Basics of Financial

Management
Assignment – 2

Sterlite Technologies Ltd.

Submitted By: Submitted To:

Name: Harleen Kaur Ms Manisha Sanghvi
Division: E
Roll no.: 17
PRN: 20020441092
 1. About Company

Sterlite Technologies Ltd.’s business activities involve manufacturing of

telecommunication cables. The company has expanded their portfolio to
manufacture and supply Optical Fibers, Fiber Optic Cables, Power Transmission
Conductors, Aluminium & Alloy Rods, Copper Telecom Cables, Structured Data
Cables, and Customer Premise Equipment and Cable Accessories. Their products
cater to various sectors such as telecom, defense, oil and gas, railway,
roadways, power, aviation and broadband. The company also engaged in the
business of Telecom, Power Product and Solutions.

Board of Directors:

Non-Executive Vice Chairman & Whole WholeTime Director Ind. Non-Executive

Chairman Time Director & CEO Director

Ind. Non-Executive Ind. Non-Executive Ind. Non-Executive Non-Executive

Director Director Director Director

History: (covering major events)

1988 1992 1995 1997

Copper telecom cables Fiber Optic cables Optical fiber Expansion of optical fiber
facility started facility started facility started capacity to 1 million-km

2002 2001 2000

-Expansion of optical fiber capacity As per the Scheme of Demerger -Demerger of telecom business
to 4 million-km the company allotted from Sterlite Industries Limited
-Offices opened in China & United 5,59,12,559 No. of equity shares -Incorporation of Sterlite Optical
Kingdom of face value Rs 5 aggregating Rs Technologies Limited
27.95 crore as per the Scheme
 2006 2007 2008
-Acquisition of power transmission -Expansion of optical fiber capacity to 6 -Office started in USA
business from Sterlite Industries Ltd million-km -Sterlite Technologies won
-Offices started in Thailand, Russia -Company has changed its name US$ 17.5 Million contract
& UAE from Sterlite Optical Technologies from EEPCo, Ethiopia
Ltd. to Sterlite Technologies Limited

-Office started in South Africa

2010 2009
-Sterlite Technologies won the first mega independent power -Expansion of optical fiber capacity to 12
transmission project. million-km
-Sterlite Technologies recommended a Final Dividend of 25% -Expansion of fiber optic cable capacity to
(Rs. 0.50/- on Equity Share of Rs. 2/- each of the Company) 6 million-km

-Sterlite Technologies gave the Bonus in the Ratio of 1:1 -Sterlite Technologies won Rs 372 crore
BSNL contract
-Company split its Face value of Shares from Rs 5 to Rs 2

2011 2012 2015

-Sterlite Tech bagged Rs 114 -Sterlite Technologies -Sterlite Technologies - Sterlite Grid announced
crore contract from BSNL recommended a Final Dividend successful refinancing of India's first Ultra Mega
of 15% (Rs. 0.30/- on Equity Transmission Project, ENICL
Shares of Rs. 2/- each)
-Ericsson to work with Sterlite for smart city initiatives

-Sterlite acquired telecom software company Elitecore

2. Capital Structure
Stakeholder Pattern (as on 30th Sept 2020)

No of Shares 395689453
Face Value 2

Domestic ( in %age )
Promoters 1.84
Directors 0.00
Subsidiary Companies 0.00
Other Companies 0.00
State Govt 0.00
Central Govt 0.00
Govt Companies 0.00
Govt Others 0.00
NBanks Mutual Funds 4.35
Holding Companies 0.00
General Public 29.46
Employees 0.00
Person Acting in Concert 0.00
Total 35.65

Institutions ( in %age )
ICICI 0.00
UTI 0.00
IDBI 0.00
GIC 0.00
LIC 0.00
SFC 0.00
IFCI 0.00
Financial Institutions 1.36
Total 1.36

Foreign ( in %age )
Foreign NRI 0.00
Foreign Collaborators 0.00
Foreign Ocb 0.00
Foreign Others 0.00
Foreign Institutions 4.31
Foreign Industries 0.00
Foreign Promoters 52.92
GDR 0.00
Total 57.24

Others ( in %age ) 5.76

 3. Stock Price Analysis

News: Indian companies such as Sterlite Technologies that produce optical fibre
will be denied access to 50 percent of the global market: China The reason for
this is that, the Chinese government extended its anti-dumping duty for five
years to Indian single-mode optical fibre manufacturers. The tasks vary from 7.4
to 30.6 percent. (Business Standard, August 14, 2020)

Valuation ratios Mar - 20 Mar - 19 Mar - 18 Mar - 17 Mar - 16

EPS (Rs Cr) 10.89 14.01 8.38 5.07 3.9

P/E 29.42 22.89 29.82 57.87 49.81

Industry P/E 12.87

 Compared to the industry P/E value, the stock of Sterlite technologies is

overvalued.

 Negative to Positive growth in Sales and Profit with Strong Price momentum.
 Highest Recovery from 52 Week Low.

Board meeting held on 22nd October to present Q1FY21 results

Dividend of Rs 3.5 per equity share at 175%

 4. Financial Ratio Analysis

Liquidity ratios

Liquidity ratios Mar - 20 Mar - 19 Mar - 18 Mar - 17 Mar - 16

Current ratio (X) 0.95 0.96 1.15 1.05 1.03

Quick ratio (X) 0.83 0.82 0.95 0.81 0.86

 A representation of financial strength is the current ratio. That is the number

of times the existing assets of a company outweigh their current liabilities,
which is an indicator of the company's solvency.

A common rule of thumb is that a "good" current ratio is 2 to 1.

The current liabilities of Sterlite Technologies are covered by current assets

0.95 times. This basically means, to pay a liability of Rs 1 crore, the
company has 95 lacs of current assets.

 The quick ratio tests whether a business can meet its obligations even if
adverse conditions occur. It looks only at a company's most liquid assets (all
of the current assets on the balance sheet except inventory) and compares
them to current liabilities.

In general, quick ratios between 0.5 and 1 are considered satisfactory.

So, Sterlite Technologies does not have an adequate quick ratio.

Over the next-three years, STL has guided to (a) double the revenue to Rs
10,000 crore, (b) reduce the net debt to equity by half to 0.5.

Margin Ratios

Margin ratios Mar - 20 Mar - 19 Mar - 18 Mar - 17 Mar - 16

Gross Profit Margin (%) 21.41 22.88 24.39 21.66 21.59

Operating Margin (%) 15.77 19.04 18.65 15.15 15.73

Net Profit Margin (%) 8.23 11.35 11.49 9.00 7.71

Growth in Net Profit with increasing Profit Margin (QoQ)

As per the Q1FY21 results, revenues came in at Rs 876 crore, down ~39% YoY
as projects execution was significantly impacted due to lockdown, while
production and delivery was hurt due to logistic challenges. EBITDA was at Rs
122 crore, down ~62% YoY, with margins at 13.9%, down 870 bps YoY,
impacted by negative operating leverage on account of revenues decline.
Reported PAT came in lower at Rs 6 crore, down 95.8% YoY, on account of weak
operating performance.
The lower revenues were on account of impact of Covid-19 and weak product
demand.

Return Ratios

Return ratios Mar - 20 Mar - 19 Mar - 18 Mar - 17 Mar - 16

Return on Networth
/ Equity (%)
22.60 32.73 28.44 22.88 20.36

ROCE (%) 25.17 33.73 29.52 24.71 23.73

Return On Assets
6.01 8.02 9.00 6.91 5.85
(%)

 The Networth has declined owing to current low demands and impact of
Chinese anti-dumping policy.

 Inefficient use of assets to generate profits - ROA declining in the last 2 years

 Declining Operating Profit Margin and Net Profits (YoY)

5. Findings

The company analysis shows that the book value per share is improving for last
2 years. The lower revenues were on account of impact of Covid-19 and weak
product demand. STL has set an ambitious three years target of doubling
revenues to Rs 10,000 crore by FY23, riding on higher digital infra needs owing
to increased data usage and transforming into a solution provider from Products
Company.
Brokers have upgraded recommendation or target price in the past three
months.

Credit rating by CRISIL/ICRA suggests that company is stable for now and quite
promising.
 6. References

 https://www.business-standard.com/article/companies/optical-fibre-
manufacturers-impacted-by-chinese-anti-dumping-duty-
120081301951_1.html

 https://www.moneycontrol.com/india/stockpricequote/cables-
telephone/sterlitetechnologies/ST20#sec_comInf

 https://secure.icicidirect.com/trading/research-
advisory/technicalanalysis/STETEC/STETEC%20(STERLITE%20TECHNOLO
GIES%20LIMITED-INE089C01029)#

 https://www.edelweiss.in/quotes/equity/sterlite-technologies-ltd-21331

 https://corporatefinanceinstitute.com/resources/knowledge/finance/financ
ial-ratios/
 7. Annexure

Balance Sheet as at March 31, 2020

(All amounts are in ` crores, unless otherwise stated)
31 March 2020 31 March 2019
Particulars Note (` in crores) (` in crores)

ASSETS

Non-current assets

Property, plant & equipment Capital 4 2,213.30 1,750.31

work-in progress 127.52 413.87
Investment property 7 - -
Goodwill 5,6 14.66 44.29
Other intangible assets Financial 5 33.64 14.00
assets
Investments 8 289.10 164.46
Trade receivables 9 - 1.76
Loans 10 97.83 131.03
Other non-current financial assets 11 14.93 33.56
Other non-current assets 12 48.94 20.62
2,839.92 2,573.90

Current assets

Inventories 13 285.38 381.01

Financial assets
Investments 14 233.00 100.00
Trade receivables 9 1,413.16 1,178.77
Cash and cash equivalents 15A 76.53 58.43
Other bank balances 15B 93.92 88.93
Other current financial assets 11 58.81 91.36
Contract assets 12 735.15 1,093.02
Other current assets 12 331.97 332.20
Asset classified as held for sale 16 28.27 28.27
3,256.19 3,351.99

Total Assets 6,096.11 5,925.89

EQUITY AND LIABILITIES
Equity

Equity share capital 17 80.79 80.51

Other Equity 18 1,728.78 1,507.70
Total Equity 1,809.57 1,588.21
Non-current liabilities
Financial liabilities

Borrowings 19 519.83 581.71

Lease Liabilities 4 83.33 -
Other financial liabilities 20 7.32 14.88
Employee benefit obligations 25 41.16 32.35
Provisions 22 0.89 0.72
Deferred tax liabilities (net) 24A 63.89 72.13
716.42 701.79

Current liabilities

Financial liabilities

Borrowings 19 1,105.17 797.48

Lease Liabilities 4 16.43 -
 Trade payables 21

(A) total outstanding dues of micro enterprises and small enterprises (refer note 41) 30.66 92.30

(B) total outstanding dues of creditors other than micro enterprises and small enterprises 1,335.81 1,717.69

Other financial liabilities 20 880.71 629.66

Contract liabilities 23 133.40 269.31
Other current liabilities 23 43.52 49.59
Current tax liabilities (Net) 24B - 55.38
Employee benefit obligations 25 14.40 14.52
Provisions 22 10.02 9.96
3,570.12 3,635.89

Total liabilities 4,286.54 4,337.68

Total Equity & Liabilities 6,096.11 5,925.89

Statement of Profit and Loss for the year ended March 31, 2020
(All amounts are in ` crores, unless otherwise stated)
31 March 2020 31 March 2019
Particulars Note (` in crores) (` in crores)

INCOME

Revenue from operations 26 4,760.50 4,862.63

Other income 27 21.27 14.32
Total Income (I) 4,781.77 4,876.95
EXPENSES
Cost of raw materials and components consumed 29 2,273.96 2,583.40
Purchase of traded goods 2.12 30.58

(Increase) / decrease in inventories of finished goods, work-in-progress, traded 29 65.43 (110.47)

goods and construction work-in-progress
Employee benefit expense 30 519.82 439.55
Other expenses 31 902.31 880.05
Total Expense (II) 3,763.64 3,823.11

Earnings before exceptional item, interest, tax, depreciation and amortisation 1,018.13 1,053.84
(EBITDA) (I) - (II)
Depreciation and amortisation expense 32 232.42 167.79
Finance costs 33 204.46 95.25
Finance Income 28 (11.67) (20.52)
Profit before exceptional item and tax 592.92 811.32

Exceptional Item (refer note 44) 50.71 -

Profit before tax Tax 542.21 811.32

expense:
Current tax 34 111.53 270.99
Deferred tax (2.84) 5.10

Total tax expenses 108.69 276.09

Profit for the year 433.52 535.23

Other comprehensive income
Items that may be reclassified to profit or loss in subsequent periods:

Net movement on cash flow hedges (51.81) 132.77

Income tax effect on the above 20.20 (46.39)

Net other comprehensive income to be reclassified to profit or loss in subsequent periods (31.61) 86.38

Items that will not to be reclassified to profit or loss in subsequent periods:

Remeasurements of defined benefits plans 0.35 (7.84)

Income tax effect on the above (0.09) 2.74

Change in fair value of FVOCI equity instruments 1.35 -

Net other comprehensive income not to be reclassified to profit or loss in subsequent periods 1.61 (5.10)

Other comprehensive income for the year, net of tax (30.00) 81.28

Total comprehensive income for the year 403.52 616.51

Earnings per equity share 36

Basic

Computed on the basis of profit for the year (`) Diluted 10.75 13.32

Computed on the basis of profit for the year (`) 10.63 13.16

Statement of Cash Flows for the year ended March 31, 2020
(All amounts are in ` crores, unless otherwise stated)
31 March 2020 31 March 2019
Particulars (` in crores) (` in crores)

A. Operating activities

Profit before tax 542.21 811.32

Adjustments to reconcile profit before tax to net cash flows

Depreciation and impairment of property, plant & equipment 196.06 133.19

Amortization & impairment of intangible assets 36.36 34.51
Depreciation of investment properties (refer note 7) - 0.09
Provision for doubtful debts and advances 15.32 5.91
Bad debts / advances written off 5.05 17.19
(Profit)/Loss on sale of assets, net (2.57) (2.08)
Rental income (0.28) (2.01)
Employees stock option expenses 9.86 19.16
Changes in fair value of investment in joint venture - 1.74
Finance costs 204.46 95.25
Expected credit loss for loan given to related parties 15.00 -
Finance income (11.67) (20.52)
Unrealized exchange difference (6.69) (2.88)
460.90 279.55

Operating profit before working capital changes 1,003.11 1,090.87

Working capital adjustments:

Increase/(decrease) in trade payables (330.47) 1,191.07

Increase/(decrease) in long-term provisions 0.17 (24.24)
Increase/(decrease) in short-term provisions 0.06 (16.87)
Increase/(decrease) in other current liabilities (6.07) (86.84)
Increase/(decrease) in other current financial liabilities 45.59 (28.05)
Increase/(decrease) in contract liabilities (135.91) 269.31
Increase/(decrease) in other non-current financial liabilities 2.81 1.61
 Increase/(decrease) in non current employee benefit obligations 9.17 16.64
Increase/(decrease) in current employee benefit obligations (0.13) (8.23)
Decrease /(increase) in current trade receivable (271.12) (351.48)
Decrease /(increase) in non current trade receivable 1.76 2.33
Decrease /(increase) in inventories 95.62 (74.97)
Decrease/ (increase) in loans given to related parties 18.21 (25.61)
Decrease/(increase) in other current financial assets (20.91) 25.18
Decrease/(increase) in contract assets 357.87 (1,093.02)
Decrease /(increase) in other non-current financial assets 18.63 (34.68)
Decrease /(increase) in other current assets 0.24 (71.00)
Decrease/(increase) in other non-current assets 2.63 1.51
Change in working capital (211.85) (307.34)
Cash generated from operations 791.26 783.53
Income tax paid (net of refunds) (168.57) (191.06)
Net cash flow from operating activities 622.69 592.47
B. Investing activities

Purchase of property, plant and equipment (310.29) (736.72)

Receipt of government grant for investment in property, plant & equipment - 28.82
Purchase of intangible assets (26.37) (4.15)
Proceeds from sale of property, plant and equipment 37.06 5.96
Investment in subsidiaries (119.63) (40.22)
Purchase of non- current investments (5.01) (5.00)
Investment in asset held for sale - (7.50)
Purchase of current investments (233.00) (100.00)
Proceeds of current investments 100.00 155.00
Proceeds from sale of investment 1.35 -
Net movement in other bank balance (4.21) (82.17)
Unpaid Dividend (0.79) (0.54)
Rental income 0.28 2.01
Interest received (finance income) 11.72 20.55
Net cash flow used in investing activities (548.89) (763.96)
C. Financing activities

Proceeds from long term borrowings 315.54 106.42

Repayment of long term borrowings (289.75) (84.90)
Proceeds/(repayment) from/of short term borrowings (net) 307.69 334.74
Proceeds from issue of shares against employee stock options 0.28 0.31
Interest paid (including interest pertaining to Ind AS 116) (204.77) (99.04)
Principal elements of leases payments (14.60) -
Dividend paid on equity shares (141.08) (80.30)
DDT on equity dividend paid (29.01) (16.51)
Net cash flow used in financing activities (55.70) 160.72
Net increase/(decrease) in cash and cash equivalents 18.10 (10.77)
Cash and cash equivalents as at beginning of year (Refer note 15A) 58.43 69.20
Cash and cash equivalents as at year end (Refer note 15A) 76.53 58.43
Components of cash and cash equivalents:

Balances with banks: 76.51 58.40

Cash in hand 0.02 0.03
Total cash and cash equivalents 76.53 58.43