Sterlite Technologies Limited Investor Presentation

Sterlite Technologies Limited Investor Presentation

Disclaimer Certain words and statements in this communication concerning Sterlite Technologies Limited ( the Company ) and its prospects, and other statements relating to the Company s expected financial position, business strategy, the future development of the Company s operations and the general economy in India & global markets, are forward looking statements. Such statements involve known and unknown risks, uncertainties and other factors, which may cause actual results, performance or achievements of the Company, or industry results, to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company s present and future business strategies and the environment in which the Company will operate in the future. The important factors that could cause actual results, performance or achievements to differ materially from such forward-looking statements include, among others, changes in government policies or regulations of India and, in particular, changes relating to the administration of the Company s industry, and changes in general economic, business and credit conditions in India. The information contained in this presentation is only current as of its date and has not been independently verified. No express or implied representation or warranty is made as to, and no reliance should be placed on, the accuracy, fairness or completeness of the information presented or contained in this presentation. None of the Company or any of its affiliates, advisers or representatives accepts any liability whatsoever for any loss howsoever arising from any information presented or contained in this presentation. Please note that the past performance of the Company is not, and should not be considered as, indicative of future results. Furthermore, no person is authorized to give any information or make any representation which is not contained in, or is inconsistent with, this presentation. Any such extraneous or inconsistent information or representation, if given or made, should not be relied upon as having been authorized by or on behalf of the Company. The Company may alter, modify or otherwise change in any manner the contents of this presentation, without obligation to notify any person of such revision or changes. Persons should consult their own financial or tax adviser if in doubt about the treatment of the transaction for themselves These materials are confidential, are being given solely for your information and for your use, and may not be copied, reproduced or redistributed to any other person in any manner. The distribution of this presentation in certain jurisdictions may be restricted by law. Accordingly, any persons in possession of this presentation should inform themselves about and observe any such restrictions This presentation was last updated in May2016. USD to INR conversion = Rs 66 through-out the presentation. 2

CONTENTS Overview of Sterlite Tech 4 Opportunity Landscape 13 Financials 19 Strategic Direction 23 Key Takeaways 30 Appendix 31 22 3

Sterlite Tech Overview 4

STERLITE TECH: LEADING PROVIDER OF TELECOM PRODUCTS & SOLUTIONS Rs 2,161 Cr FY16 consolidated net revenues and Rs 465 Cr of consolidated EBITDA 25% of FY16 consolidated net revenues comes from international markets 6 of the global top 10 telecom operators use Sterlite s innovative solutions 3 manufacturing locations India, China and Brazil with 2500+ full time employees 50 patents in the telecom business across USA, EU, India and China and 73 more under global approval 5

End to End Integrated solutions WHAT STERLITE TECH OFFERS Specialty Fibre Products Bend Insensitive Optical Fibre Intrusion Proof Cables Customized Cables For Varied Applications Raw materials Preform Optic fiber OF cable Full control over the entire value chain driven by capacities and capabilities Strong patent portfolio of 50 granted patents & 73 filled NETWORK & SYSTEM INTEG TELECOM SOFTWARE End-to-end project management Specialized team with FTTH experience Network engineering, Roll out, Integration and O&M OSS / BSS software solutions Telecom Software : Managed Services 6

products Network & System Integration Telecom Software STERLITE TECH: BUSINESS VERTICALS Optical fibers & preform Fiber optic cables Structured data cables Pre-integrated Fiber to the Home/ Antenna (FTTx)Solutions Kits Passive connectivity solutions End-to-end project management Specialized team with FTTH experience Network engineering, Roll out, Integration and O&M Telecom Operations Support System Products (OSS) Telecom Billing Support System Products (BSS) Telecom Software: Managed Services 7

PRODUCTS BUSINESS Center of Excellence - Dedicated to Nation System & Network Lab Raw materials Preform Optic fiber OF cable Silica & Power Certain natural gases Integrated Core rod + cladding 22m fkm Capacity Portfolio catering to diverse end use Glass and reliability Lab High end technology, fully integrated, global scale operations for manufacturing optical fibers Strong patent portfolio 50 granted patents across the globe and break through products Optical characteristics Lab 8

NETWORK & SYSTEM INTEGRATION BUSINESS Services Design Build Integrate Manage Opportunities Network Layer 3 ICT Application Digital India System integration Smart Cities 2 Active network Fiber Infra network Network integration 1 Passive network Access Solution Sterlite offers end to end integrated services in addition to its product portfolio across the various network layers and presents a multi billion multi year opportunity as India s broad band infrastructure is built 9

TELECOM SOFTWARE BUSINESS Fastest growing IRCM companies in Gartner MQ IRCM 2014 Fastest growing IRCM companies in Gartner MQ IRCM 2014 Global Top 16 BSS vendors Elitecore Wins 2015 Deloitte Fast 50 Award Core competencies Monetization of Next Generation Networks Real Time Analytics Real Time Customer Experience management Sterlite to be able to offer complete suite of products and solutions for telecom service providers and become a partner of choice - fiber and cable portfolio, network creation and OSS / BSS products 10

STRONG GLOBAL FOOTPRINT Manufacturing Locations Optical Fiber Aurangabad(India) and Haimen, Jiangsu Province (China) Optical Fiber Cable Silvassa (India) and Curitiba (Brazil) Structured data cables Silvassa (India) Joint Ventures China - 75:25 with Tongguang for drawing optic fiber Brazil 50:50 JV with Conduspar for fiber cabling Sales Offices China, India, Netherlands, Russia, South Africa, Turkey, UAE, UK Services and Solutions NFS Project execution in J&K Smart City Projects in Jaipur & Gandhi Nagar Sales Manufacturing Market presence 11

STERLITE TECH: REVENUE PROFILE Export 25% Revenue Profile CIS 0% Asia 15% Africa 4% Export by Region Others 1% Europe 30% Middle East 9% India 75% China 35% Latin America 6% Exports 25% of total sales China the major contributor to exports 12

Opportunity Landscape 13

OUR PRODUCT BUSINESS:GLOBAL OPPORTUNITY LANDSCAPE 1,200 1,000 800 600 400 200 0 Global Data Traffic (In Extabyte) 2013 2015 2020e +205% 140 95 118 75 30 15 26 24 12 25 20 20 33 42 17 23 3 7 9 22 3 29 32 35 2005 Optical Fiber Cable (OFC Consumption- Mn fkm) 2006 2007 2008 44 311 38 +17% 40 263 246 34 39 218 37 189 32 173 38 29 29 203 27 30 25 156 20 132 121 80 87 99 15 16 6 9 9 7 4 41 48 53 57 61 63 37 2009 2010 2011 2012 2013 2014 364 2015 1 Extabyte is equal to 1,000 Gigabytes Includes both fixed and mobile traffic North America Europe China India Others Global Demand for Optical fiber remains strong and continues to show annual growth India remains highly under fiberized compared to other geographies 14

INDIA BROADBAND SPACE Population (Mn) vs Cumulative Fiber Deployed (Mn Fkm) 1,381 1,320 83% % users above >4 Mbps 1,060 41% 323 417 17% 99 US India China US India China Population Cummulative Fiber Deployed Total Cumulative Fiber Deployed to Population Ratio in US is 1.3x, China is 0.8x while India is just 0.1x India just has 17% of users which enjoys 4 mbps and above speed India highly under-invested in Digital Infrastructure Unique Opportunity to capitalize on Digital India & Telco s Investment 15

OUR e2e SYSTEM INTEGRATION:INDIA OPPORTUNITY LANDSCAPE Private Telco s Opportunities Government Opportunities Next 5 Years Opportunities $19 Bn $3.5 Bn Mobile access Small-cells (2G/3G/4G) and WiFi Residential Enterprise $18.5 Bn Fixed access & backhaul and network build $3 Bn Mobile Core $12 Bn $4 Bn BharatNet Smart cities Unprecedented capital investments planned over the next 5 years by Telcos and Government and Sterlite Tech will continue to be integral partner for initiatives such as Digital India, Make in India and Smart Cities 16

Layer Presence OUR TELECOM SOFTWARE BUSINESS:GLOBAL OPPORTUNITY LANDSCAPE Sterlite Tech addressable : Current Global OSS-BSS Market (In USD Mn) 12,296 BSS & Business Appz 1 Pure play BSS/OSS players Landscape in Telecom OSS/BSS Space Specialized BSS/OSS players System Integrators (SIs) Typically build on their strong integration skills 3 8,177 OSS & Middleware 2 Middleware (MW) Selectively partner for solutions and don't offer integration services FY15 (Current Market) FY 18 (New Geo s) Network & Control Leverage their network and control core capabilities to offer solutions with own and partner products 4 Telecom Equipment Manufacturers (TEMs) Own product business Partnering for solutions Integration Way to Play Increased network complexity, due to heterogeneity of technology and vendors Increased competition, demanding agility of BSS/OSS systems to deploy new offers and monitor success in real-time 17

OUR MARKET STRATEGY OSS BSS Glass Fiber Cable Products Sustained Cash flows Profitable Growth Global Telco Focus Network Integration Solutions & Services Grow Capabilities System Integration Execution Excellence India Telco s/ Govt. Focus Telecom Software Build/Acquire Capabilities E2E Software & Services Global Telco Focus End to End Integrated Telecom Play 18

Financials Notes: On May 24th, 2016, Sterlite Tech had announced demerger effective from appointed date of 1st April, 2015. Post demerger, FY 16 performance is representative of only Telecom business. The FY 15 reported numbers would not be comparable to FY 16 reported financial numbers. The following information is prepared for the like to like comparison of telecom consolidated financials. 19 19

5 YEAR JOUNEY - TELECOM BUSINESS : CONSOLIDATED P&L METRICS Values in INR Cr. 799 1,096 +28% 1,148 1,619 2,161 137 151 +36% 181 345 465 FY 12 FY 13 FY 14 FY 15 FY 16 FY 12 FY 13 FY 14 FY 15 FY 16 Revenue EBITDA 88 90 +40% 94 249 334 8% 7% 8% 18% 18% FY 12 FY 13 FY 14 FY 15 FY 16 FY 12 FY 13 FY 14 FY 15 FY 16 EBIT ROCE Continued growth in Revenue, last 4 Year CAGR growth at 28% Stronger growth in EBITDA, last 4 Year CAGR growth at 36% Expanding ROCE with expanding margin for the business 20

5 YEAR JOUNEY - TELECOM BUSINESS : VOLUME ANALYSIS Values in Mn fkm +15% 17.7 20.1 +15% 7.7 6.5 11.7 12.5 13.8 3.7 4.6 5.2 FY 12 FY 13 FY 14 FY 15 FY 16 FY 12 FY 13 FY 14 FY 15 FY 16 OF Volume (Mn Fkm) OFC Volume (Mn Fkm) Volume of OF continues to growth @ of 15% CAGR levels Cabling volume also continues to growth @ of 15% CAGR levels OFC Volume decline on YoY basis due to shift in the product mix and solutions positioning 21

ANNUAL FINANCIAL PERFORMANCE CONSOLIDATED TELECOM BUSINESS Values in INR Cr. P&L FY 15 (Adj. proforma) FY16 ( Audited) Balance sheet FY 15 ( Adj. proforma) FY16 (Audited) Revenue 1,619 2,161 EBIDTA 345 465 EBITDA % 21% 22% Depreciation 96 131 EBIT 249 334 EBIT % 15% 15% Interest 75 113 PBT 173 221 Tax 55 64 PAT (After minority Interest) 119 151 EPS (Diluted) in Rs. 2.99 3.75 Net Worth 577 699 Minority Interest 23 31 Net Debt 674 1,008 Total 1,274 1,738 Fixed Assets 984 1,318 Net Working Capital 290 420 Total 1,274 1,738 Return on Equity (Post Tax) na 22% 22

Strategic Direction 23 23

STRATEGIC DIRECTION E) Consistent Returns to the Shareholders A) Market focused approach to drive sustained profitable growth Strategic Direction D) Defined principles for Inorganic Growth B) Focus on Research & Technology C) Expanding ROCE for the business 24

A) MARKET FOCUSED APPROACH Offer pre-connected intelligent products and services to Telco s Building Fiber networks as brain and heart of CSP New Fiber & Cables Products Smart Networks Increase capacities through minimal Capex & Debottlenecking initiatives Enabling Government to rollout citizen centric services by offering end to end System Integration service Unique Offerings Fiber network as a Core to CSP 25

B) FOCUS ON RESEARCH & TECHNOLOGY Center of Excellence, Aurangabad Strong Patent Portfolio Customer Experience Center, Gurgaon Sterlite Academy Strong focus on the Glass Research Strong Patent portfolio of 123 patents :50 granted and 73 under evaluation Building advance technologies : 5G, Pre-connected Solutions, IBS/DAS :Customer Experience Center at Gurgaon Sterlite Academy : Sterlite Certified Fiber Installers : Skilled FTTH workforce required for sophisticated Fiber to the Home Technology rollout 26

C) TARGETTED EXPANSION OF ROCE Increase proportion of Higher value products from 10% currently to 20% in 2018 on growing revenue base 18% Cost leadership in manufacturing through increasing manufacturing yields through analytics Strong in-house design and engineering capabilities for creating high performance, long life networks for customers, thereby reducing TCO: 7% Working with leading international firms to bring world class practices and technologies for fiber network creation Increased proportion of cabling mix in business. ~ OFC Capacity ramped up to 15 Mn FY13 FY16 Only de-bottlenecking capex with increased asset sweating ROCE 27

D) INORGANIC GROWTH : DEFINED PRINCIPLES Product & Solutions (core) System Integration (targeted) Telco Software (new) Target Strategic Fit Innovative product or technology Technology innovation: IoT, Education, Healthcare, NFV, & SDN OSS/BSS innovative portfolio Business ROCE 20%-30% EPS Accretive to STL < 36 Months Enhancing core competency & market access ( Design, Engineering, R&D, Global Customer Access) Buying decision driven by capability augmentation and & not adding scale/capacity Tuck in acquisitions to elevate competitiveness of offerings 28

E) CONSISTENT RETURNS TO THE SHAREHOLDERS Consistent Dividend payment history Increasing ratio of profit sharing Dividend Payout History 34% 31% 31% 29% 28% Stated Dividend Policy going forward Board will endeavor to maintain a Dividend pay-out around ~ 30% of profits after tax (PAT) on Consolidated financials basis FY 12 FY 13 FY 14 FY 15 FY 16 29

KEY TAKEAWAYS Sterlite Tech is well placed to strengthen its leadership positon for connectivity enhancing products and solutions High ROCE & ROE business profile Focused on Customers & Stakeholders value creation Demerged company allows simplicity in business and focused Telecom play Implementing Customer centric alignments to transform go-to-market approach New organization effective from April 1, 2015 and the record date for the Demerger tentatively expected to be in Mid-June, subject to regulatory approval 30

Appendix 31

QUARTERLY FINANCIAL PERFORMANCE CONSOLIDATED TELECOM BUSINESS Values in INR Cr. 510 462 +19% 518 572 +6% 608 117 102 +14% 114 115 +16% 134 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Revenue EBITDA +3% +24% Revenue increased by 6% over last quarter 93 76 86 77 95 EBITDA grows by 16% over last quarter EBIT grows by 24% over last quarter Q4FY 15 Q1FY 16 Q2FY 16 EBIT Q3FY 16 Q4FY 16 Increasing utilization is helping to drive up the EBITDA margin in the products business, trend in blended margin driven by increasing proportion of Software and Services in revenue mix Telecom order book stands at Rs 2,200 crore 32

QUARTERLY VOLUME ANALYSIS FOR THE TELECOM BUSINESS Values in Mn fkm 4.8 4.5 +14% 4.7 5.4 +2% 5.5 2.3 1.9-37% 1.9 1.2 +23% 1.5 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 OF Volume(MnFkm) OFC (Mn Fkm) Demand for fiber continues to be strong both in India and internationally as observed in sustained volumes increase of optical fiber. Quarterly volumes for OF have consistently crossed the 5 million mark The OFC volumes and cabling mix number has fallen due to one off lower levels of cable off-take 33

DEMERGER CONCLUDES: STERLITE TECH NOW A PURE PLAY TELECOM FOCUSED COMPANY New Company structure to accelerate execution and enable demonstration of superior performance Leaner structure to allow for simplicity and focus while enabling greater agility Implementing Customer centric alignments to transform go-to-market approach New organization effective from April 1, 2015 Record date to be announced soon Pre- Demerger Sterlite Technologies Ltd. Telecom Power Post -Demerger Sterlite Technologies Ltd. (Pure Play: Telecom Company) Sterlite Power Transmission Ltd. 34

STERLITE TECH: PRE Vs POST DEMERGER-KEY FINANCIAL METRIC Values in INR Cr. Revenue EBITDA PAT 3,097-30% 512 465-9% 151 2,161 Consol. FY15 Consol. FY16 Consol. FY15 Consol. FY16-3 Consol. FY15 Consol. FY16 Sterlite Tech is a pure play Telecom focused company post Demerger PAT surges to Rs 151 Cr. Vs losses at Consolidated level last year 35

STERLITE TECH: PRE Vs POST DEMERGER-BALANCE SHEET METRIC Values in INR Cr. Net Debt Interest Cost Net Debt to Equity 4,882 327 4.5x -79% -65% -69% 113 1.4x 1,008 Consol. FY15 Consol. FY16 Consol. FY15 Consol. FY16 Consol. FY15 Consol. FY16 Significant deleveraging of the balance sheet, considerable reduction in Net Debt Interest burden reduces by almost 1/3 rd from Rs 327 Cr to 113 Cr Leverage ratio improves substantially 36

STERLITE TECH: PRE Vs POST DEMERGER- RETURN PROFILE METRIC Values in INR Cr. Capital Employed ROCE (Pre-Tax) ROE (Post-Tax) 6,835 18% 22% 1,819 5% Consol. FY15 Consol. FY16 Consol. FY15 Consol. FY16 0% Consol. FY15 Consol. FY16 Capital Employed post demerger pertains to Telecom business only Significantly improved ROCE & ROE post restructuring 37

OPTIONS FOR SHAREHOLDERS AS A PART OF THE DEMERGER 5 share in Sterlite Technologies Limited Sterlite Technologies Limited Telecom (Listed) 5 share Option A SPTL (Unlisted equity) 5 equity share (Value fixed at Rs 112.3 per share) Scheme offers multiple options to cater to investor s preference Option A : Continue to hold equity shares and partner in the value creation of the power sector In case shareholder is unable to hold shares due to conflict with their investment mandate then will be issued Redeemable Preference Shares (RPS) Option B : Provides a liquidity event at the end of 18 months Option C : Provides an initial liquidity window for 30 days or Option B or Option C SPTL Listed RPS 5 Redeemable Preference shares to be redeemed at the end of 18 months (includes 8% dividend p.a -Rs 123.5) SPTL Listed RPS 5 Redeemable Preference shares to be redeemed within 30 days of the allotment date Note : * Representative for resident shareholders options for other shareholders and Promoters may be different and is covered in the scheme document. 38

POST RESTRUCTURING COMPANY STRUCTURE Pre-Demerger Post Demerger Telecom division Sponsors 54.8% Sterlite Technologies Limited Power Products division Public shareholders 45.2% Standard Chartered PE Grid Projects subsidiary 27.1% fully diluted Sponsors 54.8% Sterlite Technologies Limited Telecom Business Public shareholders 45.2% Sponsors Sterlite Power Transmission Ltd. (SPTL) Power Products Business Public shareholders Standard Chartered PE 27.1% fully diluted Grid Projects subsidiary 100% Sterlite Power Transmission Ltd Demerger of power products division and transmission grid business undertaking 39

Thank You