Sterlite has a Capex of Rs 400 crore for FY22: Mihir Modi, CFO

Mihir Modi, Chief Financial Officer (CFO), Sterlite Technologies Ltd. talks about the Q4FY21 numbers, margins, current order book and pipeline for FY22, CapEx and global optical fibre cable demand among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts: 

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Q: We saw a good jump of over 27% in the revenue. What were the key technology drivers and would be the drivers in FY22 from a revenue growth perspective?

A: Definitely, we have posted good results in the March quarter and have clocked revenue of Rs 1,475 crore, which is not just 27% growth from the fourth quarter of the last year but sequentially it increased by 12% from the third quarter of the same financial year. So, results are satisfactory because the way we see the business, growth momentum has been created in the industry and we are completely ready to serve to that momentum. As you asked what are going to the growth levers for the next year, then we are seeing that the market demand is going in the right direction. A fast-paced 5G implemented is going on across the world and around 145-146 operators have started operating 5G commercially and in this, we support them at the backend and frontend. So, we are seeing three-four things that will help us to grow in this momentum that is building in the industry. (i) We have been increasing our fibre cable manufacturing capacity from the last few quarters. This increase in capacity will allow us to manufacture more and sell more. Demand is quite strong and we also have a very strong open order book and we have to serve them. (ii) we have purchased an optical interconnect business in January this year and we have acquired certain capabilities from it, optical interconnect capabilities, which is used in the entire network with the cables. With this, the market to which we serve – termed as the addressable market – has increased by two-and-a-half to three times. The global market size of cables stood at around $7 billion and with this addition, the size of the addressable market has gone up by $10-12 billion. As we have acquired this capability, therefore, this segment of the business will also provide growth to us. (iii) Our services business - in which we have done several complicated projects in India, like citizen network projects, defence projects, private telcos projects – is being expanded to Europe, now. So, it will also drive growth. And, the technological journey of 5G and O-Ran has started, and I was talking about it earlier and for that, we have Access Solutions, where we were investing for the last few years and developing new products after an R&D. So, we will also take it ahead in FY22, via going to market we will translate it as business growth. 

Q: Margins remained slightly under pressure. What were the reasons for that and what is your target margin by the end of FY22?

A: At the company level, we have been saying that the margin will be in the 18% plus/minus range and we have delivered a margin of 18.50% in this quarter as well. Going forward, we are expecting the margin to be in the same range. We look at the market in such a way that a reasonable margin has to be delivered and we also have to invest in growth. So, in this quarter our R&D investments have reached up to 3% of the revenues and it is being done cautiously because we have to deliver margin today and have to spend for the future. According to the same balance, we expect that the margin will stay in the same range. 

Q: You said that the current order book is healthy. What is it if you can quantify it for FY22 and what is the order book visibility in the next three-four years?

A: If we have to talk about the current numbers specifically, our open funnel, the participation funnel, whose results have not been declared, then we started with Rs 7,000 crore in FY21 and it has reached Rs 11,500 crore by now, whose decisions are yet to be announced. But as of March 2021, we had open orders worth Rs 10,700 crore and we have to execute them. Of these Rs, 10,700 crore orders worth around Rs 5,500 is executable in FY22, itself. In addition to the open orders that are available with us, we also have the capabilities of taking new orders and executing them at the same time. But orders worth Rs 10,700 crore is lying with us of which Rs 5,500 crore will be executed this year and the remaining orders of around Rs 5,500 will be executed in FY23 and after that. At the same time, I would like to say that the direction of demand is quite strong, that is why going forward there will be no constraints in the order book. For instance, as I have talked about the 5G in which around 150 operators across the world have started 5G commercial services and similarly, we will see that 5G will be rolled out in India as well in the next one to one-and-a-half years. If we will talk about the FTTH market, then two of our telcos have announced, Reliance has said that it will do 75 million (7.50 crore) home passes in the next 2-3 years and Airtel has also announced that they will connect 1000 cities with FTTH, which is 40 million homes. So, in the long term, I think a wave of 10 years is going on, where the entire telecom infrastructure and connectivity should be taken to the next level by connecting more people with better technologies. So, we are ready to participate in this journey of the next 10 years. 

Q: for FY22, what is the quantum of investments we are looking at in 5 G Wireless, ORAN, and Optical solutions?

A:  The decisions of investments are taken in such a way in which we keep a big direction in mind. But when it comes to specific numbers, then in CapEx we will invest around Rs 400 crore in FY22. After that, we will not require an investment CapEx but yes, we will continue to do R&D and investment will come through P&L, due to which it will not look like an investment and will continue through the P&L year-on-year and will be visible in the profit. But the focus is on creating new products and doing R&D. And, the technological curve that is going up and things are improving, in which convergence of wired and wireless is going on and we will bring new products and participate in it. For instance, we have a product Garuda WiFi indoor cell, and we are focusing on such products and launching them so that we can support this wave efficiently. 

Q: Earlier you have informed me that some acquisitions have been made, which is helping the company to grow. Let us know about the company’s acquisition strategy and is there any area where you feel that you will enter if there is a good opportunity to grow, if yes, what is it and what is the ticket size of this acquisition?

A: The kind of acquisitions that we have done in the past was not done just to buy the shares but was done to acquire the capabilities. For instance, the Optotec, which is an optical interconnect capability, and to acquire it, we took the help of the M&A. So, in this way, as soon as we feel that there are opportunities where we have to augment our capabilities, increase it and fill the gap, then we will move to that area and are open and will make the M&A as soon as opportunities are available, maybe it is a specific capability, specific market entry, then we are open to see that path. As far as size is concerned, it is difficult to say because it depends on what is available in the market, how it is available and what is our interest now. But, if you will take the reference of the last two to three acquisitions that have been done earlier then that would be a decent reference for now as it has been a past spot for us, at least for reference purpose. 

Q: The government is quite bullish on the PLI scheme and a lot of things have been announced. What kind of investments we will see from your company and what are your preparations in that direction?

A: It is quite encouraging to see these kinds of schemes from the government’s side to be Aatmanirbhar and to encourage production in India. We are focusing on it, some of our investments are yet to be made, whether it qualifies. At the same time, we have our Axis Solution Business, whether the investment qualifies in it. So, we will study it closely. We are quite focused on it to find ways to focus more on India and take benefits from the scheme. 

Q: Global optical fibre cable demand is showing impressive growth, especially in India there is almost 20% growth. What is your view on the market’s potential for the next two year? What is the importance of international play for you? 

 A: International play is very important for us. We are a global company and if you will have a look at our revenue breakup then you will get to know the balance. We earn significant revenue in Europe, the US and the Middle East. It is also available from India, itself. So, we are focused on India but we also have a very wide business in foreign countries, therefore, global growth matters for us. As far as the global growth is concerned, as you rightly said, fibre cable growth is quite encouraging but I would like to zoom out at the macro level. Last year, as per a report, two million internet users have added daily globally and that is a very big number and to support all these users, telecom networks around the world are focusing on expansion, investments and technology upgrades. And, the market where we are playing to support this is the $40 billion (I feel) market, which is an addressable market for us. So, there is no shortage of growth opportunities, the world is marching towards increased connectivity, better technology, a shift in technology. And, a lot of investments are going on the way to do these things, so there is no shortage of growth. We have to show our capabilities and I would like to cite an example of one such thing that is in place in the context of the fibre cable. Normally, a cable has between 6-12 fibres to 100-200 fibres in a cable. But, we have made a cable that has 6,912 fibres – around 7,000 fibres – in a cable. So, we have this kind of preparation at the product level through technological innovation. With this, we are completely ready to serve the $ 40 billion addressable markets that have been created.