Result Update

July 29, 2013

Rating matrix
Rating Target Target Period Potential Downside : : : : Hold | 22 6 months 5%

Sterlite Technologies (STEOPT)

WHATS CHANGED
FY15E 3,821.9 348.9 93.1 2.4

| 21

Key Financials
| Crore Net Sales EBITDA Net Profit EPS (|) FY12 2,727 198.9 43.9 1.1 FY13E 3,353.7 245.8 43.9 1.1 FY14E 3,270.9 306.7 77.4 2.0

PRICE TARGET.......................................................................... Changed from | 27 to | 22 EPS (FY14E)................................................................................ Changed from | 1.8 to | 2 EPS (FY15E)............................................................................. Changed from | 2.0 to | 2.4 RATING...............................................................................................................Unchanged

Telecom robust but power disappoints

Sterlite Technologies (STL) reported 12% YoY decline in revenues, led by tepid power sector volume (25% YoY dip), below our expectations of 6% decline. The key highlight for Q1FY14 was the expansion of telecom segment margins (up 400 bps YoY) leading to improvement in overall EBITDA margins at 10.8% (I-direct estimate: 8.1%). On the negative side, dismal power segment revenues pulled down overall revenues. Coupled with this, a flattish trend in finance costs ensured YoY PAT growth of 23.4% vs. our estimate of ~40% YoY decline. Telecom surprises on margins, volume while power volumes tepid Telecom segment revenues grew 6% YoY to | 291 crore (I-direct estimate: | 243 crore). This was mainly on the back of 11% YoY and 18% QoQ volume growth in the optical fibre segment (3.8 mfkm for Q1FY14) coupled with a favourable exchange rate. On the other hand, power segment volumes dipped 25% YoY to 27000 MT against 36200 MT supplied in Q1FY13, mainly owing to lower demand in the domestic market. The order backlog declined marginally to | 1830 crore vs. |1900 crore in Q4FY13. Given the muted economic scenario, we built in a 5% decline in power conductor volumes in FY14E and 7% growth in FY15E. Revenues are expected to witness 8% CAGR over FY13-15E. BOT projects mostly on track barring few glitches. STL has incurred a capex of | 2430 crore for the BOOM projects till date. Of this, the equity contribution from STL amounted to | 680 crore (raised through debt on STLs balance sheet), and the rest were the direct debt infusion on the SPVs books. In the first BOOM project, the first line connecting Purnea to Bihar Shariff will be commissioned in Q2FY14 while the second line for this project line is having force majeure issues. The political unrest in the Assam belt has halted the last leg of project. Upgrade in earnings not enough, consistency is the key; maintain HOLD The margin surprise in Q1FY14 does lead to earnings upgrade of 12%, 15% for FY14E, FY15E owing to margin recovery in the telecom segment but we downgrade revenues 5% each for FY14, FY15E. Hence, going ahead, we would look at consistency in performance in coming quarters. We value STL on 9x on FY15E EPS to arrive at a fair value of | 22/share.
Exhibit 1: Financial snapshot
(| Crore) Total Operating Income EBITDA EBITDA Margin (%) Depreciation Interest Reported PAT Q1FY14 758.3 82.2 10.8 23.7 27.8 22.6 Q1FY14E 807.2 65.4 8.1 23.9 30.6 11.0 Q1FY13 866.1 69.6 8.0 20.6 28.0 18.3 Q4FY13 QoQ (Chg %) 816.5 -7.1 69.4 8.5 23.1 25.0 15.2 18.4 234 bps 2.5 11.1 48.6 YoY (Chg %) -12.4 18.1 280 bps 15.1 -0.6 23.4

Valuation summary
P/E Target P/E EV / EBITDA P/BV RoNW RoCE FY12 18.8 27.6 6.6 0.7 3.8 7.1 FY13E 18.8 27.6 6.9 0.7 3.7 7.0 FY14E 10.7 15.6 6.2 0.7 6.1 8.5 FY15E 8.9 13.0 5.8 0.6 6.9 9.0

Stock data
Market Capitalization Total Debt (FY13E) Cash and Investments (FY13E) EV 52 week H/L Equity capital Face value DII Holding (%) FII Holding (%) | 825.4 Crore | 1039.8 Crore | 161.8 Crore | 1703.4 Crore 37 / 23 | 78.6 Crore |2 9.9 2.4

Price movement
7,000 6,000 5,000 (Index) 4,000 3,000 2,000 1,000 0 May-12 Aug-12 Nov-12 Jan-13 Price (R.H.S) Nifty (L.H.S) 40 35 30 25 20 15 10 5 0 Apr-13

Analysts name
Chirag J Shah shah.chirag@icicisecurities.com

(STL, |)

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Exhibit 2: Key Assumptions

Segment Revenue Growth EBITDA Margin Volume Conductors Optical Fibre Fiber Optic cables Copper Telecom Cables Unit (%) (%) MT FKM FKM CKM FY13E 23.0 7.3 137,750 12,500,000 4,600,000 151,959 FY14E -2.5 9.4 131,042 14,375,000 4,830,000 113,969 FY15E 16.8 9.1 140,715 16,531,250 5,264,700 85,477

Source: Company, ICICIdirect.com Research

Result Analysis (Margins positively surprise but volumes tepid)

Power Segment Net sales for the segment declined 20% YoY to | 453 crore (Idirect estimate: | 575 crore). This had been on the back of a significant volume decline of 25% YoY and 17% QoQ to 27000 MT The current power segment backlog stands at | 1500 crore. The share of the power segment continues to dominate overall backlog 82% Margins for the quarter stayed put at 5.4%, down 20 bps QoQ Given the steep volume decline, the EBITDA/MT was relatively stable at | 9,000/MT, down from | 9200/tone in Q4FY13 Going ahead, we have built in volume decline of 5% in FY14E and growth 7% YoY in FY15E. Hence, with stable margins expected, going ahead, we forecast power segment revenues of | 2206 (down 1% YoY) in FY14E and | 2416 crore (up 10% YoY) in FY15E

Telecom Segment Revenue for the segment stood at | 291 crore, implying growth of 6% YoY. The order backlog for the segment de-grew to | 350 crore from | 350 crore QoQ EBITDA margins came in as a positive surprise. Against our expectation of 16%, STL reported margins of 21% on the back of 11% YoY and 18% QoQ volume growth in the optic fibre segment. Going ahead, on a quarterly basis, we have raised our margin estimates for the telecom segment to 18% from 16% earlier We have built in volume growth of 15% each for the optic fibre segment for FY14E and FY15E, respectively, and 5% and 9% growth for fibre optical cables for FY14E and FY15E, respectively. Hence, we expect the telecom segment to report revenues of | 1291 crore (up 22% YoY) for FY14E and | 1406 crore (up 9% YoY) for FY15E

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Exhibit 3: Trend of order bookhigh PGCIL dependence

3,000 2,400 2,250 1,500 750 0 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 816 Q4FY13
538 453 261 276 275 242 262 291 Q4FY13

2,600 2,200 1,700 2200

2400 2400 2450 2300 2300 2200

2000 1900 1830

The order backlog stands at | 1830 crore out of which the power segment comprise orders worth | 1500 crore. The telecom segment order backlog stood at | 350 crore

(| crore)

Source: Company, ICICIdirect.com Research

Revenues for Q1FY14 came in at | 745 crore vs. our expectations of | 807 crore. Going ahead, we forecast revenue CAGR of ~8% over FY13E-15E

Exhibit 4: Trend in revenues

1,000 797 662 492 509 682 579 547 707 664 . 750 (| crore) 500 250 0 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12

846

823

816

745

Q1FY13

Q2FY13

Q3FY13

Source: Company, ICICIdirect.com Research

Exhibit 5: Trend of segment-wise sales

750 600 450 (| crore) 300 150 0 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q1FY14 422 330 179 157 168 514 394 193 188 515 476 536 570 549 574 .

153

Power

Telecom

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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Q1FY14

Q1FY14

Conductor volumes in Q1FY14 declined 25% YoY to 27000 MT. The telecom vertical posted robust performance with optic fibre volume at 3.8 million fkm, implying 11% YoY and 18% QoQ growth

Exhibit 6:Trend in volume of power segment

165000 145000 125000 (MT's) 105000 85000 65000 45000 25000 5000 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 FY14E 35 30 25 15 10 5 Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 (%) 20 FY15E

Source: Company, ICICIdirect.com Research

.
Exhibit 7: Trend of EBITDA margins
25
EBITDA margins came in at 10.8% vs. our expectation of 8.1%. The power segment had an EBITDA margin of 5.4%. expectation of 16% on account of better volume up-pick in the optic fibre segment

20 15 (%) 10 5 0

Margins for the telecom segment came in at 21% vs. our

Power

Overall

Telecom(RHS)

Source: Company, ICICIdirect.com Research

Other highlights:
Net debt for the company at the end of Q1FY14 stood at | 930 crore vs. | 840 crore in Q1FY13. Out of this, | 680 crore is attributed to equity infusion in the BOOM SPVs Total capex done in Q1FY14 stood at | 30 crore Going ahead, we have built in a topline decline of 3% and growth of 16.8%, respectively, for FY14E and FY15E. On the bottomline front, we have built in growth of 76% for FY14E (buoyed by low base and recovery of margins in the telecom segment) and 20.2% for FY15E, on the back of stable margins and volume offtake, going ahead

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Valuations
Margins surprise in Q1FY14 does lead to earnings upgrade of 12%, 15% for FY14E, FY15E owing to margin recovery in the telecom segment but we downgrade revenues 5% each for FY14, FY15E. Hence, going ahead, we would look at the consistency in performance in the coming quarters in terms of stability in margins in the telecom segment and conductor volumes in the power segment. We have valued STL on 9x FY15E EPS to arrive at a fair value of | 22/share.
Exhibit 8: Change in estimates
Particulars Revenue EBITDA EBITDA Margin % PAT EPS Old 3,461.2 302.0 8.7 69.1 1.8 FY14E New 3270.9 306.7 9.4 77.4 2.0 % Change (5.5) 1.6 65 bps 12.1 12.1 Old 4036.7 341.9 8.5 80.5 2.0 FY15E New 3821.9 348.9 9.1 93.1 2.4 % Change (5.3) 2.1 66 bps 15.6 15.6

Source: Company, ICICIdirect.com Research

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Financial summary
Profit and loss statement
(Year-end March) Total operating Income Growth (%) Raw Material Expenses Employee Expenses Other Operating Expenses Administrative Expenses Other expenses Total Operating Expenditure EBITDA Growth (%) Depreciation Interest Other Income PBT Others Total Tax PAT Growth (%) EPS (|) FY12 2,727.5 20.5 1,904.2 98.7 525.7 0.0 0.0 2,528.6 198.9 -25.1 70.7 95.1 23.7 56.8 0.0 12.9 43.9 -67.4 1.1 FY13E 3,353.7 23.0 2,350.6 117.7 639.6 0.0 0.0 3,107.9 245.8 23.6 89.9 105.6 14.5 64.9 0.0 21.0 43.9 0.0 1.1 FY14E 3,270.9 -2.5 2,242.0 120.3 601.9 0.0 0.0 2,964.2 306.7 24.8 102.1 111.9 15.3 108.0 0.0 30.5 77.4 76.5 2.0 (| Crore) FY15E 3,821.9 16.8 2,650.1 134.9 687.9 0.0 0.0 3,472.9 348.9 13.8 113.2 125.8 23.0 133.0 0.0 39.9 93.1 20.2 2.4

Cash flow statement

(Year-end March) Profit after Tax Add: Depreciation (Inc)/dec in Current Assets Inc/(dec) in CL and Provisions Others CF from operating activities (Inc)/dec in Investments (Inc)/dec in Fixed Assets Others CF from investing activities Issue/(Buy back) of Equity Inc/(dec) in loan funds Dividend paid & dividend tax Inc/(dec) in Sec. premium Others CF from financing activities Net Cash flow Opening Cash Closing Cash FY12 43.9 70.7 80.2 117.3 0.0 312.0 -67.5 -218.0 0.0 -278.0 7.4 25.6 -13.7 102.4 0.0 101.6 135.6 49.1 184.7 FY13E 43.9 89.9 -450.9 85.3 0.0 -231.9 -13.0 -170.3 0.0 -169.8 0.0 375.0 -13.7 0.0 7.6 378.8 -22.9 184.7 161.8 FY14E 77.4 102.1 -216.7 -25.1 0.0 -62.3 -12.0 -124.1 0.0 -136.1 0.0 100.0 -13.7 0.0 0.0 86.3 -112.1 161.8 49.8 (| Crore) FY15E 93.1 113.2 -444.0 190.9 0.0 -46.7 -12.0 -50.0 0.0 -62.0 0.0 150.0 -13.8 0.0 0.0 136.2 27.5 49.8 77.2

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

Balance sheet
(Year-end March) Liabilities Equity Capital Reserve and Surplus Total Shareholders funds Total Debt Deferred Tax Liability Minority Interest / Others Total Liabilities Assets Gross Block Less: Acc Depreciation Net Block Capital WIP Total Fixed Assets Investments Inventory Debtors Loans and Advances Other Current Assets Cash Total Current Assets Creditors Provisions Total Current Liabilities Net Current Assets Others Assets Application of Funds FY12 78.7 1,070.3 1,148.9 664.8 73.5 0.0 1,887.2 FY13E 78.7 1,117.9 1,196.6 1,039.8 87.0 0.0 2,323.4 FY14E 78.7 1,181.7 1,260.3 1,139.8 87.0 0.0 2,487.2 (| Crore) FY15E 78.7 1,261.0 1,339.6 1,289.8 87.0 0.0 2,716.5

Key ratios
(Year-end March) Per share data (|) EPS Cash EPS BV DPS Cash Per Share Operating Ratios (%) EBITDA Margin PBT / Total Operating income PAT Margin Inventory days Debtor days Creditor days Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA EV / Net Sales Market Cap / Sales Price to Book Value Solvency Ratios Debt/EBITDA Debt / Equity Current Ratio Quick Ratio FY12 1.1 2.9 29.2 0.3 4.7 7.3 2.1 1.6 31.2 108.5 72.7 3.8 7.1 5.8 18.8 6.6 0.5 0.3 0.7 3.3 0.6 1.8 1.8 FY13E 1.1 3.4 30.4 0.3 4.1 7.3 2.0 1.3 31.4 71.0 69.0 3.7 7.0 4.9 18.8 6.9 0.5 0.3 0.7 4.2 0.9 2.1 1.9 FY14E 2.0 4.6 32.1 0.3 1.3 9.4 3.3 2.4 32.0 75.0 71.0 6.1 8.5 6.0 10.7 6.2 0.6 0.3 0.7 3.7 0.9 2.2 2.2 FY15E 2.4 5.2 34.1 0.3 2.0 9.1 3.5 2.4 30.0 75.0 71.0 6.9 9.0 6.3 8.9 5.8 0.5 0.2 0.6 3.7 1.0 2.3 2.2

1,455.4 519.0 936.4 41.1 977.5 176.3 272.7 806.9 362.3 8.4 184.7 1,635.0 540.6 54.9 909.7 725.2 0.0 1,887.3

1,625.7 606.5 1,019.2 41.1 1,060.3 189.3 292.6 639.1 869.8 99.7 161.8 2,063.0 621.1 31.1 995.0 1,068.0 0.0 2,323.4

1,749.9 706.3 1,043.6 41.1 1,084.7 201.3 276.8 667.3 1,078.7 95.1 49.8 2,167.6 631.7 31.6 969.9 1,197.7 0.0 2,487.2

1,799.9 817.2 982.7 41.1 1,023.8 213.3 351.4 785.3 1,290.9 134.2 77.2 2,639.1 743.4 74.3 1,160.8 1,478.2 0.0 2,716.5

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

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Company Description
Sterlite Technologies is a leading global provider of transmission solutions for the power and telecom industries. Equipped with a product portfolio that includes power conductors, optical fibres, telecommunication cables and a comprehensive telecom systems/solutions portfolio, STLs vision is to 'Connect every home on the planet'. STL is also executing multi-million dollar power transmission system projects, pan-India. The company has a capacity of 160000 MT of power conductor capacity.
Exhibit 9: Recommendation History
50 45 40 35 30 25 20 15 10 5 0 Nov-12 Aug-12 Mar-13 Dec-12 Jun-12 Jan-13 Oct-12 Feb-13 May-12 Sep-12 Apr-13 Jul-12

(|)

Price

Target Price

Source: Bloomberg, ICICIdirect.com Research

Exhibit 10: Recent Releases

Date 8-Apr-11 8-Apr-11 3-May-11 5-Jul-11 1-Aug-11 5-Oct-11 21-Oct-11 5-Jan-12 27-Jan-12 4-Apr-12 27-Apr-12 5-Jul-12 31-Jul-12 29-Oct-12 8-Jan-13 29-Jan-13 29-Apr-13 Event Q3FY11 Result Update Q4FY11 Preview Q4FY11 Result Update Q1FY12 Preview Q1FY12 Result Update Q2FY12 Preview Q2FY12 Result Update Q3FY12 Result preview Q3FY12 Result Update Q4FY12 Result preview Q4FY12 Result Update Q1FY13 Result preview Q1FY13 Result Update Q2FY13 Result Update Q3FY13 Result preview Q3FY13 Result Update Q4FY13 Result Update CMP 54 64 59 56 51 35 38 28 37 41 36 36 33 31 32 32 25 Target Price Under review Under review 63 63 54 54 43 43 31 31 29 31 31 31 31 31 27 Rating Switch/Sell on rallies Switch/Sell on rallies Hold Hold Hold Hold Buy Buy Sell Sell Sell Sell Hold Hold Hold Hold Hold

Source: Company, ICICIdirect.com Research

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ICICIdirect.com Research coverage universe (Capital Goods)

CMP Thermax (THERMA) BGR Energy (BGRENE) Sterlite Technologies (STEOPT) KEC International (KECIN) Jyoti Structures (JYOSTR) Kalpataru Power (KALPOW) Larsen & Toubro (LARTOU) BHEL (BHEL) (|) 590 106 21 30 18 64 846 157 TP(|) Rating 536 Hold 161 22 37 25 85 969 193 Hold Hold Buy Buy Buy Buy Buy M Cap (| Cr) 7140.0 828.0 897.0 831.6 160.0 2343.0 54810.0 39894.3 EPS (|) P/E (x) P/BV (x) RoCE (%) RoE (%) FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E 29.8 28.2 32.1 19.8 20.9 18.4 3.7 3.3 3.0 23.9 20.6 18.1 19.1 16.0 16.3 21.7 1.1 2.6 8.0 8.9 50.6 27.1 20.9 1.8 4.1 9.5 9.8 50.1 23.3 23.4 4.9 5.1 4.5 8.8 5.0 1.7 5.4 7.8 0.7 0.8 0.7 0.2 0.5 3.0 1.6 0.7 0.8 0.7 0.2 0.5 2.8 1.4 0.6 11.1 0.8 7.0 0.6 11.2 0.2 16.8 0.5 11.2 2.5 15.2 1.3 27.2 10.2 7.9 11.7 17.4 11.2 15.1 21.9 11.4 12.3 8.3 13.1 16.6 11.8 3.7 5.6 9.1 7.4 11.3 5.5 8.4 9.9 7.6 15.3 17.0 11.7 6.1 11.1 10.9 8.8 15.9 13.5 2.4 19.1 11.7 6 11.5 7.3 11.5 2.5 7.4 5.8 2.1 6.7 6.7

12.3 56.8 16.7 16.9 14.9 20.2

15.7 17.4 17.7 22.3

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: > 10%/ 15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey

Head Research ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai 400 093 research@icicidirect.com

pankaj.pandey@icicisecurities.com

ANALYST CERTIFICATION
We /I Chirag Shah PGDBM research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.

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