On Thursday, CLSA downgraded Sterlite Technologies Ltd. (SOTL:IN) stock to Underperform from Hold, accompanied by a decrease in the price target from INR123.00 to INR110.00. The firm's decision follows Sterlite Technologies' second-quarter financial results, which showed a mix of strengths and weaknesses in its performance.
Despite Sterlite Technologies' revenue reaching Rs14 billion, a 16% increase from the previous quarter and surpassing estimates mainly due to its optical business, the company's order book declined significantly. The order book, which is crucial for future revenues, was reported to be down 18% year-over-year and 13% quarter-over-quarter, standing at Rs86 billion, with the optical business contributing to 45% of this figure.
The company's Ebitda (earnings before interest, taxes, depreciation, and amortization) also presented a contrasting picture. While it was down 32% year-over-year, it saw a substantial quarter-over-quarter increase of 73%, which was also above expectations. Despite these gains, CLSA expressed concerns over the falling order book and margin challenges that Sterlite Technologies is facing.
In light of these observations, CLSA adjusted its forecast for Sterlite Technologies' future financial performance. The firm reduced its revenue and Ebitda estimates for the fiscal years 2025 to 2027 by 3% and 14%, respectively. The report did, however, note some positive developments, including a recovery in revenue, margins, and Ebitda from the lows experienced in the fourth quarter of the fiscal year 2024.
CLSA's analysis concludes with a revised outlook for Sterlite Technologies, acknowledging the company's short-term recovery but expressing caution due to its declining order book and the challenges in maintaining profit margins.
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