Sterlite Technologies Ltd (Q1 FY21) - SELL (Target Rs95, Downside 30.7%) - YES Securities

Sterlite technologies (STL) reported 39% yoy decline in revenues during Q1 FY21 owing to weak product offtake on the back of COVID related lockdown. Also, operating margin declined sharply to 13.9% (-870 bps yoy) during Q1 FY21 with weak offtake, benign fibre prices and high fixed cost. The increasing share of low margin services segment has also impacted overall margin performance. Orderbook stood strong at Rs.103 bn (~2x FY20 revenues). Nearly Rs.32 bn of the order book (Out of total order book of Rs.103 bn) is expected to contribute to remaining nine months of FY21 revenues with balance contribution in FY22 and beyond. The bid pipeline stands strong at ~Rs.100 bn.

We expect revenues to be under severe pressure in FY21 as major part of the order book would only be executed during FY22 and beyond. The recent drop in fibre prices (on already low base) in China tender would impact global fibre price to some extent. We expect margins to be in 18-20% range for STL in the near to medium term. We largely maintain our estimates for FY22 and retain our SELL rating on the stock with a 12m TP of Rs.95 (9x FY22 PE multiple). Weak offtake of products, pressure on fibre price, increasing contribution of low margin services business would impact performance.

Shares of STERLITE TECHNOLOGIES LTD. was last trading in BSE at Rs.136.8 as compared to the previous close of Rs. 135.25. The total number of shares traded during the day was 362844 in over 5599 trades.

The stock hit an intraday high of Rs. 140 and intraday low of 131.4. The net turnover during the day was Rs. 49294007.

Source : Equity Bulls

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