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.