Cable_transmission wires_ Industry Analysis Report

Industry

Analysis Report

Sterlite Technologies

Sumit Arora (FT153107) Section - 3

Sterlite Technologies Page 1

Table of Contents 1. Introduction .................................................................................................................................... 2

1. Industry characteristics ................................................................................................................... 2

1.1. Size ...................................................................................................................................... 2

1.2. Year on Year growth (last 5 years) ...................................................................................... 3

1.3. Competitors ........................................................................................................................ 3

1.4. Cost Structure ..................................................................................................................... 4

1.5. Supplier industry characteristics and power ...................................................................... 5

1.6. Buyer power ........................................................................................................................ 5

1.7. Substitutes .......................................................................................................................... 5

2. Macros - PESTEL Analysis ................................................................................................................ 5

2.1. Political ................................................................................................................................ 5

2.2. Economic ............................................................................................................................. 6

2.3. Social factors ....................................................................................................................... 6

2.4. Legal framework ................................................................................................................. 6

2.5. Environments (Green issues) .............................................................................................. 7

3. Peer evaluation ............................................................................................................................... 7

3.1. Products, Solution and Services .......................................................................................... 7

3.2. Market ................................................................................................................................. 8

3.3. Growth ................................................................................................................................ 9

4. Financials ......................................................................................................................................... 9

4.1. Balance Sheet ...................................................................................................................... 9

4.2. P&L .................................................................................................................................... 11

4.3. Cash Flow .......................................................................................................................... 13

4.4. Stock Performance ............................................................................................................ 13

4.5. ROI, Net Profit Margins, Fixed capital/Sales, Export Sales/Total sales, R&D/Sales ........ 14

5. Competitive Advantage ................................................................................................................ 14

6. Porter Five Force Analysis ............................................................................................................. 14

7. References .................................................................................................................................... 15


1. Introduction

Cables find its application in sectors like IT, steel, refineries, power, railways, oil & gas etc. The two

major areas of its use are Telecommunication and Power. Power cables are Polyvinyl chloride or

Poly-ethylene coted, whereas the cables for telecommunication industry are based on Poly-

ethylene. India is currently seeing an advent in mobile broadband and data services due to growing

technology adaption. In order to accommodate such demand, more and more providers are shifting

to Optical Fibre due to high speeds that can be achieved. Research has established that Optical Fibre

cables will replace traditional copper and microwave wires in the long run. The demand in Indian

Cable Industry is cyclical and the industry is characterized as uneven with large number of small-

scale cable producers.

In telecom sector, various government initiatives with the focus to bridge digital divide and improve

broadband connectivity has led to significant demand from Optical Fibre Cable Industry. The

National Optical Fiber Network (NOFN) project is one such initiative to extend broadband access to

country’s 250,000 gram panchayats by 2016 which is expected to cost exchequer about US$3.5

billion.

Sterlite Technologies, a sister company of Vedanta Group, is a leading global provider of

transmission solutions for the power and telecom industries with Total revenue of US$ 8Bn

(approx.) and Market capitalization US$ 10Bn (approx.).

Business verticals

Telecom

Power

Infrastructure

Optical cables

Conductors

Smart grids

Sterlite’s offerings enable high bandwidth data transmission and high voltage power transmission.

They have recently bagged orders from leading telecom operators in India and partnering with them

for their 4G rollout across the country. In power segment, Sterlite Technologies is working on several

prestigious power transmission infrastructure projects spanning over 3000Kms across India.

1. Industry characteristics

1.1. Size The size of cable and telecom industry is 8,052.57cr.


1.2. Year on Year growth (last 5 years)

Globally, Fiber optical cables used for telecom & broadband segment is

witnessing a CAGR of 5.9%.

1.3. Competitors

Finolex Cables

Shilpi Cable

Vindhya Telelink

Aksh Optifibre

Birla Ericsson

Bhagyanagar India

Surana Telecom

CMI

Paramount Communications

GR Cables

Sterlite Technologies has the market capitalization of Rs 2633.71 cr.

Below is the list of players that are competing with Sterlite Technologies for market

share. Sterlite Technologies has the market share of 33.50% which stands second in the

Cable and Telecom sector just behind Finolex Cables. All others share the remaining

25.94%.

0

5

10

15

20

25

2014 2013 2012 2011 2010

Sales yoy growth (%)

Sales yoy growth (%)


Competitor Name Market Cap(Rs. cr)

Market Share

Net Profit (Rs. cr)

Finolex Cables 3,188.79 40.56% 145.27

Shilpi Cable 661.82 8.42% 28.03

Vindhya Telelink 550.77 7.00% 20.86

Aksh Optifibre 293.23 3.73% 26.02

Birla Ericsson 216.15 2.75% 19.24

Bhagyanagar Ind 127.02 1.62% 2.63

Surana Telecom 84.57 1.08% 0.73

CMI 65.16 0.83% 1.66

Paramount Communications 40.07 0.51% -4.64

GR Cables 1.47 0.02% -8.48

Sterlite Technologies 2,633.71 33.50% 50.2

Finolex Cables is most profitable with a profit of Rs. 145.27 cr followed by Sterlite Technologies

and Shilpi Cable with Rs. 50.2 and Rs. 28.03 cr profit respectively.

1.4. Cost Structure

Aksh Optifibre has the highest Net Profit Margin for last two years at 11.43% and 10.79%

suggesting that it might have the lowest cost structure amongst its competitors.

Net Profit Margin(%)

2014 2013 2012 2011 2010

Sterlite Technologies 1.820 1.400 1.590 6.170 10.070

Finolex Cables 8.620 6.330 4.690 4.210 3.540

Vindhya Telelin 4.840 1.650 -5.060 1.830 5.550

Shilpi Cable 2.830 3.980 4.020 5.780 5.700

Aksh Optifibre 11.430 10.790 5.370 -445.290 -132.720

Birla Ericsson 6.570 4.470 -6.230 -6.290 2.270

33.50%

40.56%

8.42%

7.00% 3.73%

2.75%

1.62%

1.08%

0.83%

0.51%

Market Share


Finolex Cables

Shilpi Cable

Vindhya Telelin

Aksh Optifibre

Birla Ericsson

Bhagyanagar Ind


1.5. Supplier industry characteristics and power

The tariff structure is regulated and the industry experience huge buying volume. Incentives are

high and the industry is evolving slowly in the trading market. Thus, supplier power is low.

1.6. Buyer power

The Industry is exposed to the risk of price fluctuation of raw materials (Aluminium & alloys, oil)

& energy resources, etc. Most of the companies in this industry have backward integrated their

operations to produce raw materials used in construction of optical fiber cables. Thus, buyer

power is very low. There are less substitutes and industry enjoys least cost advantage.

1.7. Substitutes

Optical Fiber can be substituted by any disruptive innovation in data transmission techniques

which eliminates expensive infrastructure required as a part to deploy these cables. One such

example is demonstrated by Google with the project named ‘LOON’. The project exploited the

need to provide connectivity to places/terrains/water bodies where laying out optical fibers is

not feasible. Research has been going on to present it to the world as a cheaper and more

reliable option than fiber optic cables.

2. Macros - PESTEL Analysis

2.1. Political

Government is the major customer of the industry and any delay in capex allocation by the government and utility incumbents, could adversely impact the Industry’s’ growth. Almost all the companies under the cable industry has diversified product portfolio with different variants in Power and Telecom transmission cables which provides some insulation by division of risks. To overcome this issue with geographic dependence, many of the companies in this industry have started expanding its foot on the global front. In telecom sector, various government initiatives with the focus to bridge digital divide and improve broadband connectivity has led to significant demand from Optical Fibre Cable Industry. It is an established correlation that GDP growth depends directly on how deeper the internet penetration to the remotest areas of a country is. As per the latest United Nations report, fixed-broadband penetration is around 28% in developed economies, 6% in developing countries and only 0.2% in the least developed countries. This is why Governments of many developing countries across the world, including India, are investing profoundly developing infrastructure to enable broadband in rural areas. The National Optical Fiber Network (NOFN) project is one such initiative to extend broadband access to country’s 250,000 gram panchayats by 2016 which is expected to cost exchequer about US$3.5 billion. Network for Spectrum (NFS) is another project that has been built by BSNL to create a network exclusively for armed forces in three years, which is expected to be used by defence wings to release 150 MhZ of telecom spectrum in critical bands.


2.2. Economic

Company has multiple manufacturing facilities in India. The clientele is not limited to Indian

origin but is far-fetched across different parts of the globe. Performance and growth of the

Industry is dependent on the overall health and steadiness of the world economies. Any

downturn in economic condition will have an adverse effect on performance of the Industry.

India lags far behind major world economies in terms of fiber deployments which indicate

significant opportunities for fiber optic players in Indian market. India accounts for more than

17per-cent of world total population. Of 1.4 billion people of the world who have no access to

electricity in the world, India accounts for over 300 million. Whilst Indian economy follows the

growth path, demand for energy has been drastically increasing. This has led to continuous

shortfall across different parts of the country. Current energy production in the country is just

4% against 5% demand of world energy production. Affordability plays the major role in Indian

context.

Energy ( MU) Peak (MW)

Requirements 933741 136193

Availability 837374 118676

Surplus -96367 -17517

Surplus % -10.30% -12.90%

2.3. Social factors

India is the 2nd largest telecom market with 585mn wireless subscribers. Still, it lags in market

penetration which is just 50%, leaving behind enormous potential for growth. With globalization

and rise of SMAC technologies, the need to stay connected has been rising exponentially. High

end applications like IPTV, high definition TV, 3D TV, Online gaming, Video on Demand and many

more such services require high bandwidth. With such increasing dependence on technology

and internet, people are looking for high speed for data transmission and are willing to pay the

price that comes with it. Internet industry has been successful in connecting over 2.3 billion

users and communities virtually. Global IP traffic is expected to show 23% CAGR for 5 year

period (2012-2017). Thus many private companies are upgrading to optical fiber network to

achieve customers’ expectations. There has been spike in demand for optical fibers with

advanced economies like USA, Germany, Japan, Holland, etc that has been spending huge sums

on R&D to build fiber to the node (FTTN) and fiber to the home (FTTH) networks.

2.4. Legal framework

Companies like Sterlite Technologies, Finolex cables, Aksh Optifiber have multiple facilities in

India and has a diversified customer base across the globe. As the result, these companies are


subject to federal, local, state, fiscal laws and regulations in each country in which it operates.

These regulatory regimes of a geographic location play a pivotal role in performance of these

companies. Changes to government regulations with respect to import tariffs or export

inducements can sham threat to companies impacted by the same. This has a significant effect

on performance of these companies in the sector. Any pending cases on the companies related

to taxation, excise duty, commercial/legal disputes, custom duty has an adverse effect on

companies’ profitability.

2.5. Environments (Green issues)

Almost all the companies in the industry have started to record and minimize carbon footprint

produced during various manufacturing and operating procedures. A lot of new initiatives were

introduced to promote green practices. Different companies in this sector use different

Environment Management System that take care of various aspects of the environment

associated with health, and safety structure, air quality, air pollution, waste management,

disposal of hazardous waste, recycling and reuse, environment policies, imparting environment

training.

All these above mentioned macro issues were critical to any company working in Cable-Telecom

sector and should be thoroughly reviewed and discussed in all the annual meetings.

3. Peer evaluation

3.1. Products, Solution and Services


Conductors, OPGW

Power Cables

Optical fiber and Cables

Systems and solutions

Datacom cables

Grid networks

Rods and Accessories

Neural Networks

Vindhya Telelink

Fiber Optic Cables

Copper Cables

Low Voltage Power Cables

Feeder Cables

Speciality cables

Jelly Filled Telecommunication Cables FRP Rod


Finolex Cables

Wires and Cables

Optic Fiber

Power Cables

Switches

CFLs

Pipes and Fittings

PVC Designs

PVC sheets

Copper Rods

LED Lightening

Chemicals

Shilpi Cable

Fiber Optic Cables

Radio Frequency cables

Cable Accessories

Aksh Optifibre

Optical Fiber

Optical Fiber Cables

Cable Reinforcement Solutions

iControl (Service)

Pigeon (Service)

Fiber to Home (Service)

Birla Ericsson

Optical and copper telecommunication cables

High Fibre Count Ribbon Cables

Jelly Filled Telephone Cables (JFTC)

Optical Ground Wire (OPGW)

3.2. Market

Most of the companies are into two markets namely:

1) Telecom & Broadband

2) Power

Vindhya Telelinks has been able to maintain its profitability over its peers, but its growth prospects are limited due to narrow product portfolio. Vindhaya Telelinks is into Jelly Filled Telecommunication Cables segment and has recently diversified into Optical Fiber Cable market.

Birla Ericsson has been the first mover into optical fiber cable segment in collaboration with Ericsson Cables AB (now called Ericsson Network Technologies) to manufacture Optical Fiber Cables in 1992. It today produces wide range of products from Ribbon Cable to JFTC and is looking into expanding into FTTx field. Over the years Birla Ericsson has established itself as premium brand of telecommunications cables in India. Aksh Optifibre started manufacturing optical fiber and optical fiber cables in 1994 and has

backward integrated in 1997 to create key raw material for OFC. The facility is supported by hi-

tech infrastructure to manufacture optic fibers for various applications.


Finolex is the most diversified company among its peers. It has limited presence in optical fiber

cables in comparison with Aksh Optifibre and Sterlite Technologies. Finolex builds its competitive

strength using economies of scale and maintaining health cash flows.

Shilpi Cables, on the other hand, has minimum products in the market. Its flagship product is

Radio Frequency cables for Telecom Sector. The company is spending heavily in R&D and makes

continuous efforts to innovate better quality products.

Sterlite Technologies enjoys substantial market share across the zinc, Aluminium metals and

copper and has a diversified portfolio. Its major strength is in its huge cash reserve and its

aggressive overseas expansion strategies.

3.3. Growth

4. Financials

4.1. Balance Sheet

Balance Sheet ( in Rs. Cr.)

Sterlite Techno

Finolex Cables

Shilpi Cable

Vindhya Telelin

Aksh Optifibre

Mar '14 Mar '13 Mar '14 Mar '14 Mar '14

Sources Of Funds

Total Share Capital 78.76 30.59 49.32 11.84 74.28

Equity Share Capital

78.76 30.59 49.32 11.84 74.28

Companies/Year 2014 2013 2012 2011 2010


Competitor Company 1 - Finolex Cables 8.620 6.330 4.690 4.210 3.540

Competitor Company 2 - Vindhya Telelin 4.840 1.650 -5.060 1.830 5.550

Competitor Company 3 - Shilpi Cable 2.830 3.980 4.020 5.780 5.700

Competitor Company 4 - Aksh Optifibre 0.570 11.430 10.790 5.370 -445.290

Competitor Company 5 - Birla Ericsson 6.570 4.470 -6.230 -6.290 2.270


Share Application Money

0 0 0.96 0 0

Preference Share Capital

0 0 0 0 0

Reserves 1,139.53 893.73 173.05 231.66 282.22

Revaluation Reserves

0 0 0 0 0

Networth 1,218.29 924.32 223.33 243.5 356.5

Secured Loans 1,243.16 143.09 140.21 76.25 75.19

Unsecured Loans 0 19.17 5.47 109 28.64

Total Debt 1,243.16 162.26 145.68 185.25 103.83

Total Liabilities 2,461.45 1,086.58 369.01 428.75 460.33

Application Of Funds

Gross Block 1,672.25 916.38 115.44 161.67 210.89

Less: Accum. Depreciation

666.15 504.27 20.68

107.53 116.55

Net Block 1,006.10 412.11 94.76 54.14 94.34

Capital Work in Progress

16.4 35.73 0.14 4.69 15.5

Investments 433.65 324.09 13.75 117.68 186.72

Inventories 299.41 329.63 141.36 75.8 24.56

Sundry Debtors 671.28 149.65 337.59 262.74 67.86

Cash and Bank Balance

44.12 39.81 40.14 9.76 0.54

Total Current Assets

1,014.81 519.09 519.09 348.3 92.96

Loans and Advances

1,075.36 113.12 53.1 58.84 146.58

Fixed Deposits 0 0 0 0 0

Total CA, Loans & Advances

2,090.17 632.21 572.19 407.14 239.54

Deffered Credit 0 0 0 0 0

Current Liabilities 1,052.24 238.24 300.92 146.99 65.37

Provisions 32.63 79.32 10.89 7.89 10.4


Total CL & Provisions

1,084.87 317.56 311.81 154.88 75.77

Net Current Assets

1,005.30 314.65 260.38 252.26 163.77

Miscellaneous Expenses

0 0 0 0 0

Total Assets 2,461.45 1,086.58 369.03 428.77 460.33

Contingent Liabilities

1,739.67 536.65 311.39 110.94 166.39

Book Value (Rs) 30.94 60.44 45.09 205.47 24

4.2. P&L

Profit & Loss account (in Rs. Cr.)

Sterlite Techno

Finolex Cables

Shilpi Cable

Vindhya Telelin

Aksh Optifibre


Income

Sales Turnover 2,726.34 2,270.68 986.03 424.15 220.06

Excise Duty 0 0 0 0 0

Net Sales 2,726.34 2,270.68 986.03 424.15 220.06

Other Income 16.95 1.16 3.33 6.37 14.49

Stock Adjustments

18.05 29.68 8.85 13.04 6.53

Total Income 2,761.34 2,301.52 998.21 443.56 241.08

Expenditure

Raw Materials 1,951.94 1,739.29 861.05 228.83 148.92

Power & Fuel Cost

118.73 40.69 3.32 5.57 5.56

Employee Cost 122.39 84.59 6.19 21.69 15.19


Other Manufacturing Expenses

0 0 17.35 113.62 0

Selling and Admin Expenses

0 0 0 0 0

Miscellaneous Expenses

297.04 206.13 13.53 20.39 23.33

Preoperative Exp Capitalised

0 0 0 0 0

Total Expenses 2,490.10 2,070.70 901.44 390.1 193

Operating Profit 254.29 229.66 93.44 47.09 33.59

PBDIT 271.24 230.82 96.77 53.46 48.08

Interest 95.28 13.38 52.03 22.18 7.06

PBDT 175.96 217.44 44.74 31.28 41.02

Depreciation 102.88 46.63 4.88 5.53 14.99

Other Written Off 0 0 0 0 0

Profit Before Tax 73.08 170.81 39.86 25.75 26.03

Extra-ordinary items

0 0 0.04 0 0

PBT (Post Extra-ord Items)

73.08 170.81 39.9 25.75 26.03

Tax 22.88 25.54 11.87 4.88 0

Reported Net Profit

50.2 145.27 28.03 20.86 26.02

Total Value Addition

538.16 331.41 40.39 161.27 44.08

Preference Dividend

0 0 0 0 0

Equity Dividend 11.82 18.35 0 2.37 3.71

Corporate Dividend Tax

2.01 3.03 0 0.4 0.63

Per share data (annualised)


Shares in issue (lakhs)

3,938.00 1,529.39 493.16 118.51 1,485.65

Earning Per Share (Rs)

1.27 9.5 5.68 17.6 1.75

Equity Dividend (%)

15 60 0 20 1.25

Book Value (Rs) 30.94 60.44 45.09 205.47 24

4.3. Cash Flow

Shilpi Cable

Vindhya Telelin

Finolex Cables

Sterlite Techno

Aksh Optifibre


12 mths 12 mths 12 mths 12 mths 12 mths

Net Profit Before Tax 39.9 25.75 244.01 50.2 26.02

Net Cash From Operating Activities 42.18 -2.3 222.73 262.64 25.62

Net Cash (used in)/from -16.53 -29.4 -67.17 -407.93 -7.41

Investing Activities

Net Cash (used in)/from Financing Activities

-11.58 29.58 -61.05 79.75 -19.6

Net (decrease)/increase In Cash and Cash Equivalents

14.07 -2.13 94.51 -65.54 -1.39

Opening Cash & Cash Equivalents 26.07 4.76 136.66 93.11 1.93

Closing Cash & Cash Equivalents 40.14 2.63 231.17 27.57 0.54

4.4. Stock Performance

Company Name 1 Year 9 Month 6 Month 3 Month 1 Month 2 Week 1 Week Last Price

Aksh Optifibre 16.05 14.95 15.9 22 20.8 20.85 19.25 19.05

18.69% 27.42% 19.81% -13.41% -8.41% -8.63% -1.04%

Birla Ericsson 12 17.5 27.8 58.7 62.3 69.95 72.45 70.15

484.58% 300.86% 152.34% 19.51% 12.60% 0.29% -3.17%

Finolex Cables 53.6 84.35 113.45 166.85 217.75 231.6 230.6 208.15

288.34% 146.77% 83.47% 24.75% -4.41% -10.13% -9.74%

Shilpi Cable 8.53 11.35 11.4 27.48 40.15 62.9 58.05 63.8

647.95% 462.11% 459.65% 132.17% 58.90% 1.43% 9.91%

Sterlite Techno 19.5 23.85 20.95 64.9 63.3 70.3 65.7 64.35

230.00% 169.81% 207.16% -0.85% 1.66% -8.46% -2.05%

Vindhya Telelin 140 165 151 326 451.3 504.85 474.85 454.95

224.96% 175.73% 201.29% 39.56% 0.81% -9.88% -4.19%


4.5. ROI, Net Profit Margins, Fixed capital/Sales, Export

Sales/Total sales, R&D/Sales

5. Competitive Advantage Sterlite Technologies maintains huge cash reserves and has diversified business models. Its

competitive advantage come from the fact that it has enormous experience in commercial power

generation and has experienced and focussed management. Sterlite has world’s low cost

producer advantage and has now been looking aggressively to expand in global marketplace. It

boosts its technological innovations, handling of composite core technologies, in-house

engineering capabilities as a major reason for its competitive advantage. The company looks to

gain advantage from competitive market place, external customers, and even adjacent

industries. Sterlite is the only company, among its peers, that has invested highly in R&D in last 5

years and is successful in providing innovative power solutions to the world. They are pioneer in

development and promotion of HTSL conductors in India which are used to reduce transmission

losses by 30 to 40%. Thus company risk management practices have helped enhance sustainable

competitive advantage.

Sterlite should optimize capacity utilization and fuel mix, look forward to green field projects,

continuously identify opportunities for competitive differentiation, and invest in distribution and

smart grids to maintain its competitive advantage.

6. Porter Five Force Analysis

Sterlite Technologies is exposed to the risk of price fluctuation of raw materials (Aluminium & alloys,

oil) & energy resources, etc. Sterlite has backward integrated its operations to produce raw

materials used in construction of optical fiber cables. Below is the Porter Five Force Analysis for

Sterlite Technologies:

Companies ROI Net Profit Margin Fixed Capital/Sales(x) Export Sales/Total Sales R&D/Sales


Finolex Cables 0.22 8.62 0.65 2.09 0

Vindhya Telelin 0.11 4.84 0.34 9.87 -

Shilpi Cable 0.18 2.83 0.11 12.02 0

Aksh Optifibre 0.07 11.43 0.98 60.37 0

Birla Ericsson 0.30 6.57 0.36 17.13 -


7. References

http://www.indiastat.com/table/marketforecast/10143/marketforecastofele

http://www.indiastat.com/table/marketforecast/10143/marketforecastoftel

www.moneycontrol.com

www.livemint.com

http://economictimes.indiatimes.com/markets/live-coverage

http://money.rediff.com/

http://www.sterlitetechnologies.com/

http://www.indiastat.com/table/marketforecast/10143/marketforecastofele

http://www.indiastat.com/table/marketforecast/10143/marketforecastoftel

http://www.moneycontrol.com/

http://www.livemint.com/

http://economictimes.indiatimes.com/markets/live-coverage

http://money.rediff.com/

http://www.sterlitetechnologies.com/


http://www.akshoptifibre.com/

http://www.birlaericsson.com/

http://www.finolex.com/

http://www.shilpicables.com/

http://www.akshoptifibre.com/

http://www.birlaericsson.com/

http://www.finolex.com/

http://www.shilpicables.com/

Cable_transmission wires_ Industry Analysis Report

Documents

year growth

sterlite technologies

buyer power

macros pestel analysis

table of contents

environments green issues

balance sheet

cost structure