Sterlite Technologies | Digital India play

@phreakv6 Thanks, I was going to ask you about the source from which you inferred this. I had noted this answer as well here Sterlite Technologies | Digital India play but I did not interpret it too negatively because there were other details regarding demand supply which hinted about demand going up as well.

In q2fy18 concall it was mentioned that domestic market is expected to be doubled from 20 million to 40 mn by 2021. I buy that because Indian telecom industry has just gone through a major consolidation. With only one major player Jio having latest fiber based network, the other major players are bound to undertake backhaul. There are many indicators of consolidation being in later stages now with pricing war stabilizing, big mergers out of the way (almost) etc. 3g to 4g increased OFC consumption by 3x and 4g to 5g is expected to increase consumption to 5x. However, 5g is still far away for India but globally it will start from 2020 onwards.

It was also mentioned that $100 mn new capacity is coming up between 2018 and 2021 on the base of $500 mn. Incremental demand is coming at the rate of 12% which keeps the balance in tact. This was mentioned in concall and it matches with independent industry report https://www.prnewswire.com/news-releases/optical-fiber-preform-market-2018-key-companies-sales-demands-and-forecasts-to-2023-reportsnreports-850882742.html

Margins tapering down from 28% to 20% or so was always expected but with 20% margins too the business is good.

For STL, it would be very interesting to see how things play out in next 3 years considering many domestic and global triggers on the cards.

I think there must be some other reason for this fall in sterlite as I don’t see similar stock price movement( -20%) in other optical fiber companies in the world.

Other OFC company prices in the world not falling. Precisely the point. We are over reacting. Prices of such products falling is common. Compare it with the prices of OFCs 2 - 3 years back. Will the prices be higher from here 2 - 3 years from now. That is the way to look at things. Beware of too much bearish arguments. It could be to get in at lower prices. While existing stock owners may be selling, smart people shall be buying.


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Clarification on news articles raising concerns on Global Optical Fiber Pricing

Just yesterday Anand Aggarwal had mentioned on CNBC that pledge will be revoke in next 3-6 months, and today he says it should be in next few weeks !

I am down and loss in this business. But I am not yet booking losses, I want to see few more contracts in future to see if the market is right or what management is right, at 700 cr PAT and 9000 Mcap, I am getting this business at 13X Fy20 earning, at this valuation, I think lot of negatives are baked in. But of course Mr Market is supreme.

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I am tracking Sterlite technologies for almost 6 months…and Today I have brought chunk of shares at 218…My opinion about Sterlite technologies is still positive because China only contributes 6-7%.I am going to hold it for atleast 2021. One more thing I would like to say that it is the monopoly of China mobile which is now forcing OFC companies to sell products at lower prices…With many 5g players coming one by one in market this monopoly will come to end…

I don’t believe you are completely right, China mobile has placed order for 105 mn fkm, which is around 20% of global demand. Though i agree it may not impact STech directly given low share of revenue from China.

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If I guess correctly current fall of 15% in share prices in just two days is just because of China mobile tender news…it is just like panic selling…
Infact pledging of share by promoter is not knew in Sterlite counter , market knows this but it is the panic selling that had drag the share price to around 218 previously also…
There will certainly some margin loss to Sterlite due to China issue…but these are the times to full your basket with those which are earlier very costly to buy…

At the end in video …Management says…Pledge shares are for testing purpose …it happens in every quarter…

I dont understand…why any company tests pledge shares for every quarter…

Please throw some light on this

Any help in understanding what they are doing with pledging shares

Are they not able to generate enough working capital…so that why they pledged the shares for working capital

Or they pedlged the shares to keep the money on other groups financially bed ridden companies rescue
.
Or they pledged shares for expansion…

I am not able to understand what they are doing with pledged shares…

Any light on this please …greatly appreciated

Second one. They have pledged shares for another group company.

is they are doing on every quarter?

every quarter they are releasing same?

To me it looks like that the industry has entered a period of slowdown. The management’s unwillingness to accept this is not surprising, given the pledge of shares.

I did some research into the industry and its history and where we are currently. You can read it here - https://rarecinch.com/2019/03/21/sterlite-a-complicated-story/

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I personally doubt if industry has entered a period of slowdown as 5G rollout is picking pace and there is lot of news floating on 5G. A new ETF based on 5G theme has just started in US and its ticker is FIVG.

Most of the 5G infrastructure based stocks like Cisco, Nokia, XLNX, AVGO, Ericcson are at 52 week highs or all time highs tells a different story.

Another area where OFC is required is for Cloud Service providers (Amazon, Microsoft, Google, IBM, Oracle) who are expanding their capacity at a massive rate and their cloud infrastructure need lot of OFC. Their cloud business is growing at double digits and can continue to grow for next 3-5 years. Google has just announced a gaming service in the cloud.

So, I beg to differ about industry slowing but there could be a supply and demand mismatch.

Disc: Invested from lower levels and biased.

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I agree to the above view. None of the OFC companies in US are going down. I think there’s some pessimism around Sterlite Tech due to their limited (5%) exposure in China and the over capacity there.

Pledging is something the parent company did, for reasons that are public. I don’t think they will squander this opportunity in a fast growing industry in India.

I am slowly adding up as I think it is definitely a good play for long term (5+ years). End of the day, you want capable management to steer at all times. I am confident of this management as of now.

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The sudden crash in Sterlite stock coincided with delisting of Vedanta Resources from LSE. The resources for this were derived from cash reserves of Cairn.

Not just Sterlite but even Vedanta also crashed at same time.

https://www.moodys.com/research/Moodys-withdraws-Sterlite-Technologies-B1-rating--PR_398298

This is a personal choice by moodys. No reason given on any negativity in the company.

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