Sterlite Technologies’ Stock Tumbles After Moody’s Withdraws Credit Rating
Moody’s said it has decided to withdraw the rating from Sterlite Technologies for its “own business reasons”.
Shares of Sterlite Technologies Ltd. fell to their lowest in more than a year after Moody’s Investors Service withdrew its credit rating for the company.
Moody’s has decided to withdraw the rating for its “own business reasons”, according to the website of the international credit rating agency.
Sterlite Technologies later in an exchange filing said it had no debt instrument rated by Moody’s and hence “requested” the agency to withdraw rating from the company. The last rating by Moody’s on Sterlite Technologies was a corporate family rating of B1 with a ‘Stable’ outlook.
Sterlite Technologies also said it will now interact with only two rating agencies—Crisil and ICRA Ltd. Both the rating agencies have a long-term rating of ‘AA’ with a ‘Stable’ outlook on the company.
Shares of Sterlite Technologies tumbled as much as 12.6 percent at Rs 188.7 apiece—the lowest level since July 2017—after the announcement. The stock, however, recovered most of its losses to end 3.64 percent lower on the stock exchanges today. To be sure, the company’s shares have been declining for six straight months due to concerns over promoters’ pledged shares, lower fibre cable prices and falling margin. The stock has lost as much as 46 percent during the period.
Pledge Shares
Promoters of Sterlite Technologies have pledged nearly 97 percent of their shareholding. The promoter—Twin Star Overseas Ltd., which is owned by Anil Agarwal’s Volcan Investments Cyprus Ltd.—had pledged its holdings to fund the delisting of Vedanta Resources Plc. from the London Stock Exchange, according to exchange filings.
Typically for companies with high pledge shareholding by promoters, investors always fear a selloff by lenders in case of a shortfall in margin requirement.
Declining Margin
Sterlite Technologies’ margin declined in the three months ended December despite a growth in revenue and profit. That’s because the low-margin services business contributed more to the company’s revenue. The contribution of the services business to Sterlite Technologies’ revenue increased from 24-25 percent year-on-year to more than 30 percent in the October-December period.
Low Fibre Prices
Lower fibre cable prices in China, too, impacted Sterlite Technologies at a time the domestic supplier is planning to expand capacities.
China Mobile Ltd. had set a maximum price of $17 per fibre kilo metre to source 105.4 million fkm cable. The bids, however, came in the range of $10-11 per fkm, an average 38 percent lower than the maximum price limit, according to tender documents available on the website of the world’s largest consumer of optic fibre cables.
Due to the fall in prices, brokerages, including Edelweiss and Haitong Securities, cut their earnings per share estimate for Sterlite Technologies by 7-28 percent for the next two financial years.
Yet, they are bullish. Ten of the 11 analysts tracking the stock suggest a ‘Buy’ rating. The 12-month consensus target price, however, is lower at Rs 378 apiece from Rs 442 six months back, according to Bloomberg data. The current target price implies an 80 percent potential upside from the current levels.