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Sterlite Optical soars on big export revenue estimate

NetScribes/Ganesh Ramamoorthy

Shares of Sterlite Optical hit the upper 8 per cent circuit limit on both the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) on Tuesday, after the company announced that export revenues would cross Rs 8 billion for the year ending December 2001.

The company is also said to have bagged a $100-million, three-year optic fibre cable supply contract from the US-based Adelphia Communications.

Opening from its previous close of Rs 976.35, the Sterlite Optical scip hit a high of Rs 1,054.40 during afternoon trades on the BSE amid huge volumes of over 1.2 million shares. At its current price, the scrip is up about 17 per cent from Rs 902.20 on November 30.

The rise in the scrip is being attributed to an anticipated export revenue of around Rs 8 billion during 2001 driven by orders from Europe, the UK and the US. The Rs 8-billion export revenue includes orders generated in the last two months and a small backlog from orders worth Rs 2 billion received earlier in the year.

"The recent hectic activity in the counter is mainly due to the bright prospects for the optic fibre cable business," said an analyst with a Bombay-based securities firm. "The company's ADR plans, though still in the nascent stages, have also helped the scrip."

Rising optic fibre cable prices and a demand-supply mismatch have also played a role. "Optic fibre prices have risen over 100 per cent in the last one year. Today's prices are almost 66 per cent higher than the $50 per fkm that Sterlite got in the last quarter," said an analyst with a Bombay-based brokerage house.

With demand for optic fibre cables set to rise to about 250 million fkm in 2001 from less than 100 million fkm in 1999, and with prices ruling at over $70 per fkm, analysts expect Sterlite Optical to gain further.

However, analysts warn that a slowdown in Internet infrastructure investment in the country could adversely impact prices. "The demand is currently in favour of suppliers, but demand growth will depend on investment in Internet infrastructure. With players increasing capacity at a rapid pace, the deficit could become surplus if there is a slowdown in infrastructure investment, which, in turn, will affect prices," the analyst said.

On the other hand, with global sales of optic fibre and cables exceeding domestic sales, analysts say that the company's strategy to focus on the global market is beginning to pay off. The company now plans to work with international majors in systems integration, cable assemblies, and forge strategic alliances to service global requirements. Analysts say this will play a vital role in the company's future supply chain.

Sterlite Optical, which exports about 70 per cent of the optic fibre cable produced, posted net profits of around Rs 1.4 billion for FY 2000 and expects to grow at a 50 per cent CAGR in the next two years.

"Assuming a 50 per cent growth for FY01, the EPS works out to Rs 38 per share. At the current price of Rs 1,054, the scrip trades at a forward PE of 27 times, making it quite attractive given the positive outlook for optic fibre business," the analyst said.

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