Sterlite Technologies’ (STL) Q1FY09 results have been disappointing. Though the company’s revenues surpassed our estimates, forex losses pulled EBITDA and net profit much below our expectations.
The company’s vulnerability to such forex losses cannot be ruled out in future either. Despite the disappointing Q1 results, the management has maintained its full-year guidance for revenue and PAT growth at 35–45% and 55–60% respectively.
With order flow from PSUs like Power Grid and BSNL typically picking up from the second quarter and robust exports growth (38% of Q1 revenues), we believe the company will be able to meet its full-year guidance.
Its current order book stands at Rs10.5 billion, consisting of Rs8.8 billion from the power conductor segment and Rs1.7 billion from telecom. The management has indicated that the expansion of its conductor and optic fibre capacities is on track and would be completed as per schedule, which will drive volume growth.
We are revising our earnings estimates downwards for FY09 and FY10 to factor in the vulnerability to forex losses. This together with changes to our risk free rate and cost of capital assumptions has resulted in a decline in our DCF-based target price to Rs291 from Rs322.