Hold Sterlite Technologies; target of Rs 180: ICICI Direct

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ICICI Direct's research report on Sterlite Technologies

Sterlite Tech reported an in-line topline performance (~63% YoY growth) in Q1FY20 driven by strong domestic revenues (~64% of pie), which witnessed a staggering ~87% YoY growth. Exports revenues, on the other hand, forming 36% of revenues, grew 33% YoY. Reported EBITDA margins came in higher at 22.6% (vs. our estimate of 19.5%) given the higher proportion of product revenues that command superior margins. PAT came in lower at Rs 141.4 crore (vs. our expectation of Rs 151.2 crore) despite higher EBITDA, on account of higher depreciation and interest costs owing to commissioning of new OF capacity. While, so far, the performance remains strong, we remain cautious on overall demand given the excess supply and pricing pressure thereof, which may impact the offtake from new capacity.

Outlook

The recent announcement of promoters releasing pledged shares, however, is expected to provide some stability to stock prices. With ~19% stock price correction since our last update and removal of pledged shares overhang, we upgrade the stock to HOLD (vs. REDUCE, earlier), valuing it at 12x FY21E P/E at Rs 180/share. Pricing recovery at industry levels remain a key upside risk to our stance.

For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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