Sterlite gains on Modi's rural connectivity plans, strong order book

A buy call from CLSA acted as a key trigger

The Sterlite Technologies stock surged 15 per cent on upsides from the government’s broadband connectivity plans, strong order book, and rising opportunities from digital network roll-out.

Led by Sterlite Technologies, cable stocks were up on the back of Prime Minister Narendra Modi’s announcement in his Independence Day speech that every village will get optical fibre connectivity over the next 1,000 days.

While this helped, the bigger trigger, according to experts, was the “buy” call from research firm CLSA. The firm has given a target price Rs 185 on the back of growing services revenues, a strong order book, and compelling valuations. Despite the sharp surge in prices, there is a 24 per cent upside from these levels.

The company, which gets two-thirds of revenues from India, is expected to benefit from an acceleration in the digital network roll-out. This is likely to be led by telecom fibre roll-out, the government’s digital plan (Mahanet), rising spends by enterprises, and the impending 5G opportunity, says Deepti Chaturvedi of CLSA. 

 

 

While Sterlite has doubled its revenues over FY17-20 to Rs 5,150 crore, it expects to double the current revenues by FY23. This may come about on the back of an order book of Rs 10,300 crore. The company has also bid for projects worth Rs 10,000 crore and this may add to the order book.

Though the company has moved up the value chain as a data network integrator and is a play on the digital network roll-out, other brokerages believe it can face near-term pressure on pricing.

Analysts at Haitong Securities had downgraded the stock last month to underperform after China Mobile’s 2020 optical fibre cable tender saw historically low prices. “Given that the 2019 tender resulted in a 20-25 per cent reduction in optic fibre industry prices globally, we see the latest development at China Mobile (accounting for 25 per cent of global demand) as troubling for any recovery,” they said. Haitong cut earnings per share estimates by a third, each for FY21 and FY22.