YES Securities has set a target of Rs 156 for Neutral Sterlite Technologies

 YES Securities has set a target of Rs 156 for Neutral Sterlite Technologies

In a research note dated October 26, 2023, YES Securities suggested a Neutral rating on Sterlite Technologies, with a target price of Rs 156.

The Sterlite Technologies research report from YES Securities

For the quarter, Sterlite Technologies (SOTL) produced mixed operational results. Although the EBITDA margin was within expectations, the sequential sales increase fell short of projections. Revenue fell 1.8% QoQ, with the global networking sector seeing a 2.5% QoQ reduction. In contrast, the global services segment expanded 6.2% QoQ as it continued to refocus its services segment with a greater emphasis on profitability. Focusing on cost management resulted to a sequential increase in EBITDA margin (up 20 bps QoQ). The order book, at Rs 105 billion, was down 3.9% YoY. The multi-year digital creation cycle headed by 5G, FTTx, and fiber demand from hyperscalars is likely to boost SOTL. 

Additionally, optical cable offers income visibility and is often stable in price throughout the globe. In the worldwide OFC market, its market share has been increasing. Nonetheless, we anticipate that the US market will continue to generate subdued revenue over the next two to three quarters, which will affect FY24's total revenue. Going forward, we anticipate an improvement in EBITDA margin driven by a sustained emphasis on cost optimization and a release of some raw material-related cost pressure. It has been successful in passing along certain cost increases to clients. Moderation in capital expenditure intensity will aid in controlling debt.

Prospects

Over FY23–25E, we project a 9.1% sales CAGR and an average EBITDA margin of 15.6%. Based on an EV/EBITDA ratio of 6.5x on FY25E, we have lowered our target price for the company from Rs 156/share to NEUTRAL. The stock is trading at 9.0x/6.4x EV/EBITDA on FY24E/FY25E.