Sintex Plastics Technologies Limited its SPTL ( I think he is referring to this one only)
I dont think Aksh is into preform mfg and is perhaps into drawing stage. But it is based on my understanding and i have not checked with Aksh on this matter. So, better to clarify with Aksh management as to which stage they operate in.
Interesting article on The-Ken regarding push for satellite broadband in India. Initial days as there are lot of regulatory roadblocks. However, even the industry leaders of Satellite broadband, envision it to be a small part of over all broadband sourcing.
"Private satellite manufacturers believe satellite broadband will become viable and volume business will come out of India once there is clarity in regulation and licences are given. Satellite broadcasting costs came down because dishes came up everywhere.
“It’s a myth that satellite bandwidth is expensive. The supply is so constrained today,” says an executive of an international satellite operator. “Today, I pay $1 million for a transponder. If I can serve 1 million sites, my cost will be just $1 per site. I may not be able to serve a customer in Tinsukia [in Assam] or Gorakhpur [in Uttar Pradesh] at the same rate as Delhi, but at 20% higher, I give them an option when she had none.”
The estimated global demand for broadband by 2021
The collective broadband need is ever-growing. Das of Aniara has an 80:20 rule—80% of the demand will be met by fibre, 20% by satellite. By that measure, 20% of the estimated global demand of 3.3 Zettabyte (1 ZB=1 trillion GB) by 2021, which is 0.6 trillion GB, is going to be the satellite broadband requirement.
Global preform demand-supply equation is going to be key component driving Sterlite’s future earnings and margins prospects. As we know globally there are 8 preform manufactures, most of them don’t share their current capacity and future capacity expansion plans. Management has also informed on con-calls that no one in fiber industry gives the kind of capacity disclosures that Sterlite provides. Corning and Shin-Etsu just share announcement of their capacity expansion but not the actual expansion numbers.
Sterlite management said that their capacity expansion is happening more by their customer engagements and not by seeing demand/supply mismatch.
Although based on current situation and fiber demand/consumption patterns, it seems like demand will outweigh supply in short-run (may be 2-3 years). But I believe that one day it will change and lean towards supply. When will it happen is anyone’s guess today.
Google search results got me to below mentioned sites providing paid reports which may have current glass preform capacity and future expansion plans:
- https://www.crugroup.com/analysis/monitors/ (company has used CRU reports data in it’s Annual Report)
Has anyone found a way except above mentioned expensive options to track demand/supply situation?
Aksh imports preform from Shintzu the Japanese company under long term contracts…,even sterlite imports from the same supplier as it’s preform capacity is not adequate / and has quality issues
Re: sterlite imports from same supplier as it’s preform capacity is not adequate - can you please share source of your information?
Meeting with mngt of competitor of sterlite tech
As pointed out earlier in this thread, this is like a commodity business. Optical fibres and optical fiber cables…as long as they come with quality criteria…are just commodities. And as of now, there is a demand supply mismatch in the sector. There is lot of demand for optical fiber…3G…4G…5G…FTTH…IOT…and a lot of demand coming from China, USA, Europe and even MENA region…while manufacturers are adding additional capacity to keep up with the demand and protect market share
As it’s a commodity upcycle, I suggest that we apply rules of commodity investing here…in commodity upcycle, it’s the market leader that runs up first as was seen in case of Sterlite tech which was first off the block…in the later phase of the commodity cycle the second rung players start running ( there is already a breakout on long term charts in Aksh Optifibre, HFCL and Birla cables)…now we can expect the second rung players to rally as the market leader Sterlite goes into consolidation…thirdly the best returns in the upcycle are given by companies which show the most dramatic increase in eps in percentage terms (here Aksh may perform better than it’s peers as it’s eps is set to rise from 1.4 in FY18 to 4 rupees + in FY19 and perhaps 6 rupees in FY20)
Recognizing the commodity nature of this business, Aksh Optifibre too is focussing on two commodity components - FRP rods and Optical fibres which have higher margins rather than cables which has moderate margins. Among other players, HFCL is into selling of both cables and equipment which may dampen it’s margins…sterlite too is adding huge optical fiber capacity which was to be completed by june
2019 end. But we do not know as to how much fiber is for captive consumption and what proportion is for outside sale…so pure commodity plays are better than diversified commodity plays insofar as returns in upcycle are concerned.
And finally when they become pure value companies trading at low p/e …it’s time to exit.
Aksh Optifibre fundamental analysis
5G spectrum auction can be one the largest spectrum auctions in India if telecom operators such as Bharti Airtel, Idea-Vodafone, Reliance Jio and BSNL show interest in buying frequencies for the next generation services. But debt-ridden telecom industry will look for a cost effective spectrum to run 5G in 2020.
Another interesting write up
@Mehnazfatima your views invited and how will it impact STL and Aksh
Chinese have levied anti dumping duty on optical fiber products originating from USA…whereas Sterlite and Aksh are coming up with manufacturing capex in China…I would assume that the effect on these two would be neutral or very slightly positive…mostly it will be eps neutral.
Positive call from Anand Rathi on STL
Another strong quarter by Sterlite. Now that fiber is running at 100% utilization and cable at 90%, future growth will come from the Metallurgica acquisition and the 10Mn additional capacity coming from the first phase of capex in Dec 2018.
Con call summary:
Industry update: Data has become basic consumption. Data traffic continues to register sharp growth and doubling every 2 yrs. Capex intensity will remain strong. Fiber consumption is increasing. First commercial project will first start in the US, then Japan, then China. 5G will increase demand for fibers. 5G will be a 5 to 7yr cycle that will start from FY20. The next era will be an era of peak fiberization.
Patent portfolio stands at 1096. 60% increase in the last 3 yrs.
Order book to revenue ratio is 1.8x. Indicator of structural changes happening in the industry. Longer contracts happening.
Supply scenario – Past capex decisions were taken on seeing the supply scenario. 120 to 130Mn km demand will increase in the next 2 to 3 yrs. There haven’t been any irrational capacity in the last few yrs.
Fiber – 30Mn capacity fully utilized. Cable – 90% utilization on 15Mn capacity. Realization - 8, 8.5$. Cable side is giving very good upside.
Order book touched 6000 cr. Last year, it was around 3000cr. Doubled in an year.
Revenue breakup – Domestic 55% export 45%. In the longer horizon, export will be 50%.
Bharatnet demand is yet to kick in.
Realization, internal efficiency improvement, cable business utilization increasing – driving profit growth.
Indian navy order update – still in process. Should come in the current quarter. Within H2, revenue should start coming from this order.
Future growth will come from - First module of the fibre expansion (10Mn FKM by Dec 2018, then next phase additional 10Mn by June 2019), capacity through the Metallurgica acquisition – will expand the current capacity by 20%
Europe - Revenue was 27% of the total revenue last year. 30 to 35% of order book. Metallurgica acquisition has added more driver of growth from Europe.
Effective Tax Rate – closer to 27 to 28%. On the higher side 30%.
Preform capacity – Supply demand situation is matched.
NFS orders – Left with last 15 to 16%.
Realization of fibre for the last 7 yrs – 7 to 8$. Over last few quarters – 8$.
Cabling capacity – added 3Mn more. 2Mn more soon. Doesn’t take more than 8 or 9 months to add capacity in cable, so will take decisions later on adding more capacity.
Capex - 500 to 600cr in FY19.
Product order book – Pyramid kind of order book. It contains even for orders for FY22.
Reasons for incremental margin expansion – Better cable capacity utilization, new products in the product category, internal efficiency program, marginal price increase.
Current net debt: 1100cr. Driven by the capex.
Market share has been going up in Europe – 27%. Largest provider to British Telecom.
New telecom policy – Policy has great intent. Sterlite gave lots of input too. It’s about the execution of the policy to be watched out.
FTTH – Looing at the overall cost of development, it’s going to be mostly singular infrastructure. First person to do the infra wins the consumer. If somebody comes in put in a parallel or secondary infrastructure, company will have to see as we go along. But it’s the first incumbent will claim the customer.
We’re just at the start of the cycle, looking at the way data consumption is growing.
I guess you used the word “head winds” instead of “tail winds”…
Also equating this industry which is new and just starting up to an established century year old cyclical auto industry is possibly not the right way… Auto is a proven cyclical industry…for nearly a century now…
The margins and return ratios of the global auto industry is pathetic compared to this industry…
Agree @maverickroger the PE of 40ish might be well deserved, my concern would be there might be cheaper players such as HFCL or Aksh etc. which might be able to get better returns for investors. HFCL just got BharatNet orders, while Sterlite claims the next phase of orders are yet to start.
Discl: Both Sterlite and HFCL are equally weighted in PF.
Thanks For pointing out buddy. It is corrected. The answer to your question is in my post itself Sir. Why do you think Maruti Suzuki gets 35-40 PE despite being in a cyclical sector? Think about it. When a significant chunk of the population of country shifts from 2 Wheeler to 4 Wheeler it creates a multi decade opportunity. We are not here to study 100 year global cycles. We are here to ride the wave for 8-10 year cycles and capitalise on it. Also, it is futile to compare Indian Auto margins with Global players because the demand dynamics and ecosystem are very different. You know the list of Global auto majors who have failed to crack this market.
The fun part here is that Sterlite Technologies has exactly the same kind of market share and market position in its sector as Maruti Suzuki. On top of that, the sector growth rate is much much faster and this is secular growth for the next 4-6 years at the very least.I certainly believe that this company deserves 1Lac Crore M Cap in the next 3 years.
OPM of HSCL is around 9% whereas Sterlite is doing high 20s. Similarly ROCE, ROE are all significantly higher. At the end of day orderbook has not much significance if you cannot complete them with a higher efficiency. Just like the difference between Eicher Motors and Hero MotoCorp/Bajaj Auto.