ICICI Direct recommended reduce rating on Sterlite Technologies with a target price of Rs 125 in its research report dated July 24, 2020.
ICICI Direct's research report on Sterlite Technologies
Sterlite Tech’s (STL) performance in Q1FY21 was weak on the operating front as expected, which is reflective of demand slowdown/pricing pressure in product segment and Covid-19 impact. Revenues came in at Rs 876 crore, down ~39% YoY as projects execution was significantly impacted due to lockdown, while production and delivery was hurt due to logistic challenges. EBITDA was at Rs 122 crore, down ~62% YoY, with margins at 13.9%, down 870 bps YoY, impacted by negative operating leverage on account of revenues decline. Reported PAT came in lower at Rs 6 crore, down 95.8% YoY, on account of weak operating performance.
Outlook
We highlight that while long term target is attractive, the fibre pricing weakness persists. Moreover, we would await meaningful traction in demand before turning constructive. Post ~40% run up since our last update, we downgrade our rating to REDUCE (vs. HOLD, earlier). We value it at Rs 125/share (implying 6x FY22E EV/EBITDA and 11x FY22E P/E).
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