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Edited Transcript of STRTECH.NSE earnings conference call or presentation 23-Apr-19 11:30am GMT

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Update time : 2019-05-09 17:00:12

Q4 2019 Sterlite Technologies Ltd revenue Call

Apr 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Sterlite Technologies Ltd revenue conference shout or presentation Tuesday, April 23, 2019 at 11:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Anand Agarwal

Sterlite Technologies Limited - CEO & Whole-time Director

* Anupam Jindal

Sterlite Technologies Limited - CFO

* Vishal Aggarwal

Sterlite Technologies Limited - major of IR

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Conference shout Participants

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* Alok Deora

Yes Securities (India) Limited, inquiry part - inquiry Analyst

* Aniket Pande

Prabhudas Lilladher Pvt Ltd., inquiry part - Analyst

* Aniket Pande

IDFC Securities Limited, inquiry part - preceding inquiry Analyst

* Ashish Kacholia

Lucky Investment Managers private Limited - Director of Research

* Augustya Dave

* Harshit Patel

Equirus Securities private Limited, inquiry part - Associate

* Kunal Sangoi

Aditya Birla Sun Life AMC Limited - Fund Manager

* Mukul Garg

Haitong International inquiry Limited - inquiry Analyst

* Neerav Dalal

Maybank Kim Eng Holdings Limited, inquiry part - Analyst

* Pritesh Chheda

* Shashi Bhusan

Axis major Limited, inquiry part - Executive Director of IT and Telecom

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and salute ought the Sterlite Technologies Limited Q4 FY '19 revenue conference Call. (Operator Instructions) amuse letter that this conference is being recorded. I'll now hand the conference above ought Mr. Vishal Aggarwal, major Investor Relations, Sterlite Technologies Limited. Thank you, and above ought you, sir.

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Vishal Aggarwal, Sterlite Technologies Limited - major of IR [2]

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Thank you, Lizan. Good evening, everyone, and thank you during joining us today. With me above the shout are Anand Agarwal, CEO of STL; and Anupam Jindal, CFO of STL. Anand will initiate with the key highlights and initiatives of FY '19, and then we'll approximately up with our hope and strategic concentrate during FY '20 and beyond. Anupam will then admit us over the econmic deed and econmic priorities going forward. back which, we'll empty the floor during Q&A.

We consume during robust uploaded the presentation above our website during those who cannot access at alive spot now.

Before we contribute with this call, I'd alike ought add that some elements of this presentation can exist forward-looking at character and get ought exist viewed at relative ought the danger pertaining ought our business. The safe Harbor clause indicated at our presentation during robust applies ought this conference call.

Now, start me bring the shout above ought Anand.

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Anand Agarwal, Sterlite Technologies Limited - CEO & Whole-time Director [3]

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Thank you, Vishal, and good evening, everyone. ago I initiate with my comments, I wanted ought admit a moment ought thank and complement the complete team of STL during the massive deed and accomplishments at this fiscal year. I'm extremely haughty of our team's emotion and will ought build the STL of today. We consume grown from approximately INR 3,200 crores final year ought an all-time high revenues of approximately INR 5,100 crores this year, which is a colossal jump of approximately 60%. And I'm equally haughty of how we serve during a trusted companion ought our customers during they transition from one technique epoch ought the next and during they convert their business xerox ought generate tax during their aim customers.

I used to initiate my comments by giving you a fast snapshot of how this year is shaped during us, and this glide is especially my favorite during it showcases the seeds of the exciting era that situate ahead of us. during the year, we launched 6 new solutions, we won 35 new customers, we acquired Metallurgica Bresciana, we took decisions above growth and executed capacity expansion and are wrapping FY '19 with 271 patent and an all-time high order book of more than INR 10,500 crores.

And at the next little slides, I will report approximately some of these developments at more detail.

Now coming ought what led ought our growth at FY '19, I deem I will recess it into 2 parts. above the connectivity solutions side, which is the produce side, we saw increased fiber deployments at Europe, at India during robust during the pause of the world, which are now between the strongest markets during our optical solutions. above the flip side, though China's need was relatively flattish this year, which now accounts during less than 5% of our overall revenue. We during robust made an entrance into 2 of the sumit 5 global cloud providers that are heavily investing into future networks. I used to talk our inroads into new Tier 1 telcos and high value-added products and solutions paved the manner during the growth at this division.

On the network services and software side, we partnered with sumit 2 telcos at India above their network invent and rollout. We during robust saw new guest wins of Tier 1 telcos during our BSS/OSS Software Platform. And the other divide of the need came from the national broadband initiatives of BharatNet and state-led initiatives of wise Cities where we secured orders during network rollout during -- at the condition of Maharashtra. And we see an equally healthy pipeline of orders at coming quarters.

From the big enterprises segment, it was mainly above accounts of cost above network modernization by defense during robust during force and utilities, which included our marquees and with naval defense during house their state-of-the-art digital communication network.

On an overall basis, I used to talk that the company's concentrate at FY '19 has been mainly into India, Europe, Latin America, which amounted ought approximately 90% of our revenues.

Now start us manifest at how complete of this translates into numbers. if we compare complete I said ought what we were 3 years ago ought where we are now, we see that apart from healthy growth at revenues, our guest mix during robust is evolving. We consume significantly strengthened the new guest segments alike enterprises and citizen networks, and we consume created an added concentrate above cloud companies. A good chunk of revenue is approximately 37% now comes from these new segments, still we persist ought deepen our war during global telecom providers who will persist ought play an integral role at our growth journey.

In condition of geographical mix, our export has grown by more than 3x at the final 3 years with Europe becoming an extremely healthy just during us. We are now partners of selection during the largest telcos at Europe, at India with our quarters of connectivity solutions. And closer home, we are partnering with a Tier 1 operator during one of the world's largest greenfield 4G rollout.

And this year has marked the beginning of another new part during us, which is the cloud provider. We consume made our manner into 2 of the largest global cloud providers. at the same time, we linger extremely focused and consume deep war with pick little customers, which is evidenced from our guest profile where approximately sumit 20 customers illustrate during more than 75% of our revenues.

As a company we are extremely focused above the needs of our customers and constantly experiment ought send innovative products and solutions during their evolving needs. This year marks the launch of 6 solutions aside from our produce innovations. One of our biggest launches consume been FTTx Mantra, which is an innovative ready-to-deploy FTTx kit and the TruRibbon, which is a 1,728 fiber deem telegram during data centers during robust during few prison solutions.

The other interesting one is the S-PODS, which is an appendix ought our programmable networking part and our only guide 360-degree fashion is now a key tax driver during our customers who are looking at end-to-end network invent and rolling out partners during faster and effective data network creation.

All these exciting launches and partnerships exist above the courage of 271 patent, 3 innovation centers and 2 software delivery centers.

Our capacity expansion plans of 50 million skm during optical fiber and 23 million skm during optical fiber cables surplus above track. Our new greenfield silicon-to-fiber mill at Aurangabad is built above world-class Industry 4.0 principles with high grade of IoT and automation. This mill is already below final device and commissioning and will initiate gradual commercial produce from the Q2 of the contemporary year. at some point of this year, we used to during robust hope ought classify a mill see during this new facility during our investor community. And I will application complete of you ought grow and watch the engineering and technique after the sophisticated silicon-to-fiber manufacturing.

Another major development this year during us was the acquisition of Metallurgica Bresciana, which now has given us a point of presence at the center of the Europe just that's significantly increasing our just attain at that geography. We are seeing fantastic synergies among our India and LTE mill with integrated planning and equip chain.

This, during me is personally an extremely important slide. I deem we don't report approximately this enough, besides our team at STL is continuing ought bring stronger by the day. We are attracting large capacity during complete our business functions. I'm cheerful ought piece with you that at condition of the capacity profile, 74% of our employees are graduates and postgraduates, and 18% are working out of offices and manufacturing implement outside India. during the year, we attracted some of the best global capacity at the fields of technology, engineering, analytics and farther strengthening our overall technique expertise.

Sustainability and governance persist ought exist an extremely healthy pillar during the company during we linger same committed ought this cause. The company recently won the Zero litter ought Landfill certification during our telegram implement and STL work towards 200,000 lives over our corporate social obligation during robust during volunteering initiatives at FY '19 with accumulative impact of above 830,000 lives.

Okay. accordingly this was FY '19, a really transformative year during us. What's next? We deem that the future looks level more exciting, and start me stride you over it.

From where we are today, we see ourselves at an inflection point of megatrends impacting data network creation. Our hyperconnected clay requires a hyperconnected network. I'm sure I conduct no want ought emphasize more above the importance of hyperscale network at today's engagement where there are at least a million use cases during house huge bandwidth and automated networks.

These networks, unlike the traditional ones, consume 4 important characteristics. They will exist denser. What I intend by denser is that the healthy adoption of 5G macro technologies and LTE few cells will ask a massive investment at the access layer with multiple points of unite wherein each access point of unite is connected by fibers.

Next, these networks will exist deeply fiberized ought fuel the requirements of ultra-low latency and ultra-high bandwidth. They are going ought exist vendor-neutral and disaggregated. By disaggregated, I intend that the hardware and software will exist decoupled. And software will exist open, programmable during robust during scalable.

Lastly, storing -- storage, traffic and computing processing, everything will occur at the rim closer ought the point of consumption major ought the creation of multiple rim data centers. And these new rim networks are being created, no only by telcos besides during robust by new players alike the cloud companies, citizen infrastructures during robust during big enterprises. These are characterized by their quick technique adoption cycles and deployment of best-in-class technique that persist ought consume a important affect above the industry structure, network architectures and guest consumption models.

What really is accident is something same interesting. if you manifest at the traditional telcos, they are evolving by moving their concentrate upward into the tax chain, moving from network arbitrage ought platform ought apps and the cloud ought apps. And what we see, the cloud providers, the social network providers, are moving downwards from apps ought platform ought network creation. accordingly ought add ought this network creation pie are the big enterprises alike defense, railways and the citizen networks alike Digital India [NB Australia] et cetera. This evolving xerox of data network creation is where the economic fashion lies during STL. What is equally interesting is that this new mega happen is then making during us, which did that exist at the sound era.

The emergence of new network architecture and new lecture of guest segments both are major ought convert at consumption model. The customers are increasing their network volumes, the architectures are (inaudible) transforming the underlying software architectures are transforming major ought new application during robust during use cases. And complete of this has started ought translate into convert at the buying patterns and the want during an end-to-end data network solutions provider. We are seeing customers extremely excited and empty ought hire at a much deeper flat above the innovation and end-to-end data network companion xerox where the concentrate of our company exactly lies.

For us, complete these transitions and transformations are creating an huge opportunity. Our addressable just continues ought obtain expanded multifold. What used ought exist an addressable just of approximately around USD 20 billion at 2017 will exist expanding ought approximately $75 billion out of the complete annual CapEx cost of $300 billion towards the network infrastructure creation by 2023. And we are going approximately this over our 4 pronged strategy. We hope ought innovate more and more new products and solutions shifting our concentrate towards high value-added products, we will enter into new customers and new geographies with just piece expansion. And finally, we will amplify into new just guest applications and adopt an integrated solutions-based offering.

So we at STL are evolving during our customers' expectations are. It is no longer approximately produce features or volume or fiber kilometers or in-time delivery. It is now approximately co-creation with customers during their only needs, optimization of complete allowance of ownership and time ought just during new offerings. at fact, FY '19 saw a completely various guest war model. We revamped our xerox ought affect away from guest satisfaction ought guest engagement. We now consume a dedicated key illustrate management team, which is -- with a dedicated designated key illustrate manager who's responsible during sure customers during their end-to-end needs. And key illustrate management forms an important divide of our tracking measures.

And our evolving guest war xerox came into existence mainly during 2 reasons: one is that the customers' needs are moving towards an application-centric fashion fairly than a specific-product or service-level approach. And secondly, ought consume multiple and layered conversations over our business lines during our customer. This convert at the manner of war is at fact major ought deeper flat of partnerships with customers. Internally, we are now beginning ought manifest at the business no during connectivity products and network services besides fairly during solutions of mobility, access, long-haul connectivity, network modernization and data center based above the aim guest application needs.

With this solution-based fashion and expansion of our offerings ought fulfill their application-centric requirements, we are now working towards a deeper piece of guest wallet. Of our $75 billion complete addressable just is built above the premise of new portfolios, new business lines, new guest acquisition, new geographies and solution-centric xerox over the 3 layers of the network. We deem that this fashion will guide ought new and evolved need drivers during FY '20 and beyond. These involve increased FTTx penetration at Europe and India; 5G rollout kicking off at 2020 and taking up space among 2023 and 2025; mobile backhaul fiberization at geographies alike India, which is cottage a heavily underpenetrated market; amplify at investments by OTT players creating happen towards the data center interconnecting U.S.; digital broadband spending towards rural connectivity at India; and network modernization by big enterprises alike defense, railways and grease and gas.

The increased trend towards virtualization by the operators will during robust empty new windows of happen during us during a complete stack data network virtualized player.

So our hope ahead of us is a growing complete addressable just of approximately $75 billion, out of which our contemporary piece is less than 1%. We are strongly positioned towards tapping this happen and generating tax during our customers over our (inaudible) end-to-end data network solution provider. And we see ourselves direct continuing ought strengthen our global just piece at this new TAM during we consume done at a structured path during complete our business areas.

This slide, during you can see, summarizes our gift recommendation of our guest segments, our offerings built above our 5 pillars of guest engagement: technology, talent, delivery and equip safe and sustainability and governance. We are off ought a promising initiate ought FY 2020, reflecting high energy and sure momentum during our business and all-time high order book during more than INR 10,500 crores and much sharper visibility above growth during the years ought come. I used to alike ought reiterate that we linger committed ought our important milestone of achieving $100 million net favour at FY '20 and delivering growth beyond creating tax during our shareholders.

And during we step into the new fiscal year, ought kick off this new growth part, we consume given ourselves a new manifest with a new logo. The new fresh manifest symbolizes our transformation during a new data -- new era data network solution provider at the hyperconnected clay committed ought delivering exceptional, durable and quantifiable tax ought our customers.

With this, I now hand it above ought Anupam during his comments.

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Anupam Jindal, Sterlite Technologies Limited - CFO [4]

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Thank you, Anand and good evening ought everyone. We had a fabulous belt with complete the key econmic metrics of revenue, profits and ROCE showing healthy growth above Y-o-Y and Q-o-Q basis. above the business side, one of the key developments during the belt was our entrance into one of the biggest cloud providers towards innovative solutions during data center connectivity. We consume one of the highest patent filings at the final belt taking our complete patent deem up from 234 at Q3 ought 271 at Q4. The final belt during robust saw an increasing rate of execution of both fleet and defense order and the initiate up of the telegram expansion at both our India and Italy facilities.

Coming ought the deed of the quarter, this has been still another record-breaking belt during us with the highest ever revenue, highest ever EBITDA and highest ever PAT. Revenues came with Y-o-Y growth of 112%, 38% and 47%, respectively.

The blended EBITDA margin during the contemporary belt is 18.3% during compared ought the preceding belt margin of 22.8%. This is an illustrate of the convert at revenue mix, the services and software accounting during approximately approximately 50% of the revenue. I used to talk that approximately 300 base points can exist attributed ought the mix, and the rest, 150 base points will exist above [off-site openings] during fiber at China and some divide at India.

Going forward, we see percent EBITDA margins ought become at approximately -- at the sumit of 18% ought 20% based above the mix and industry-leading ROCE of 25%.

I deem it is important during us ought cost some time above this slide. What we consume done is -- what we consume done here is ought emerge how the company's business is evolving. We are moving towards a much higher complete addressable just at years ought come, and looking at double-digit growth, which we will tap ought our amplify at solution-based offerings and [tune in] the major employee structure.

As we are adding businesses ought the portfolio, we are looking at less CapEx intensive model, which aids higher ROCE ought the business, albeit at lower blended EBITDA margin while compared ought the (inaudible) [fixed asset] heavy business profile.

As it is evident above the years, following this approach, we consume been able ought become absolute profits at double-digit tax and significantly enhance our major productivity. We hope our econmic profile at the company flat ought forge a normalized EBITDA margins of 18% ought 20% and ROCE at excess of 25% with our evolving business mix. It is important during me ought highlight that our guided EBITDA margins are a duty of mix of various businesses with various econmic profile. above private business segments, (inaudible) ought persist operating the business with a global best margin structure ought where we obtain our initiatives towards (inaudible) rationalization and high value-added products.

In the process, we linger committed and persist ought figure tax year-on-year during our shareholders. We consume more than doubled our size at the final 3 years, our revenue this year is north of 30% and EBITDA growth is 35%. Our profits consume grown by 2.8x at the final 2 years alone, and ROCE were 34% during this year.

As a company, we persist ought concentrate heavily on, no only growth besides during robust above the allowance optimization and major allocation. We will during robust prudently persist ought invest at technology, capacity and guest war ought motivate growth during future years.

As that's cottage (inaudible) at the next aspect of growth, the company has laid its econmic priorities robust intact above those healthy governance standards. Our fashion towards growth, earning and major allocation are robust chartered ought assist with growth at a value-accretive air during complete its stakeholders. The company's success will persist ought exist built by a healthy basis of Corporate Governance that will enable a sustainable growth going forward.

For your reference, we consume captured an abridged version of the P&L and the surplus sheet. Revenue, EBITDA and tap grew by 59%, 48%, and 68% respectively, during compared ought FY 2018. ROCE during complete year improved ought 34% from 30% at the FY '18. The EBITDA percent during FY '19 has dropped by approximately 170 base point from FY '18 above illustrate of changing business mix with solution and software business contributing more than 35% of the complete revenue. The margin profile during our produce business linger the strongest, 28 -- approximately 28%, and we consume started ought see some expert managers deed precise ought our services business -- this has resulted at EBITDA margins of approximately 11% ought 12% at business.

Consistent towards our dividend policy, I'm during robust favourable ought proclaim that our board has declared a dividend of INR 3.5 per piece during FY '19, which translates ought approximately 30% of our net profit, which is up by 75% compared ought [INR 2] per piece given final year, which is at queue with our favour growth.

Our debts consume mainly remained the same during compared ought H1 2019 chiefly above illustrate of healthy operating money flows and alike flat of CapEx payouts. I'm favourable ought see our net debt-to-equity ratio coming assistance towards a restrictive sumit of less than 1. Our net-to-debt ought EBITDA ratio of 1.5x, we are fairly comfortable, much below our during I stated a sumit 2.5x.

Before I aim my commentary and empty the floor during questions, I used to during robust alike ought admit little minutes ought salute 2 concerns that the just consume seemingly gotten same (inaudible) ought us.

Firstly, there consume been a progression of news flown at the backdrop of one using China Mobile dongle. There's a price roll during extended fiber our telegram prison maintain declined driven by local suppliers. This has led ought a natural just feeling that the pricing structure of this industry has disrupted, and it used to affect complete the players globally ought the same intensity. I used to alike ought illustrate that we see this development during more localized ought a specific geography. And still it has some few consequence above the global pricing, we conduct no see this disrupting our econmic profile at this business. accordingly a mix of higher volumes, higher value-added products with improve utilization and our ongoing allowance reserves, we are confident our favour growth and our produce businesses next year and level the following years.

Second, related ought promoter piece [presence] STL, we used to alike ought piece some facts and details, which are already at public domain. The [working] group, which is the (inaudib