Sterlite Technologies Ltd Q3 FY22 Earnings Conference Call Insights

Key highlights from Sterlite Technologies Ltd (STLTECH) Q3 FY22 Earnings Concall

Management Update:

• STLTECH said that it’s confident to increase its UK contribution to about 25% of its global business service in the medium term. The company also added that it is committed to deliver its financial objective of a run rate of INR100 billion by 4Q23.

Q&A Highlights:

• Pranav Kshatriya asks about the provisions in the top line and the cost line. Mihir Modi  CFO said that provisions are some old projects in the services space. And the top line provisions is INR48 crore, with an additional 15 crore on the top line. On the middle line it’s INR115 crore. And the overall total bottom line impact of the one-off provisions is north of INR200 crore.

• Pranav Kshatriya also asked about the products and services business and its profitability. Mihir Modi  CFO commented that the products business has been stable and growing versus a year ago and the margin has been in line with what is expected. On the services side, while there has been the provisions,  there has been some softening because of the project mix choices made. Therefore, there were couple of reasons of impact which softened the underlying operating margin other than the provision. STLTECH expects softening to exist for a quarter or so in the services business.

• Neerav Dala enquires about the weakness in revenue and margins and breakdown of revenue for the UK business and also investments in access solutions. Mihir Modi CFO answered that the UK business currently is very small and the margin there would be negative, with the softening in the services business. In access solutions, the company said it spent about INR35-40 crores in 3Q.

• Neerav Dala also asked about the 15% decline in International businesses’ share of revenue in 3Q and the outlook going forward. Mihir Modi  commented that it’s due to the prioritization at this stage in terms of the choices of some contracts the company made. However, the mix of International in the order book continues to improve. So 3Q cannot be taken as a representative of the underlying trend.

• Mukul Garg enquired about the softening of margins ex-provisions from 17% to 9%. Mihir Modi  CFO answered that there have been two large drivers on the margin softening. One is the investments STLTECH had to make ahead of time in the services and software business, driving 2-2.5% of margin dilution versus 2Q. Secondly, is the impact of the contract mix choices the company made due to which the revenue is lower versus 2Q.

• Suryanarayan Manian asks about the recourse and if it’s legal recourse or it’s more of an engagement with the client to try and follow up. Mihir Modi  replied saying that it’s both. The way it works is the company engages with the clients and parallely continue to exercise the rights.

• On a question asked by Ashish Jalan with regards to the services business, especially in the public sector in India, what’s the total amount receivable and the unbilled revenue, Mihir Modi answered that unbilled amount has come down over the past couple of quarters and currently it’s at about INR900 crore. From a receivables standpoint, STLTECH added that the number across public and private is well balanced.

• Ashish Jalan also queried about the company pivoting towards the private sector in the domestic market, and if it’s due to payment issues from the states or margin attractiveness in the private sector. Mihir Modi CFO commented that the private sector is more stable, while government contracts are constrained by the terms of the tender and there is limited influence possible on that. However, the company wants to make sure the mix is right in private, international and government contracts.

• Tejas Sheth asked about the INR10,000 crore of revenue guidance, how much the company sees coming from the service side. Mihir Modi CFO said that the company expects 35-40% to come from services side and about 5% from access solutions, and the largest chunk coming from the products business.

• Analyst Krunal asked about quarterly volume run rate for fiber in 3Q. Mihir Modi CFO said that for fiber, the company is at a volume capacity utilization of about 75-80%. And on the cable side, STLTECH is close to 8 million.