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Markets unmoved by Sterlite Optical's US JV

NetScribes/Abhijit Basu

Sterlite Optical Technologies' MoU with General Cable Corporation (GCC) for a 50:50 joint venture does not seem have had too much of an effect on the company's scrip. The scrip went up a mere Rs 8.85, or 1.19 per cent, to close at Rs 749.90 at the BSE on Tuesday. On Wednesday, it fell further to Rs 700.15.

"That the company would tie up with a global major has already been discounted by the market. Also, there is a misconception in the market that there has been a slowdown in the optical fibre market in the US. This is actually true for the telecom equipment market," said Chirag Shah, senior telecom analyst at KR Choksey Shares and Securities. "Also, the investors are a little cautious now as the company's proposed ADR has run into rough weather. All these factors put together, the scrip has not reacted much."

"All the euphoria over the scrip is gone. That the market sentiment will change for some time is doubtful, although good results might change all that," he added.

The scrip price peaked at Rs 1,152.95 on November 8, 2000, and has been on a bumpy ride since. It breached the Rs 1,000 level on December 12, but started falling since then.

SOTL recently announced its 50:50 partnership with the US-based wire and cable manufacturing company, GCC. The joint venture will be based in US and will manufacture and market optical fibre cable products, primarily for the North American market, which accounts for more than 40 per cent of the world's optic fibre sales.

Volumes have always been SOTL's strength. Also, analysts perceive the company to be among the lowest-cost manufacturers of optical fibre cables and jelly filled cables, which allows the company to enjoy comparatively higher margins.

"Globally, the price of optical fibre has gone up to $50-60 per fibre km from $25 per fibre km last year. SOTL sells its wares at around $50-55 per fibre km, owing to long-term contracts with large telecom and Internet players. So, the company makes more money on volumes," said a senior telecom analyst from Asit C Mehta Brokerage.

"Today, 60 percent of the company's business still comes from long term contracts. It is the other 40 percent which is still open to new businesses," said Shah.

GCC is expected to spin off its optical fibre cable manufacturing operations into the new company, while SOTL is expected to supply bare optic fibre to the JV for cabling.

In addition, the company plans to bid for 74 per cent equity of the public sector major, Hindustan Cables. If the deal goes through, it will be the first acquisition of SOTL after its demerger from Sterlite Industries last year. SOTL is also understood to be in the process of short-listing an optic fibre firm for acquisition in the US market.

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