Green LED lights and rows of fibre optic cables are seen feeding into a computer server inside a comms room at an office. (Photographer: Simon Dawson/Bloomberg)

Optic Fibre Price Cut In China Won’t Hurt Margin, Says Sterlite Technologies

The cut in earnings estimate of Sterlite Technologies Ltd. is “more panicky” than the actual situation, according to its Group Chief Executive Officer Anand Agarwal.

“A local, one-off event had impacted the prices of optic fibre in China. We are a global company and China is less than 5 percent of our revenue,” Agarwal told BloombergQuint, adding that the company is no longer dependent on optic fibre alone, and thus the margin will not take a huge hit.

Brokerages last week cut Sterlite Technologies’ earnings estimate for the next two years in the range of 7-29 percent after China Mobile Ltd.’s tender results for optic fibre cables came in 38 percent lower than the maximum price limit.

Edelweiss expects the impact of fall in prices to be lower for the next financial year, while Haitong Securities said the price decline would result in lower realisation, impacting margin of the optic fibre maker.

Agarwal, however, said the brokerages are “overreacting” by forecasting a 20-25 percent fall in price for the next fiscal. “It is essentially seeing the result of one tender and extrapolating it to the entire volume.” A worst-case scenario, he said, would be a 10 percent cut in realisation instead of the steep cut forecast.

Agarwal also maintained its $100-million profit guidance for the financial year 2020. “China is not a strong part of our overall business and as a company, we are diversified.”

The stock closed at Rs 219 apiece on Monday after falling 12 percent since March 15.

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