Sterlite Technologies Limited Investor Presentation - December 2016 1
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 2
Contents Overview of Sterlite Tech 4 Product Business 9 System & Network Integration Business 15 Telecom Software Business 19 Financials 22 Strategic Directions 27 Appendix 35 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 55 patents in the telecom business across USA, EU, India and China and 70 more under global approval 5
products SI & NI Telecom Software Sterlite Tech: Focused on Data Networks International markets Telco s Defense/ Other Utilities Smart Cities Rural Broadband Attractive Opportunities Exponential growth in Data 4 G Backhaul Integrated Infra to Solutions for Applications Network upgrade End to end rollout Focused Strategy Sterlite Tech : Design, Build & Manage Smart Data Networks End to End offerings Fully Integrated Product Offerings: OF/OFC/CC End to End: Network and System Integration Offerings Operations and Billing Support Systems (OSS/BSS) 6
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 SYSTEM INTEGRATION SOFTWARE & SERVICES Design, Build & Manage Data Networks Specialized team with FTTH experience Network engineering, Roll out and O&M OSS / BSS software solutions Managed Services 7
Our Market Strategy OSS BSS Glass Fiber Cable Products Sustained Cash flows Profitable Growth Global Telco Focus Network Integration Solutions & Services System Integration Grow Capabilities Execution Excellence India Telco s/ Govt. Focus Telecom Software Build/Acquire Capabilities E2E Software & Services Global Telco Focus End to End Integrated Telecom Play 8
Product Business 9
Global Opportunity Landscape 1,200 1,000 800 600 400 200 0 Global Data Traffic (In Extabytes) 2013 2015 2020e 1 Extabyte is equal to 1,000 Gigabytes Includes both fixed and mobile traffic +205% Optical Fiber Cable (OFC Consumption- Mn fkm) 75 18 12 17 24 2005 96 23 15 23 3 32 2006 119 24 20 139 26 24 33 42 3 7 9 35 38 2007 2008 United States 173 24 20 80 87 40 2009 9 188 24 25 45 2010 Europe 7 218 32 30 99 53 2011 246 32 29 121 4 6 58 China 2012 418 382 40 38 43 314 40 263 33 28 40 32 216 241 132 156 9 15 16 18 63 69 72 76 2013 2014 2015 2016* India Others Global Demand for Optical fiber remains strong and continues to show annual growth India remains highly under fiberized compared to other geographies Note: * CY2016 numbers are annualized based on actual H1 CY2016 10
India Broadband Space Population (Mn) vs Cumulative Fiber Deployed (Mn Fkm) 1,333 1,385 1,256 Population Cumulative Fibre Deployed Broadband Users (Mn) 1,116 613 Wireless:- 4G Wireless:- 3G Wireline:- DSL+FTTx+Others 325 US 449 India 113 China 167 48 101 17 India 225 278 China Total Cumulative Fiber Deployed to Population Ratio in US is 1.4x, China is 0.9x while India is just 0.1x India just has 13% broadband density, compared to China which has 81% broadband density India highly under-invested in Digital Infrastructure Unique Opportunity to capitalize on Digital India & Telco s Investment Source: TRAI & CRU 11
Products Business Overview 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 25m fkm Capacity Expanding capacity to 30m fkm 15m fkm Capacity Portfolio catering to diverse end use Glass and reliability Lab High end technology, fully integrated, global scale operations for manufacturing optical fibers Optical characteristics Lab Strong patent portfolio 55 granted patents across the globe and break through products 12
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 Brazil, China, France, Germany, India, Italy, Ivory Coast, Mexico, Malaysia, South Korea, Turkey, UAE,UK, Vietnam, South Africa 13
5 Year Journey - 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 14
System & Network Integration Business 15
System Integration Market Opportunities 32,000 22,520 9,500 5,625 Defence + PSU s Smart Cities Bharat Net Telco -NI Cummulative Market Opportunities (INR Cr) -FY17 to FY19e Around $11bn addressable opportunities are envisaged for the creation of Broadband, Smart cities & defense networks Source: Company estimates 16
Network & System Integration Business Overview 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 which presents a multi billion multi year opportunity as India s broad band infrastructure is built 17
System Integration Opportunities >5,000 >16,000 SI Projects >10,000 >1,000 Under Execution Bid-Participated- Result Awaited Pipeline Total India market envisaged to provide continued large SI opportunities of similar size in next 3-4 years Values in INR Cr. 18
Telecom Software Business 19
Layer Presence Telecom Software : Global Opportunity Landscape Sterlite Tech addressable : Current Global OSS-BSS Market $12.3 Bn 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 $8.2 Bn 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 Increased network complexity, due to heterogeneity of technology and vendors 4 Telecom Equipment Manufacturers (TEMs) Own product business Partnering for solutions Integration Way to Play Increased competition, demanding agility of BSS/OSS systems to deploy new offers and monitor success in real-time Source: Company estimates 20
Telecom Software Business : Acquired from Carlyle in 2015 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 21
Financials Notes: On May 24th, 2016, Sterlite Tech had announced a demerger effective from the 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. 22
5 year journey - Telecom Business : Consolidated P&L 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 88 90 Revenue +40% 94 249 334 8% 7% 8% EBITDA 18% 18% FY 12 FY 13 FY 14 EBIT FY 15 FY 16 FY 12 FY 13 FY 14 ROCE FY 15 FY 16 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 IGAAP numbers & Values in INR Cr. 23
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% 24
International Revenue Profile America 1% Africa 1% America Africa Asia 1% 1% 3% Asia 3% 8% China Middle East 3% 19% China Middle East 2% Europe 10% 7% Europe FY16 Revenues from International Market : ~ 537 Cr (24%) of Total Revenues -2,274 Cr H1 FY17 Revenues from International Market : ~412 Cr (36%) of Total Revenues -1,154 Cr Revenues are Gross Revenues (including taxes) and may not match accounting standards reported number 25
Order Book Profile +11% 2324 3% Numbers are in Ind-As Values in INR Cr. 2099 445 700 30% 1589 1563 67% 65 61 Q1FY17 Q2FY17 Q2FY17 Product Services Software Product Services Software Order book growth increased by 11% on QoQ basis, driven by strong products & services business demand 26
Strategic Direction 27
Strategic Direction E) Consistent Returns to the Shareholders: 30% of PAT as dividend D) Defined principles for Inorganic Growth: Capability addition Strategic Direction A) Market focused approach to drive sustained profitable growth: End to end solutions & services B) Focus on Research & Development: Increasing patent portfolio C) Expanding ROCE for the business~20% 28
A) Market Focused Approach New Fiber & Cables Products Unique Offerings Smart Networks Fiber network as a Core to CSP Offer pre-connected intelligent products and services to Telco s Building Fiber networks as brain and heart of CSP Increase capacities through minimal Capex & Debottlenecking initiatives Enabling Government to rollout citizen centric services by offering end to end System Integration service 29
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 125 patents :55 granted and 70 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 30
C) Targeted Expansion Of RoCE Increase proportion of Higher value products from 10% currently to 20% in 2018 on growing revenue base Cost leadership in manufacturing through increasing manufacturing yields through analytics 19% Strong in-house design and engineering capabilities for creating high performance, long life networks for customers, thereby reducing TCO: o 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 7% FY13 FY16 Brownfield & Debottlenecking capex with a focus on increased asset sweating ROCE 31
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 32
E) Consistent Returns to Shareholders Consistent Dividend payment history Increasing ratio of profit sharing Stated Dividend Policy going forward Dividend Payout History 34% 31% 31% 29% 28% o Board will endeavor to maintain a Dividend pay-out of around ~ 30% of profits after tax (PAT) on Consolidated financials basis FY 12 FY 13 FY 14 FY 15 FY 16 33
Key Takeaways Sterlite Tech is well placed to strengthen its leadership positon for connectivity enhancing products and solutions Pure play Telecom focused company High ROCE & ROE business profile Focused on Customers & Stakeholders value creation Implementing Customer centric alignments to transform goto-market approach 34
Appendix 35
Quarterly Financial Performance -4% -5% 571 595 614 603 551 115 116 140 122 109 Q2 FY16 Q3 FY16 Q4 FY16 Q1 FY17 Q2 FY17 Q2 FY16 Q3 FY16 Q4 FY16 Q1 FY17 Q2 FY17 Revenue (INR Cr.) EBITDA (INR Cr.) 37 28 +39% 61 38 51 Company registered sales of Rs 551 Cr De-Growth in absolute EBITDA due to low cable uptake, delay in NFS execution and investments in system integration business Outlook on H2 remains strong for all the businesses based on order book & strategic execution plan for services business Q2 FY16 Q3 FY16 Q4 FY16 PAT (INR Cr.) Q1 FY17 Q2 FY17 PAT increased due to onetime tax benefits on account of merger of passive infrastructure business of Speedon Network Limited ( SNL-100% Subsidiary of Sterlite Tech ) Numbers are in Ind-As 36
Quarterly Volume Performance 4.7 5.4 +30% 5.5 5.5 6.1 2.0 1.3-42% 1.5 1.5 1.2 Q2 FY16 Q3 FY16 Q4 FY16 Q1 FY17 Q2 FY17 Q2 FY16 Q3 FY16 Q4 FY16 Q1 FY17 Q2 FY17 OF Volume OFC Quarterly volumes for OF have crossed the 6 million mark for Q2 FY17 - annualized rate of 24 Mn fkm OF sales volume growth up by 30% on YoY basis for the quarter OF capacity upgraded to 25 Mn FKM and 30 Mn fkm capacity in accelerated expansion mode OFC volume decline due to continued weakness in cable installations in the country, likely to pickup in coming quarters based on the order book trend Values are in Mn fkm 37
Consolidated P&L and Balance Sheet Numbers are in Ind-As P&L (INR Cr.) Q2 FY17 Balance sheet (INR Cr.) Q2/H1 FY17 Revenue 551 EBIDTA 109 EBITDA % 20% Depreciation 38 EBIT 72 EBIT % 13% Interest 37 PBT 35 Tax (21) PAT (After minority Interest) 51 Net Worth 832 Net Debt 1,024 Total 1,857 Fixed Assets 1,109 Net Working Capital 628 Goodwill 120 Total 1,857 Revenues are at gross level, based on regulatory guidelines. Margin profile has change due to gross revenues factor 38
Thank You 39