Sterlite Technologies Ltd (NSE: STLTECH) Q3 2025 Earnings Call dated Jan. 17, 2025
Corporate Participants:
Chetan Wani — Head Investor Relations
Ankit Agarwal — Managing Director
Tushar Shroff — Group Chief Financial Officer
Analysts:
Nikhil Choudhary — Analyst
Unidentified Participant
Rishikesh Oza — Analyst
Presentation:
Chetan Wani — Head Investor Relations
Hello, ladies and gentlemen, good day and welcome to the STL’s Q3 FY ’25 Earnings Conference Call. My name is and I head Investor Relations at STL. We are joined by Ankit Agarwal, Managing Director, STL and Tushar Shah, Group CFO, STL, to walk us through the Q3 FY ’25 results and to answer any questions that you may have. Please note that all participant lines are in listen-only mode as of now and there will be an opportunity for you to ask questions after the presentation concludes.
You can download a copy of the presentation from our website that is www.stl.tec. Please note that this call is being recorded. Before we proceed with this call, I would like to add that some elements of today’s presentation may be forward-looking in nature and must be viewed in relation to the risks pertaining to the business. The safe-harbor clauses indicated in the presentation also applies to this conference call. I now hand over the call to Ankit Agarwal for opening remarks. Over to you.
Ankit Agarwal — Managing Director
Thank you, Jaython. Good day, everyone. Thank you for joining us for our Q3 FY ’25 earnings conference call and wish everyone a fantastic 2025. As we advance to the end of FY ’25, directionally, our strategic priorities remain the same. In the optical networking business, our focus remains on driving growth by increasing market-share in optical fiber cables and improving our connectivity attach rates. To achieve our goal of generating significant revenue from data center and enterprise segments, we will accelerate the development of comprehensive data center product suites to tap the vast potential of this market. Additionally, we will sustain our efforts to drive technology and cost leadership in the optical domain.
On the global services business, we will build capabilities and value-added services while optimizing the project — the project mix to boost profitability. Concurrency, we will work towards completing the demerger of the services business. On STL Digital, we aim to scale the business through strategic investments in new technology and domain capabilities, while meaning a complete focus on the profitability. Has always endeavored to be a responsible leader in ensuring we have a connected and inclusive world. Through our various initiatives in education, women empowerment and healthcare, we are very proud to share that we have positively impacted millions of lives since FY ’19.
To highlight the achievement of some of our initiatives, we are proud to share that 13 students from our RoboEdge program proudly represented India recently at the prestigious Robotox International Robotex International Championship in Estonia. The program has impacted over 5,000 students over 11 schools in and Silvasa and fostering innovation, excellence in STEM, education and robotics. Our flagship Johti program founded by Ms Agarwal has empowered more than 5,000 women, artisans with vocational training and now showcasing their products under the Akai brand.
With a focus on sustainability, we have installed 4,523 kilowatts of solar panels across our plants, contributing to a significant reduction in our carbon footprint and advancing our renewable energy adoption goals. These installations not only reduce greenhouse gas emissions, but also demonstrate our commitment to energy efficiency in manufacturing. Additionally, we actively collaborate with 26 on our forestation and water replenishment programs, planting thousands of trees and rejuminating water bodies to support biodiversity, improve groundwater levels and create resilient ecosystems.
Through a hybrid healthcare initiative, Swaste Raksha, we have delivered primary and tele services to 26 lakh underserved individuals in rural Maharashtra. At STL, sustainability is at the core of everything we do and we are firmly committed to achieving net zero emissions by 2030. Since FY ’19, we have diverted over 260,000 metric tons of waste from landfills and recycled over 930,000 metric of water, reflecting our focus on resource efficiency. We have also partner with Higenco to adopt green hydrogen and we are proud to be the world’s first optical manufacturer certified for zero liquid discharge and zero waste to landfill.
Our ECO label products not only use 52% less energy, but also extend network by almost 13 years, combining innovation with environmental care. Aligned with 16 of the 17 UN Sustainable Development Goals, we proactively then positively impacted over 910,000 lives and earned over 100 plus ESG awards, proof of our unwavering commitment to build a sustainable and inclusive future. In the next few slides, we will highlight optical networking business and our efforts towards becoming the top three players in optical connectivity business globally.
Reflecting on the past quarter and the year 2024, CRU’s latest estimates show some contraction in the global OFC demand through 2024, driven by reduced demand in China in particular. 2024 volumes are estimated to be the lowest in the last four years. Despite lower demand in recent quarters, we have seen steady fiber deployment and ongoing client commitments towards network expansion going-forward. Data center demand for cable is emerging as a key growth driver and various analyst estimates assume a steady demand improvement from 2025 and a robust demand growth from the medium-to-long term.
CRU projections indicate a steady increase in fiber-optic cable demand, reaching 620 million fiber kilometers by 2028 with more than 4% to 5% annual global growth and over 8.5% annual growth outside of China between 2024 and 2028. STL’s key markets, North-America and India expected to grow even faster. North America’s demand is projected to grow by almost 12% in 2025 and more than 14% till 2028, driven by both the BEAT program as well as continued data center demand going-forward. We also believe that inventory normalization and consistent deployments are steadily driving a market recovery.
The surge in data center demand for optical products fueled by generative AI is set to accelerate further with projected 22% annual growth in global data center capacity between now and 2030. By then, 70% of total capacity is expected to cater to advanced AI workloads, highlighting the potential supply deficit in the future. One of the estimated — one of the estimates suggest more than $2 billion capex in fiber-lated infrastructure over the next decade. This presents a significant opportunity for companies across the data center value chain to address the capacity crunch.
In India, GPU-based server capacity in AI-driven data centers expected to reach 5.2 lakh GPUs by 2026 and we believe that these — these CPU racks require significantly more fiber compared to regular GPU to compared to regular data centers. The STL’s AI data center portfolio, a Make in India innovation is tailored for GPU dense data centers, require high-bandwidth, low-latency, AI data center requirements, featuring — featuring high-density celesta ribbon cables with IBR technology, advanced MPO panels, LC panels, patch panels and copper systems ensures high-bandwidth, low-latency as well as scalability.
We are proud to report that 22% of this quarter’s revenues came from our data center and enterprise suite products. We are focused on driving rapid product development and significant revenue growth from AI data center and the enterprise ecosystem. Global investments in 5G networks, FTTX deployments and cloud data centers continue to fuel strong demand for optical connectivity products. In Q2 2024, CapEx amongst the top-10 telecom operators increased by 2.9% year-on-year, primarily driven by 5G fiber deployments and high-speed broadband expansion.
Private players allocating substantial resources to enhance 5G infrastructure, achieving widespread 5G coverage. The number of global 5G operators risen from 582 across 173 countries in-quarter four 2023 to more than 618 operators in 184 countries and they expand the gigabit broadband access to both urban and rural areas. The growth is further supported by finalization of 5G advanced standards in June 2024, which is accelerating its adoption. FTTX deployments globally expected to grow by a CAGR of 7.1% from 2024 to 2029, with North-America almost 14.6%, Middle-East, 11% and Eastern Europe more than almost 19% driving this expansion.
North-America is projected to become the largest FTX market with the US targeting 100% FETX coverage by 2029, backed by government initiatives such as the BEAD program. In Europe, the transition to full fiber broadband is gaining momentum due to copper switch-offs with Portugal, Spain and Sweden leading the way. As per FTDH Council Europe, at least 14 countries in Europe are in different stages of transitioning from copper network to fiber networks, which should enable the demand for optical products in these countries. In India, telecom giants are GEO and Bharti aggressively pursuing fixed 5G-based fixed wireless to the — and fiber-to-the-home services, bundling broadband with pay-TV offerings. These programs could lock a significant $11 billion to $15 billion in annual revenue opportunity for them in India, underlining immense potential of the fiber connectivity market in the region.
Over the past three decades, we have developed deep technology expertise across the optical fiber value chain, offering a seamless glass to gigabit experience. Our advanced solutions include industry-first innovations like India’s first multi-core fiber, multiverse and the ultra slim fiber through diameters of 180 and 160 microns, supported by a robust 740 patent base. This quarter, we achieved significant milestones led by our world-class product offerings. We obtained self-certification for our Buy, Build America, Buy America compliant optical products, strengthening our position to be a key supplier for the federally funded broadband infrastructure projects under the BEAT program.
Through our South Carolina manufacturing plant, we are collaborating with US broadband providers to meet the rising demand of both federal and private broadband projects, including the BEAD initiatives. We achieved initial commercial success with first ladder order win of a newly-launched AI fiber-optic sensing solution, Sensoron. The success of AI force fiber-optic sensoring Sensoron opens a huge market opportunity for SGL as well. We also continue to support India’s progress in fixed wireless solutions by providing optical products and copper products to large telecom companies in India to enable enhanced connectivity across the country.
Reflecting on the market-share and optical connectivity attach rates, according to CRU global consumption data, we held 8% market-share in optical market — cable market across the globe ex-China during quarter three FY ’25. We are constantly focused on increasing our market-share across our focus geographies. For three consecutive quarters, we have sustained more than 20% optical connective attach rate, a testament to our product superiority and customer validation. We expect this point to build-up further, backed by strong funnel order book and growth across our customer segments.
Now let us look at the financial performance of the optical networking business. As we reflect on the financial performance of the optical business, in-line with our guidance, Q3 FY ’25 revenue stands at INR924 crores, which shows healthy improvement on year-on-year basis. EBITDA for the quarter stands at INR119 crores at 12.9% of the revenues. EBITDA margin reflects substantial improvement year-on-year basis, driven by constant focus to drive cost leadership. As we have been sharing with our strategically located manufacturing units, completed capacity expansions and well-executed capex cycle aided by constant focus on optimizing our cost structure and expanding our data center product portfolio, we are well-positioned to capture significant market-share as demand grows.
Now let us focus on our global Services business. In the Global Services business, Q3 FY ’25 revenue stand at INR289 crores. Our selective order intake and execution focus has helped us achieve a Q3 FY ’25 EBITDA of INR20 crores and EBITDA margin of 6.8%. As you may notice, the EBITDA margins have improved year-on-year and Q-on-Q basis despite reduction in revenues. This is attributable to our select project intake and strong execution focus. We’ll continue to build our capability towards value-added services and system integration to improve our margins and reduce the fund involvement going-forward. In our global services business, we made steady progress on key large-scale projects in this quarter.
Notably, we secured the strategically significant INR2,600 crore BharatNet Phase-3 project in Jammu Kashmir. This project aligns with STL’s commitment towards nation building and expanding broadband connectivity, enhancing opportunities in education, health and economic development for the remote regions of our country. Additionally, we continue to build a strong track-record in large network deployments, having successfully executed projects like Mahanet in Maharashtra and T Fiber in and Ghana. With over 1,50,000 kilometers of fiber laid across India, we are well-positioned to capitalize on any major programs involving nationwide fiber network rollout in the coming quarters.
We are happy to share with you that we see very healthy order participation and funnel development for our global services business that should translate to large order book in the future. Now let us discuss our STL Digital business and its performance. In our STL Digital business during quarter three FY ’25, we observed robust deal flow during — across geographies from marquee customers. We continue to acquire new global customers and added SAP and Oracul in our elite customer list during this quarter.
Another notable highlight, we successfully led digital transformation program across through Project Rise and SAP, spanning eight companies and serving 15,000 users globally. The capabilities and experience of such a program strongly positioned SCL Digital to undertake further large transformation opportunities in the future. Our growth is underpinned by a strong partnership ecosystem comprising 40 plus active technology partners. We’re happy to share that with STL’s digital open book standing at strong INR451 crores at the end-of-the quarter, this coupled with a healthy order pipeline, execution capabilities and strong leadership team, we are well-positioned to drive sustained future growth.
In light with the expectations and despite muted industry environment, we achieved quarter three FY ’25 revenues at INR77 crores, which is a healthy improvement on Q-on-Q basis. Our focus on profitable growth are showing results as we achieved our first EBITDA-positive quarter of — in-quarter three FY ’25. We’re happy to share that SGL digital business EBITDA stands at INR4 crores. We shall continue to stay focused and grow further in the coming quarters. I now hand over to Tushar to talk about the consolidated financials thanks,.
Tushar Shroff — Group Chief Financial Officer
Good day, ladies and gentlemen. In-line with our guidance, the consolidated Q3 FY ’25 revenue stands at INR1261, INR1,261 crores. The Q3 FY ’25 EBITDA stands at INR133 crores, INR133 crores and EBITDA margin stands at 10.5%. For Q3 FY ’25, profit-after-tax loss stands at INR23 crores. The quarter-on-quarter revenue decline is attributable to lower OFC volumes and lower revenue in GSV business. Profit-after-tax losses are narrowing on a year-on-year basis. As we look at STL’s nine months FY ’25 performance, nine months FY ’25 revenue stands at INR3,892 INR892 crores, 3,892 crores. The EBITDA stands at INR3783,378 crores and nine months FY ’29 after-tax loss stands at INR83 crores.
In last quarter, we witnessed a strong new order book addition with several large new orders and key contracts signed with prominent customers across the region. Notable wins include the new orders from leading American client for OFC Supply, a major UK telecom operator for optical connectivity and fiber solution. We also received the new orders for optical fiber cables and specialty cable products in Italy. Additionally, we secured the fiber supply contracts with major French customer.
In digital business, we secured large long-term outsourcing contract from industry-leader. Thanks to our global business and customer-base, our revenue mix was well-diversified in-quarter three FY ’25 as we reflect on our order book situation. Based on our strong new order book addition during the last quarter, despite of the significant order descoping, our open order book stands at INR9050 crores, INR9,050 crores as of quarter three FY ’25. The order book is well-diversified across the customer segment and business verticals. We have provided the average version of our reported numbers for your — for your review, the net-debt of the business stands at INR2,195 crores.
Let us now discuss the update and the status of global service demerger are making steady progress on the demerger process. The shareholders and creditors of STL India approved the scheme of arrangement in the meeting held on July 10, 2024. Following this, the demerger petition was filed, admitted with NCLT during October 2024. The final hearing date is scheduled on 30th January 2025 with NCLT Mumbai Bench. The final approval are expected in Q4 FY ’25, after which resulting companies anticipated to be listed on our stock exchanges. However, the progress remains contingent on NCLT scheduling and hearing.
In summary, our focus areas for the business are clearly defined as in optical networking business, we aim to drive the technology and cost leadership with the goal of becoming one of the top global top three. We will drive the sales in a focused market to expand our optical network business and close the volume gap. Our focus will remain on growing the optical connectivity business and increase the attach rate.
Additionally, we will prioritize the rapid development of our data center product portfolio. In the global service business, we’ll continue to focus on the select projects intake to improve the profitability and optimize the net fund involvement. We also aim to complete the demerger by first-quarter FY 2026. In the STL Digital, we will continue to scale the business and grow our revenue along with the focus profitability. With this, I now hand over the call-back to Chetan.
Questions and Answers:
Chetan Wani
Thank you, Tushar. Ladies and gentlemen, we have now come to the end of our presentation and we shall move to the Q&A session. Please note that if you want to ask a question, you can click on the raise hand button and we shall take your questions one-by-one. We request all of you to keep your questions to the brief and limit the number of questions to maximum two so that we can attend maximum number of questions from most of the participants. Please also share your organization’s name for the transcript as you state your question. The floor is now open for Q&A. We’ll take the first question from Nikhil Nikhil please go-ahead and ask your question.
Nikhil Choudhary
Good evening, everyone. Thanks for the opportunity. This is Nikhil from Nuvama. My first question is on the data center opportunity. Thanks for highlighting that. So Ankit, can you give some color, especially regarding our capability and how we are positioned vis-a-vis our competitor? What we have seen globally is some of your peer launched data data center specific products, right? So just want to understand how we are positioned, especially in data center capability? And second part of the question is, the 22% contribution you have given for data center and enterprise. So if you can break it especially for data center and if you have some comparison of how much it was same-period last year.
Ankit Agarwal
So thank you, Nikhil. So I think as we’ve been sharing in last couple of quarters that clearly this is from a share capex spend, we continue to see that globally data center spend will only continue to grow and accelerate. And within that, we are seeing that certainly as a shift goes from CPU based to GPU based, the amount of fiber-optics required will also grow multifold within that. We are seeing the connections of fiber-optics up to the servers and go beyond that. So both in terms of copper as well as fiber-optic connectivity, we do see that the growth will be quite strong.
Within that, we are closely evaluating both in terms of opportunities for HTL globally as well as particularly in India. In India, we see that the data center capacity will grow from around 1 gigawatt now to about between two to three gigawatts in the next few years. So clearly, again, a large opportunity here and more-and-more possibly of the data centers in India will either look for ask for Made in India solutions. So it presents an interesting opportunity for STL. I think we do have some base of portfolio of products, both on the copper and fiber-optic cable. But equally, going-forward, if we really have to cater to this market, we need to build a full portfolio of product and make sure that we can really provide an end-to-end solution to the various data center players.
From my perspective, I think this will take some period of time, probably over the next one to two years, we will continue to build the portfolio, build our own IP and in parallel continue our conversations which are going on currently as well with various DC players. But as I shared last-time as well, this is clearly a priority for us. We cannot give any specific forecast at this time, but what we are starting to call-out from this quarter onwards is data center plus enterprise as a segment, we will start calling out what percentage of revenue for optical ONB business is coming. And as that — we do expect that to continue to grow going-forward.
To your second question in terms of breaking out between data center and enterprise, we don’t want to split that up for competitive reasons, but we are seeing increased demand of various solutions on — particularly on our copper connectivity, which are going to various enterprises, whether it’s GCCs or elsewise. And at the same time, we are also — we have some unique communication cables for the railway segment. And as we’re seeing a rapid expansion of these requirements, particularly in Europe and possibly also in India going-forward?
Nikhil Choudhary
Thanks a lot, Ankit. Second question is on-demand environment. Last year was a tough year, especially for optical industry. So how is the outlook for CY ’25? Any early indication you are receiving from telecom OEMs in general for CY ’25 as well as if you can touch upon any update on be it? You last year highlighted some delay, but any update?
Ankit Agarwal
Absolutely. No, spot-on, Nikhil. So I think from what we have been sharing even last quarter, we have seen that there has been — on the positive side, there are now at least two several states, including particularly Louisiana, etc., which are expecting what they’re calling shovel on-the-ground based on meat funding in the next 100 days, so say three months or so from now where probably some first investment and execution will start by at least one of the states. But if we had to speak at a larger level, we do expect that H2 of this calendar year and definitely probably our, say, Q2, Q3 kind of timeframe is where we expect initial BEAD investments to pick-up and hence our fiber-optic solutions are to be starting to be required for that. But really, we expect that the larger and more significant demand will come from a calendar ’26 perspective.
So probably some portion of our financial year quarter three, quarter-four, we should see benefits of our bid requirements. We are well-placed for that. As recent as last few days, we also made an announcement where we have been on the official list of cell certification. And again that places us very well and amongst few companies who can’t provide the cable solutions for the bead requirements. In terms of overall market demand, we continue to be focused in our geographies which are in Europe, US and North-America broadly as well as in India. In India, we are seeing that on the back of BharatNet broadly, there should be an increased demand over the next four to five years.
As the advanced purchase orders get released, some of them have already happened in the last few days and others should happen in the next few weeks. That should result in-demand for both our cables as well as fiber to other cablers. And of course, from a services business, we should be also getting our purchase order for Jammu Kashmir project, hopefully in the next few weeks. So that’s on the — on the India market. Europe has been flattish, but as we talked about, this transition from copper switch-off or copper to fiber is happening in few markets, particularly in UK, in Poland, in Germany, etc.
So some pockets, we do expect to see some strong growth, but the largest growth continues to be in the North-America market. We have seen some of the inventory inventories reduce over the last few quarters. We probably have maybe a quarter or quarter or two left of inventory absorption. But broadly, this is all placing us well for a good growth in North-America demand in the coming year and important for us is SGL to capture some of that growth going-forward.
Nikhil Choudhary
Thanks a lot, Ankit. The last one if I can squeeze in for Tushar, especially on margin. So decent performance on margin on both the side, optical business as well as digital business. So optical business, what was the moving part despite of lower revenue, we were able to maintain the margin. And in digital business, we saw uptick in revenue as well as first time adjusted EBITDA profitability. So was there some, let’s say, third — so one-time revenue because of completion of some milestone which led to revenue bump-up as well as profitability or can we sustain this profit going-forward as well? Thank you.
Tushar Shroff
So Nikhil, as you are aware that for last couple of quarters, we have been extremely working to ensure that our cost structure remains in our control. So from that perspective, lot of efforts have gone on optical network business to set the cost structure right. So the — as far as the O&B business is concerned, I think these are the sustainable in terms of the profitability margin is concerned.
With respect to service business, I think what we have seen is the — in-spite the lower revenue, we have been able to more or less been able to maintain the kind of EBITDA margin that we have generated in last quarter, this is also on account of the some kind of a cost initiatives that we have we have gone ahead in that particular service business as well as we are expected to demerge this particular business to a separate entity in coming quarters.
So from that perspective, at STL level, whatever the cost optimization efforts that we have been putting, which is yielding the results and which is — which is in-spite the — this quarter we have a lower revenue, we have been able to maintain the margin percentage as such. So that’s a — that’s something I would say is on account of a lot of other — I mean, initiatives on a cost perspective.
Nikhil Choudhary
Digital business.
Tushar Shroff
The digital business, I mean it is more or less, I think the way we have seen this particular business is we have a good long-term order book, which has happened in this particular quarter and the kind of the new orders that we have been executing are at the better margin as compared to the earlier period. So from that perspective, the overall margin from the product — I mean the existing contracts are much better as compared to the earlier period. So the overall improvement in the project margin, the way we have been getting the new orders is giving the positivity in terms of sustaining the margin for the digital business.
Nikhil Choudhary
Thanks a lot,. Thanks, Sushar. Good luck. Thank you..
Ankit Agarwal
Thank you, Nikhil.
Chetan Wani
Thanks, Nikhil. We’ll take next question from Sunni Ghosar. Sunni, please go-ahead and ask your question.
Unidentified Participant
Hi, thanks for taking my question. My first question is on the optical business. So basically, I just wanted to get some more understanding on this program. So in US, the sustainable demand which was there like say two years back. So going-forward, is it fair to assume that all the capex that even the telcos are trying to do will get holded under the bead program and bead will be the sole driver for demand or be demand will be over and above the demand that the telcos had for their own network-related capex. And once this inventory adjustment or the inventory destocking gets completed or gets more normalized in the US, there could be like dual legs of growth, one in terms of the normal demand from the telcos and second from the BEAD program. So how should we look at that at a more normalized level?
Ankit Agarwal
Yeah, absolutely, Sunny. I think a good question. I think exactly from the market perspective, I actually think it’s going to be three elements happening in parallel. You’re going to have the telco and the ISP demand, which is continuing. In fact, if you see the announcements recently from AT&T Verizon, you see the announcements from various Tier-2, Tier-3 players, Windstream, everyone else, they’re actually talking about accelerating their fiber deployment.
So we continue to see the telcos invest and build-out their fiber infrastructure. Everyone is clearly talking about fiber being simply the best medium for providing high-speed. And by the way, more-and-more operators are looking to move from about 1 gig to 2 gig service towards between 4 to 8 gig service. So even the requirements and the speeds that they’re now competing in are moving more-and-more where simply only fiber can provide that solution. So I think that’s a very positive sign.
I think BEAD, as I said, while the timing may have shifted and from our own view, there’s very much a continued focus on making this happen. I just give one example of Louisiana State, but equally other states have gone through the — all the states have gone through the process and now slowly we’ll see state-by-state coming and as the winners of the projects in the states move forward, that should lead to the demand. So that will be a second driver.
And then the third driver will be this whole switch from the CPU to GPU based and that will lead to further demand of fiber for the data center segment. So we do believe all three should play-out in terms of the demand for North-America. To give you ballpark, you know, this broadly should lead to demand in North-America going from current base of 70 million, 80 million fiber kilometers to north of 120 million fiber kilometers annually. So this will be a plus in our view that should partially play-out in 2025 and then certainly 2026 onwards.
Unidentified Participant
Got it. That’s helpful. And have you seen improvement in terms of the new inquiries and any feedback from your customer discussions for the normal telco related capex demand, so how — what is the status there? Is there — are there green shoots? Is it still — is it still slow in terms of conversations? So any thoughts or feedback on that?
Ankit Agarwal
Yeah. I think broadly, I would say that we have definitely seen more incoming. When you look at our pipeline of opportunities, definitely it is stronger than it was last quarter. So I would say that and particularly in North-America itself. So I would definitely say that we see more opportunities, customers asking for more quotes. The way North-America works is on calendar year basis. So as the operators have now decided their budgets in-kind of November-December timeframe, this is the period now in Jan-Feb onwards where they start the inquiry process and they decide on their partners for the current year. So this is a very important period between now and up to March, April, where we should get much better visibility of how things will pan-out for rest of the year.
Unidentified Participant
Got it. Got it. That’s helpful. My second question is on the global service business. So we won one package in the order. When do we expect to start execution for this package and like what would be the execution timeline for the same?
Ankit Agarwal
Yeah. So we have won the Jammu Kashmir project, which broadly is about a three-year execution and 10-year maintenance. In terms of the timeline, as I said, some of the other participants or winners have got their advanced purchase orders in the last few days. Ours is probably expected in the next few weeks maximum. And then probably the final purchase orders, formal purchase orders will also come in probably towards the end-of-the quarter or early Q1 maximum.
So post — of course, our work-in the background has already started in terms of the survey and whatever else we need to do. And so I think it would be fair to say that probably some point in Q1, the work would start in terms of various planning and other things also that go into it. And similarly for other players who have won the other projects. So this is important for us as a project, not only for services, but also for the optical business. So all those conversations are going on in parallel.
Unidentified Participant
Fine. And have we seen any improvement in our working capital from the service business in the last one or two quarters, have we been able to get down the contract assets and the receivables?
Tushar Shroff
Yeah. So Sunny, I think — so relatively the working capital has started reducing in the service business. But the kind of a pace that we have been expecting, it is a little slower as compared to what we were expecting. So with respect to our plan and the budget that we had, I think the presently it is not at that level. But yes, definitely on a quarter-on-quarter basis, we are seeing that the improvement in terms of reduction in the working capital.
Unidentified Participant
Got it. And I have one last question before I get back-in the queue. Basically, our net-debt as compared to the pre-QIP period is down by about INR800 odd crores. However, if you look at the interest cost-reduction, we have come down from about INR94 crores INR95 crores per quarter to INR83 crore INR84 crores. And so the — it seems like the interest cost-reduction is relatively lower than the reduction in the net-debt. So I have two questions. Basically, what should be the sustainable quarterly interest cost going-forward? And is there any like one-off cost in the finance or in the interest cost line-item in this quarter in terms of any refinancing cost or any like bank charges or anything?
Tushar Shroff
Yeah. So I think, Sunny, best way to look at the number is on a year-to-date basis, if you look at the overall finance cost, which has gone down from INR281 crores to INR238 crores. So there is almost like INR50 crores in terms of reduction in overall finance cost. Now when we talk about this finance cost, finance cost also includes some of the bank-related charges, correct, maybe the operational or it may be related to the financing.
So from that perspective, it is not only the interest cost, but also the operational in terms of bank charges, which we incur as well as the bank cost, which is related to the funding of the activities are also a part of the finance cost. So it is not only the interest and the bank charges, which is — which is associated with borrowing, but there is also some element of the operational cost, which is also included in the finance cost.
Unidentified Participant
So is it fair to assume that INR83 crores INR84 crores will be like a sustainable quarterly run-rate going-forward or do you see this coming down in the coming quarters?
Tushar Shroff
So it should come down over a period of time especially with quarter one FY ’25, ’26.
Unidentified Participant
Oh, thank you for the detailed response and I’ll come back-in the queue.
Ankit Agarwal
Thank you.
Tushar Shroff
Thank you,.
Chetan Wani
Thank you. We’ll take next question from Arun. Please state the name of your organization and then share your question by the time Arun comes back, we’ll take question from Rishikesh. Rishikesh, please go-ahead and ask your question.
Unidentified Participant
Hello.
Chetan Wani
Yeah. Arun, you are there?
Unidentified Participant
Yes, I am there. Sorry. Sorry for that.
Chetan Wani
Please go-ahead. Rishikesh will take your question after this.
Unidentified Participant
I didn’t see the pop-up. Yeah. I think there have been a lot of talks about the huge demand that is there both from the data center and other aspects. But can you also comment on the supply-side dynamics and our competitive position to gain orders or gain market-share. Because I’m actually extending it further to the pricing, because if there is so much demand and supply is not there, do you expect a on the pricing side also going-forward? And can we go back to the 2019 price levels as well as the profitability?
Ankit Agarwal
Yeah. So I don’t break it into two, three parts. I think specifically to your question on the data center/enterprise side, I think definitely there, we do see that there are fewer players who have the portfolio and who can compete with the full solution. And I think that’s certainly one-on-one side, we are definitely looking to see how we can scale that up. But definitely, we see a good opportunity there for having a healthy pricing and margin. And as we progress in terms of quarter-on-quarter improving the — improving our sales to this market, you should start seeing that.
In terms of the market, I think globally as well, I think we are in an interesting place where when you look at large government-funded projects like BEAD, etc., going-forward, there is an expectation that there should be a premium for that because it has very stringent made in America requirements, which naturally would be at a higher-cost base.
So I think again from that market perspective, as that demand comes in and there are limited suppliers who can provide those solutions, I think that would again give us an opportunity to improve our realizations. Of course, broadly as the market itself improves as we get into second-half of FY ’25, that should give us an opportunity to improve our realization globally. And of course, at the same time in Bharatnat as well kind of projects, as that demand improves and increases in India over the next few years, that should also help us improve our realization.
Unidentified Participant
Yeah. Is see orders like Bharap net, are they going to be lower-margin orders or a normalized margin?
Ankit Agarwal
So just to start on the services part, we are very confident that we have got this order at healthy margins. And so of course, it’s now down to our execution. So — but principally, I would say that I’m confident that we booked it at the services business level at a healthy margin. Equally, on the optical business, I think definitely we are confident that we will look at various opportunities, both on cable and fiber, both for our own services requirement as well as for other winners of the projects.
Unidentified Participant
Just to extend this again, sorry, but we have seen buyncy on the demand-side, but the revenues have declined if you see quarter-on-quarter, the margins are still not healthy. So what is causing this dampening both on revenue and margins?
Ankit Agarwal
Yes. So specifically, I think, see, one part on the positive side, as Tushar said, a lot of work has gone internally in last, I would say, 12, 15 months on our cost-reduction initiatives and you will see that flowing through our P&L.
On the market side, as I said, we’ve had somewhat of a flattish demand in Europe and also because of high inventory over the last 12, 15 months in the US, even though the execution of new projects and fiber-to-the-home, all of that was all-time high, the new demand from suppliers like us and others had been on the lower side. So that in that market environment, we had seen some realization reduction. And as I’m suggesting that as the demand picks back up in probably second-half of this calendar year, et-cetera, then we also expect with that demand, we do expect that both the lead times and realization would increase.
Unidentified Participant
Okay. And sorry, lastly on the — this — can you elaborate on what is this attach rate and what is the significance of this number?
Ankit Agarwal
Yeah. So it’s a metrics that we use and we’ve been sharing for last few quarters, but essentially what happens in the telco ecosystem or the ISP ecosystem is that you need both the cables as what we call the optical interconnect to go together, especially as you’re connecting homes or towers, etc. So what we’ve been historically been doing is selling a lot of cables, but then with the acquisition of Opto-Tech and some of our product development, we’ve also been able to push forward into our customers more of a solution sell of the cable and the connectivity together. What we call is the attach rate is that for every dollar of cable we sell, how many cents of connectivity that we sell. And so ballpark now for about $1 of cable that we sell, we sell about $0.22 of connectivity products. And historically for us and going-forward, we expect the connectivity portfolio to have even better margins than the cable portfolio.
Unidentified Participant
All right. Thank you. And lastly on the receivables, last quarter you mentioned that you are expecting some receivables, INR1,000 crore and there’s one more. Any guidance on that?
Tushar Shroff
Yeah. So Arun, last quarter we spoke about very specifically on liquirating some of the outstanding that we have in the service business, it’s not only the outstanding, but there are certain working capital like work-in progress that we have in certain contracts like T fiber and Marnet. Unfortunately, it is a little slower as compared to what we plan
Yeah so I mean see these are these are unfortunately these are the state government-backed projects so lot many times, it depends on the budgetary allocation coming from the state governments to liquidate some of these receivables. So we are waiting for a budgetary allocation to happen for this particular project so that we can liquid our receivables and the contract assets that we have.
Unidentified Participant
All right. Thank you. Thank you, sir.
Ankit Agarwal
Thank you.
Tushar Shroff
Thank you.
Chetan Wani
Thank you. We’ll take next question from Rishikesh Uzha. Rishikesh, please go-ahead with your question and request you to state the name of your organization?
Rishikesh Oza
Yeah. Hi, am I audible?
Ankit Agarwal
Yes.
Tushar Shroff
Yes.
Rishikesh Oza
Hi, thank you for the opportunity. Rishikesh from RoboCapital. My first question is if you could share our revenue and margins guidance that we have for FY 2026.,
Ankit Agarwal
We actually don’t give a guidance or forecast on an annual basis. What we have been — I can just share what we’ve been guiding is that as a business, particularly the optical business, we’re really — our vision is to make this a world top three business. We’ve been talking about that from a growth perspective. In terms of, for example, the optical connectivity business, we’ve been talking about how we see a lot of potential in that.
We want to scale-up our attach rate between our cable and connectivity. Yes. We are in-process of our services business demerger and definitely continue to see a lot of opportunity and pipeline to scale that up over the coming years. And of course, our focus has been ultimately to generate cash and reduce our debt, thereby also reducing our interest costs on an ongoing basis. So these are some of the elements that we have been guiding and we continue to stick to that. We don’t have any specific numbers to guide at this point about FY ’25, ’26.
Rishikesh Oza
Got it. No problem. Also second question is regarding the net. For Bharat net order size, if I’m not on this INR2,000 crore, are we expecting any further orders? And when will the revenue recognition start from?
Ankit Agarwal
I think we’ll have to come back to you in terms of revenue recognition. As we said, this process in-between of us getting advanced purchase order, then getting the final purchase order. After that, there would be a period where you do various amounts of survey and other things. So I think there is a certain amount of time period, let us first get the purchase orders formally? And then probably in our next earnings, we can give you better timelines around what could be the potential revenue that we could get from this on a quarter-on-quarter basis.
Rishikesh Oza
Okay. Could you share that what margins have we got the Bharat net order?
Ankit Agarwal
We won’t be able to share that again for confidential reasons. I can again be rest assured this is in Jammu Kashmir. We have executed an NFS project almost 10,000 kilometers in that region in the past. So we have a lot of experience in Jamu Kashmir. We are very confident of the region and we understand the region and hence we are confident that we have won it at a healthy margin.
Tushar Shroff
So, this particular order that we’ve been talking about is better than the margin that we have been accruing in this particular business.
Rishikesh Oza
Okay. Thank you very much.
Chetan Wani
Thanks, Rishikesh. We’ll take next question from Rohan Bora. Rohan, please go-ahead and ask your question we take question from Vipul Kumar Shah. Vipul, please go-ahead.
Unidentified Participant
Yeah. Thanks for the opportunity. So my question is what is our OF and OFC capacity as on today and what is the capacity utilization today and what was the same last year same quarter
Tushar Shroff
Capacity.
Ankit Agarwal
So I’ll just start out on that. So as we’ve been guiding in terms of our — our volumes have been fairly flattish. I’m just talking on quarter-on-quarter basis for a minute. So similarly, like we guided last quarter as well, we’ve been broadly at that around 50% utilization. As we’ve shared in the past, we are practically completely done with our capital and our capacity additions globally. We are very, very well-placed with our capacities north of $50 million on the glass and fiber side and north of 42 million on the cable side, including our investments in the US. So we are fully set-up on our investments.
In fact, if you look at our capital spend for the year, it will probably be around INR120 crores INR130 crores maximum. So we are really from compared to previous years, our capital expenditure has also started to come down and will largely be much more of maintenance capex and some investment on the interconnect side. In terms of overall utilization, as we said that as the market improves, particularly in North-America, India, et-cetera, we do expect that utilization should improve in the coming year.
Unidentified Participant
So, I know that you don’t give the exact rate at which you sell fiber or cable, but if I have to compare it with ’18, ’19 crisis when the profitability was really supernative, then how much we are in percentage terms, how much we are down?
Ankit Agarwal
Yes. I would say ballpark, I would say overall both America and Europe from say peak prices as of the period that you mentioned, I would argue that depending on the market, we’re probably between 20% to 30% down in realization. And again, as I talked about earlier that we do expect that some of these, particularly in North-America, we do expect these realizations to also improve and we’ve seen this in the past through various cycles that we do expect the realizations also to improve as the demand comes back and improves going-forward. So I think it’s — and equally on our side, we have been taking a lot of initiatives on the cost reductions. And so we are quite confident that the operating leverage will definitely kick-in as the factory utilization improves.
Unidentified Participant
And sir, what is our capacity in USA? Is it only cable or is it fiber also?
Ankit Agarwal
But we don’t disclose specific numbers by factory, but it’s essentially a cable factory and we are very well set-up now in the factory there in terms of product portfolio and capacity. So we’re very well set-up now.
Unidentified Participant
But we would not like to disclose the exact capacity you have.
Ankit Agarwal
No, no, we don’t disclose our capacities by year.
Chetan Wani
Thank you, Vipul.
Unidentified Participant
I lost question, sorry, sir sorry.,
Chetan Wani
We will take only last question from your side. Please go-ahead.
Unidentified Participant
Yeah, yeah. So return to profitability at net level, what — what should be our utilization in terms of percentage.
Tushar Shroff
So Vipul, I take this particular question. If we have to go back to the 20% in terms of an EBITDA margin, we need to be at a capacity utilization about 70% to 75%. That is a kind of a capacity utilization will yield about 20% in terms of an EBITDA margin for optical network business.
Unidentified Participant
Thank you and all the best.
Ankit Agarwal
Thank you.
Tushar Shroff
Thank you.
Chetan Wani
Thank you,. Thank you, everyone. With this, we now come to the end of our question-and-answer session. And now I hand over the call-back to Ankit Agrawal for closing remarks. Ankit?
Ankit Agarwal
I’d like to thank everyone for attending this call and showing your interest in STL. Despite a challenging market environment and a shorter quarter, we have made progress on key strategic priorities. We remain focused on the factors in our control, emphasizing customer-centricity, building a lean and agile organization and driving growth through technology leadership. We will continue to aggressively pursue business opportunities in our key regions, leveraging our advanced manufacturing innovation and industry-leading products.
As demand normalizes, we are well-positioned to execute effectively, deliver strong results and create shareholder value. I hope we were able to address all and clarify all your queries and comments. For any further questions and discussions, please feel free-to contact the Investor Relations team, which includes myself and Tushar. We really look-forward to continuing the conversation with you in the future — in the near-future. Thank you, Jahen.