Fibre-optic cables feed into a server inside a comms room at an office in London, U.K. (Photographer: Chris Ratcliffe/Bloomberg)

Q4 Results: Sterlite Technologies Lowers Operating Margin Guidance Again

Sterlite Technologies Ltd. lowered its operating margin guidance for the second time in the last one year on account of a change in revenue mix.

The supplier of fibre cables cut its margin guidance to 18-20 percent from 22-23 percent forecast after the third quarter, it said in a conference call post the results for the January-March period. The company, in the conference call after first-quarter financials, had guided earnings before interest, tax, depreciation and amortisation margin at 24-25 percent.

Sterlite Technologies’ order book stood at close to Rs 10,500 crore as of March this year. Of this, Rs 5,000 crore came from the services segment and the rest from the products segment. The company expects to generate Ebitda margin of nearly 11 percent from the services segment and 26 percent from the product segment.

The company’s Ebitda margin declined for the third straight quarter in the three months ended March as low-margin services business contributed more to its revenue. While the services segment contributed 52 percent to the company’s revenue, the rest came from product sales. This change in revenue mix, according to Sterlite Technologies, led to about 300-basis-point drop in margin over last year. Its margin fell another 150 basis points because of lower fibre cable prices.

The company’s revenue doubled year-on-year to Rs 1,791 crore during the January to March period on increased contribution from network designing business and long-term optic fibre supply contracts. The eighth consecutive quarter of record profits suggests a relatively manageable operating environment. The net profit rose 47 percent year-on-year to Rs 165 crore.

The company lowered its guidance at a time its shares have been declining due to concerns over promoter’s pledged shares, lower fibre prices and falling margin. The stock, according to Bloomberg data, has tumbled as much as 35 percent in the last six months. It, however, closed nearly 3 percent higher ahead of the earnings announcement today.

The lower fibre prices in China had some ripple effect on global rates against the market’s expectation of a major disruption, the management said in the conference call. A mix of higher volumes, value-added products and realisations would assure a strong profit growth for the company, it said.

Also, the outstanding loan amount taken by Anil Agarwal’s Volcan Group—promoter of Sterlite Technologies—is $900 million, which will be paid over the next three years, the management said while replying to a query on pledged shares.

The security cover for these pledged shares will be tested on quarterly and is not subject to daily margin requirement. The last quarterly testing occurred in February 2019 and the security cover was sufficient.

It’s highly unlikely that the promoter’s shares will come under any open selling in the market, the management said.

Watch the interview here