec-11 May-12 Feb-12 Mar-12 Jun-12 Aug-11 Sep-11 Apr-12 Jul-12

('000) 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0

Total Traded Quantity (RHS) Sterlite Tech

CRISIL Fair Value

Source: Company, CRISIL Research

Source: NSE, BSE, CRISIL Research

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