Sterlite Technologies | Digital India play


(Vivek) #82

Globally only eight companies make this product and of these we are the only one to have a fully integrated product offering from silicon to fibre and offer software and integration services along with it.
https://www.financialexpress.com/industry/sterlite-technologies-to-invest-rs-1200-cr-in-new-optical-fibre-plant/643875/

The highlighted portion is the difference between Sterlite and other companies in India


(ramanhp) #83

@maverickroger: I am not aware of any better ways to play the data consumption theme in the listed space. Data consumption is the most visible and obvious consumption story unfolding right in front of our eyes. Digitalization and Internet-enabled Infra will only push for a low latency, high-speed data. So, I am positive. Samit Vartak, of Sageone Investments, had made a very exhaustive presentation on the Fibre Optics and Sterlite Technologies for IIC 2018.

What I am keen to find out is this. When and (if) the ageing networks in the United States will shift to 5G via Fibre or any other disruptive tech that is mentioned in the discussion above. Or they will rather not go for expensive earth digging, cable laying at all and hold on major investment till the newer technology(Satellite-led) gains acceptance. If this happens, the Fibre optics manufacturers with their enhanced production capacities might find themselves at the wrong end of supply-demand game.


(Hamir Asher) #84

Has anyone ever dealt with Ster Tech. ?
They are in a classis sellers market. They decide the qty they will sell as well as prices. They dont even care about long term contracts. They inform the buyer the qty and rate which will be available in a particular month. If buyer accepts they sell else they say that they have a bee line of customers, will be sold to them.
Today, they can sell whatever they produce.


(rvetri) #85

Not at all… They do exactly the opposite and which is correct… They don’t play the spot markets, but get into long term yearly contracts… Their selling prices are lower than the spot prices…

Management has stated this very clearly several times… Quite honest and straight forward…


(Hamir Asher) #86

I disagree … you may want to believe the co call … they will not want to admit this but at the operational level we deal with them daily. They are arm twisters. Who will say this in a call. They have not honoured rates when spot rates have gone up … right they have long term contracts but if there is a spike in spot rates they dictate terms, they decide who gets how much.


(Gaurav Agarwal) #87

You are trying to tell us that you/your company buy optical fibre from Sterlite Technology and they are in position to dictate terms to you.

The market is in such short supply that they tell you how much they will sell, at what price they will sell and also if they will honor their long-term contract or not and you literally have no bargaining power and you bow before thy and take whatever they are ready to supply.

How long do you think this can continue?

The company has trade receivables of 27% of revenue. This are very high compared to picture you are trying to present here. What you are saying is similar to what Reliance Industries does with it’s petrochemical customers and the company has trade receivable of 2% of revenue. This does not fit in well.

Thanks


(Hamir Asher) #88

You have understood it correct. I think you need to see the ground reality. How long can it continue … Maybe till there is an alternate supplier of its size. Other companies are not able to provide capacity like sterlite. You may still want to disagree but it is feedback from a user not based on concall and analyst presentation or reports. Feel free to accept or reject it.

Trade receivables are high maybe because they also supply to govt through tenders.


(learning) #89

I seriously dobut that - I will give you my reasons

  1. 50% of their sales is overseas, I don’t think they can do arm twisting in Europe or Chinies market at all.
  2. Amongst the domestic market very large portion of the sales comes from govt contract/ army/ etc. with very limited coming from telecom operators - so it’s again difficult to agree to the arm twisting here as well.
  3. OFC is a competitive market and domestic ( aksh, vidhhya, hfcl) and telcom player have so many options, so i doubt if the ST can actually do a arm twisting here. Personally, I have seen in my locality bharti airtel using HFCL cables. Besides Telecome players are huge in size - they will not even look once towards ST if they adhered to such practice.

Would be great to know if you meant the above operating areas for the company or were you referring to some other industry to which ST caters to. They might be squeezing local cable wallahs, i won’t really be surprised with that, but to my mind that should be a very small portion of their overall sales.

Either way would be great if you can shed some light on segment/ companies or revenue which might be affected due to this practice.


(Hamir Asher) #90

I am referring to indian markets only but wont be surprised if they can do some hard bargaining in international markets as well.

Also note that there is a serious supply gap which is why everyone is expanding capacity. This answers your first question whether they can squeeze buyers. OFC is competitive market agree but this is for only cable manufacturers. You forget that even to HFCL, Vindhya etc raw material i.e. fibre is provided by likes of Sterlite. They only manufacture the cables. Only sterlite is an integrated player. Check the financial ratios of Vindhya / HFCL / Aksh and validate what I am saying.

I am reiterating, please speak with the buyers who interact with STL and get a feedback.

For telecom players OFC procurement and laying is a pain area and do they have any choice, no they need to deal with STL due to its sheer capacity to provide them OFC. This is simply because they have ignored the backhaul infra upgradation which was needed to support 4G.

Please validate this with anyone who is buying OFC and working in the industry. The small players like you mentioned will be bulldozed, the large players will be dealt with politely. For instance, if you have contract for supply and spot market rates are up say 20%, they are willing to supply only 20-30% of your ask at that price. Please understand that they are also buying raw material i.e. silica from international markets at spot rates.

Are you also aware that though they deal with Govt, they are never L1 price bidders. The govt contracts are awarded to multiple players and STL is always getting at L2 or higher price since they dont budge on prices beyond a point.

Also want to mention that this is a commodity and they are in a sweet spot. There is a lot of old fibre and network which needs to be upgraded.

I do not have any interest in the stock, just sharing my experience since I have been in this industry for a very long time and thought this information would be of use to everyone.


(learning) #91

Thanks for the pointers and I see your points.

I am just trying to distill the points that you suggested, let me know if my understanding is on the right path.

Basically what i am trying to arrive at is - following, Is STL following business practices which are detrimental to its long term prospect. Will put few facts from my end to corroborate with the on ground experience that you share.

  1. They are the only RM to software player in India - hence that give them an advantage in terms of pricing etc. So, I am ok with the fact that their margins would be superior then pure player OFC producer which is a commodity I think.
  2. Supply squeeze for OFC : If there is a supply gap, then i believe the entire industry ought to benefit - but based on the capacity util of industry player it does not seem to be the case.Also, china has excess capacity on OFC so Supply squeeze at current moment is not a big factors.
    3.Optical fiber : they are the only optical fiber mfg from india, so they have every reason to dictate domestic prices in India when they sell it OFC mfg in domestic or intnl market. Anyways there are less then 10 players globally. Now, if they can make more money by building OFC own their own or by selling OF to other is a function of their own order book. So I don’t see a real challenge here either.
    4.On the contrary I find it nice that company is not quoting less just to grab business - so not budging on the price is a good thing right? Its not that they are loosing that business, they are able to get at a price which is adding value . If they had missed on those contract then it would have been a negative.

My thought process are from a Investor perspective and not from a user perspective which you captured and hence what is troublesome to you might actually be indicative of a strong business.

Question is how long can this dance last. Your thoughts?

EDIT : So basically question is based on your feedback they are taking advantage of the situation - and my question is - how long would they be able to survive with such practice as you would have fair bit of Idea of the industry dynamics


(Gaurav Agarwal) #92

Can you substantiate this?

If China has excess capacity of OFC, why would someone even buy from Sterlite?

@hamir_asher
Thanks for you reply. Has GoI imposed any import/dumping duty on OFC? If not, then why China is not selling OFC in Indian market.


#93

Let’s not give too much importance to their software capabilities. They hardly carry any IP on their balance sheet and probably it involves generic work of integration services. What is important is that cycle has turned for OFC suppliers and they have right to behave like a bully like any commodity producer during the upcycle.

Thanks @hamir_asher for your inputs. It validates the supply tightness that the company talks about.


(learning) #94

I guess, I should have put across my point better.

What i meant is in one of the concall there was a question of demand slowing from china - in response mgmt said that they are looking at other geographies. So, I deduced that given china is huge in terms of fiber demand any demand slowdown would lead to excess china capacity.

This and with the fact that company had not increased it OFC capacity for long time but had increased only OF capacity made my believe that OFC migh not be in a short squeeze, if it were co. would have increase both the capacity at same time.

I am not sure if my interpretation is correct or not. Correct me if i am wrong!


(ramanhp) #95

According to Pankaj Khanna, COO - Telecom Business, Sterlite Optical Technologies, “Six patents were granted to Sterlite in the last year for product and process inventions. These patent grants have helped us establish our technology leadership in addition to the market leadership we already enjoy. Consumers can look forward to more innovations from Sterlite’s Technology Development Team, as optical fiber gets closer to homes.”


(Hamir Asher) #96

They will continue till the commodity cycle supports them. You may want to see their numbers few years ago and you would see lower margins etc … i have not seen them but just an educated guess.

By all means this is a commodity and will behave like one.


(jainnitinp) #98

Recently, stocks of companies that have one of the big 4 as their auditors have been punished for fear that they may resign anytime. Sterlite is one of them. I believe this reason may fade overtime and the current opportunity is a good time to buy strong businesses like Sterlite.

Disclosure - invested.


(Hashims) #99

How about other players such as Aksh Optifiber also having capacity to manufacture OF within India plants?


(ramanhp) #100

Was there any negative news or feeler about ST auditing practices? I see the price dropping each day and was wondering if there is some issue which we might not be aware.
Disc- Invested and was adding on dips till recently.


(ukdube) #103

Aksh Optic- dangerous low promoter holding 27.6 % is a great concern.I shall be extremely concerned on this negative.See what is happening to STPL, lot of investors have burned their fingers.


(Manish Vachhani) #104

No technical charts on the company’s threads. You can post the charts on technical threads.