ICICI Direct is bullish on Sterlite Technologies has recommended buy rating on the stock with a target price of Rs 400 in its research report dated October 25, 2018.
ICICI Direct's research report on Sterlite Technologies
Revenue came in at Rs 1084.3 crore, up 39.1% YoY, much ahead our expectations of Rs 962.8 crore. In terms of revenues breakup, product formed ~75% of the topline, with remaining being services. Exports formed 45% of the overall revenues. The revenues were boosted by consolidation of Metallurgica for ~ 40 days. EBITDA came in at Rs 273.3 crore (I-direct estimate: Rs 250.5 crore), with EBITDA margin of 25.2%. The EBITDA margins were lower than our estimates of 26%, possibly on account of integration of low margin business of Metallurgica PAT came in at Rs 131.3 crore (up ~84.3%YoY) against our expectations of Rs 122.4 crore, aided by beat at EBITDA levels.
Outlook
STL is one the key play on rising data demand globally and subsequent need for network densification and deep fiberisation. With an integrated business model, it continues to enjoy the benefits of operating leverage, already seen over the last couple of years. Given the robust growth potential (topline and earnings CAGR of 34.6% and 38.4%, respectively, in FY18-20E), we maintain our BUY recommendation on the stock. We value the company at 25x FY20E P/E to arrive at target price of Rs 400. However, sharp increase in promoter’s pledged shares (currently ~97% of promoters holding is pledged vs. ~36% last quarter) on the back of M&A activities in other businesses, remains the only spoiler, and needs to be monitored closely.
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