Loss of DoT order not to hit Sterlite bottomline

NetScribes/Salil Panchal

Given Sterlite Industries' strong growth projections for the year, analysts have discounted any financial losses that the company would stand to suffer if it fails to bag a crucial jelly-filled telecom cables order from the Department of Telecommunications.

The company, which manufactures telecom cables, cast copper rods and optic fibre cables for the telecom and power industry, is expecting a huge growth in its fibre and copper business over the next six months, which will offset any hiccups like the loss of a DoT order.

A senior analyst with a Europe-based investment bank said, "If the DoT order does not happen, it will not have an impact on Sterlite's bottomline. The optic fibre business for Sterlite (in terms of sales and profits) has been strong over the past three months. With copper prices still ruling strong, the impact of any loss of a DoT deal would not impact Sterlite. According to us, the revenue loss would work out to Rs 140 million if the order is not fulfilled.''

Around 10 days back, the Sterlite counter saw poor sentiment on fears of huge losses for the company if it lost the DoT contract. Since then, however, the scrip, which was ruling in the Rs 600-680 range, has moved up steadily at the major bourses. On Thursday, the scrip closed at Rs 770 at the Bombay Stock Exchange, up 2.37 per cent from the previous close of Rs 752.20, with trading volumes of 1.034 million shares.

Sterlite Industries has now categorically stated that any revenue loss faced through non-fulfillment of the order would have no impact on its earnings growth for the current fiscal. "We are witnessing phenomenal growth in our fibre business, with a 33 per cent jump in prices from an average $40-50 per tonne. There has also been a 90 per cent growth in fibre cable volumes from 0.8 million fibre km to 1.5 mfkm. Thus, even if the DoT telecom order does not come through, we see no impact at all on our earnings for the year.''

Sterlite is expecting a steady 40-50 per cent earnings growth during 2000-2001.

Sterlite posted a 50.4 per cent rise in net profit for the year ended June 30, 2000. Net profit was Rs 2,419.4 million on net sales of Rs 29.25 billion. Net sales were up 43.7 per cent, while exports increased substantially from Rs 670.2 million to Rs 1,807.5 million.

Besides stronger growth in the optic fibre business and higher global copper prices, Sterlite could expect more good news in the coming weeks. According to industry sources, DoT is considering allowing Sterlite to supply the cable order at a price that is only marginally lower than the L2 price, which would result in the company's losses being kept to the minimum. The Sterlite bid price was Rs 294, while the L2 prices ranged between Rs 297-300.

The confusion in the deal was on account of a price of Rs 163, which was erroneously printed, when DoT opened the bids for the contract. It has been seen that Sterlite normally commands a 19 per cent share of DoT's overall order position for a year.

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