Very few Indian technology companies have been able to match their global counterparts and cash in on the demand for transmission equipment from the telecom industry. But in a drastic shift from such trend, Pune-based Sterlite Technologies is not only growing big but is now aiming to break into the top 3 global players in the optical fiber domain. Dr. Anand Agrawal, CEO & Director, Sterlite Technologies shares more thoughts with TelecomTiger.
Q1) At a time when players would be apprehensive of initiating any major expansion plans due to ongoing meltdown, Sterlite has set its sight on the top 3 slot in terms of capacity for Optical Fiber & Cable. What was the belief behind this aggressive business move?
Ans: The telecommunication industry of India is one of the few to have weathered the recent economic slowdown and is undergoing a phase of rapid expansion and modernization, with the introduction of 3G and Next Generation Networks (NGN) imminent in the country. Besides, network operators and service providers are strongly focusing on roll-out out broadband services. Against this background, the telecom cables industry, which has seen appreciable growth over the past several years, is set for even stronger growth, going forward. In FY 2007-08, the industry grew by 50% over the previous fiscal.
In addition to India, high-growth markets like China and Russia are also rapidly gaining momentum, raising the expected fiber-to-the-home (FTTH) subscriber base to cross 100 million globally by the end of 2012. Sterlite Technologies is well positioned to capitalize on this opportunity. Being one of the most integrated fiber companies globally and the only company outside of US, Europe and Japan that makes its own glass, Sterlite Technologies has an inherent strength to constantly challenge theoretical limits in baseline manufacturing costs, giving the company a distinct advantage over competition.
Sterlite continues to be bullish on the optical fiber industry in Asia and globally. We would continue to leverage our global customer relationships and global presence, as well as the unique knowledge, expertise and infrastructural base created over the last 15 years in this business, to enhance our global market share in the growing optical fiber market.
Q2) Is the expansion a move mainly to cater to overseas market or domestic market was also taken into consideration?
Ans: Overseas markets are and will remain an important focus for Sterlite Technologies. Export sales constitute over 25% of our net revenues. We have achieved tremendous success in key high-demand markets such as China, Eastern Europe, South East Asia, Middle East and Africa establishing a loyal customer base.
Sterlite is the market leader in India and continues to remain bullish on maintaining the highest market share for all our core product segments. The optical fiber industry is expanding globally. We constantly look to strengthen our existing markets, with an eye open for potential new high growth markets. The expansion of our fiber manufacturing capacity is in keeping with both, the India and overseas markets in mind.
Q3) Your product line banks more on fixedline medium than the wireless. But we know that even for broadband, wireless is perceived to be the way forward. Your view point.
Ans: It’s quite to the contrary actually. Wireless technologies like 3G and WiMAX, which are expected also to make broadband ubiquitous are in fact, fueling fiber demand.
The networks for these technologies would require the installation of transmission towers. Each tower, on an average, requires 3-4 km of fiber optic cable. Assuming that each fiber optic cable has an average fiber count of 20-30 fibers, this means at for ‘x’ km of fiber optic cable, there is a requirement of over ‘20x’ km of optical fiber. Having said that, there continues to be higher proportion of broadband subscribers within the internet subscriber base since 2008.
Further, by virtue of offering greater bandwidth and the ability to transmit voice and data reliably, fiber optic technology has rapidly attracted both individual and corporate users within the Indian market. Large organizations have been willing to invest in installing their own fiber-optic infrastructure to support specific needs. All in all, the growth of the telecom sector as a whole is an extremely positive sign and a sure indicator for the Company’s fiber optic business growth.
Q4) Sterlite’s growth till 2007-08 was phenomenal. But the last fiscal saw a slowed down growth. Is this trend to follow suit this fiscal as well?
Ans: The Company has shown sustained growth performance, backed by resilient balance sheet, low gearing, zero long term debt and compelling EPS growth with strong outlook.
In FY 2008-09, net revenue increased to Rs. 2,289 Crores (US$ 498 Million), compared with Rs. 1,686 Crores (US$ 419 Million) in FY 2007-08. Sterlite’s EBITDA was Rs. 238 Crores (US$ 50 Million), compared to an EBITDA of Rs. 201 Crores (US$ 51 Million) in the last fiscal. This translates into a CAGR of 63% in net revenues from FY05 to FY09 and 50% CAGR in EBIDTA for the same period.
The last fiscal was truly exciting, and proved to validate on Sterlite’s key strategies of enhancement its global market share in emerging markets, leadership in India and focus on the lowest cost operations globally.
Sterlite has achieved tremendous success in key high-demand markets, has established a loyal customer base and has partnered in key projects in several geographies. Sterlite’s order bookings remained largely unaffected by the global economic slowdown. Revenues from international sales increased by 15% compared with the previous fiscal and now account for 26% of our total revenues. This is a clear result of Sterlite’s strategy to align its sales efforts to focus on a judicious mix of sustained growth markets and future potential markets.
Through focused efforts in backward integration, technological innovations and an enhanced global footprint, Sterlite has transformed from an India-centric, manufacturing based organization into a truly global, market-centric organization.
Despite the current situation in the global marketplace, several global economies continue to build telecom and power infrastructures in preparation of economic revival. Sterlite’s global footprint extends to several of these economies and the Company continues to be bullish on the energy and telecom sectors.
Q5) In a world increasingly driven by fiber connectivity, do you see any relevance for copper-based solutions especially considering the increasing cost of the resource?
Ans: Despite the increasing shift towards fiber enabled connectivity, there will always be sustained demand for copper based solutions. The global industry growth for copper telecom cables has been fairly flat and we see a continuance of this trend. The estimated global demand for Copper Telecom Cables is about 125 million-pair km. The demand is fuelled through replacement demand of cables in existing copper-based networks as well as the through the deployment of broadband networks using ADSL technology.
Q6) What is the company’s R&D spend?
Ans: Sterlite has a clear and strong R&D focus. The ‘Sterlite Center of Research’ located at Aurangabad, was founded in 2007 with the objective of fundamental research in fiber optics, optical communications and materials while designing new products and applied research for enhancing existing products and developing new processes. It focuses on four areas: Process Development, Engineering Design and Development, Quality Assurance and Intellectual Property.
Sterlite is growing its basket of patents. During the year, Sterlite was granted three patents in USA and India, adding to the thirteen patents granted in previous years. To date, Sterlite’s technology development team has filed over 100 patent applications for innovations in its products and processes and the Company is confident that the next fiscal would see the fruition of several more patent grants.
Sterlite’s ideology on research and product development is that it needs to be integrated with manufacturing operations and should be relevant to the evolving application needs of its clients. The Sterlite Fiber Powered Home, launched during the last fiscal is one such example. This is a unique bouquet of applications for enterprise and residential customers, which was a result of extensive design and development over the last 4 years. All these IP based applications can run over multi-screens in a customers’ home or office. It is a highly cost effective solution for any / all new fiber-to-the-home network deployments. We also enhanced our power portfolio with a range of Alloy Reinforced Aluminum Conductors (ACAR).
Q7) Are you banking on organic growth alone or are you open to acquisitions as well?