Sterlite Technologies Limited (532374) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to STL's Q2 FY '22 earnings conference call. I'm Pankaj Dhawan, Head, Investor Relations at STL. To take us through the Q2 results and to answer your queries, we have with us Dr. Anand Agarwal, CEO, STL; Ankit Agarwal, Managing Director, STL; and Mr. Mihir Modi, CFO, STL. [Operator Instructions] Please note that this call is being recorded. You can download a copy of the presentation from our website at www.stl.tech. Before we proceed with the call, I would like to add some elements of today's presentation may be forward-looking in nature. And must be viewed in relation to the risk pertaining to the business. The safe harbor clause indicated in the presentation also applies to this conference call. For opening remarks, I now hand over the call to Dr. Anand Agarwal. Over to you, sir.

Yes. Thank you, Pankaj. Good day, everyone, and thank you for joining us for the -- our Q2 earnings conference call. Like what we do normally, we'll start off with giving a perspective on the industry. We talk about our strategy. We'll talk about -- and then hand over to Ankit for discussing about the strategy execution and the performance for the quarter. So at very macro level, we've seen that the overall digital infrastructure industry is really well poised for rapid and sustained growth. We are clearly seeing 4 macro teams playing out. At 1 end, we are seeing that network creators, including large governments are investing heavily in creating digital infrastructure. On the technology front, we are seeing the 5G fiber to the edge as well as open RAN technologies growing at an extremely rapid pace. We are seeing the -- at the same time, we are seeing the demand for the optical networking is growing on the back of very strong multiple growth drivers. And what we've seen in India, with the recent move by the government and the reforms recently announced are really [ defining ] the spending and the CapEx within the country. And we'll talk about each of these trends that we are seeing in the following slides. So network creators and governments are largely investing in digital infrastructure. What we are seeing is globally, whether we see Europe, whether we see U.S., India, the data center markets, the investment is growing multifold. On the government side, at the same time, we are seeing, again, investments happening, whether it is the BharatNet project in India, whether it's the German projects that we see in Germany, in U.K.. We're seeing the investments continue unabated, and it's across segments. It's across the network creators. It's across the government as well. And what -- interestingly, what we're seeing in the U.S., there have been a multitude of subsidies and programs that have been announced, both federal and state funds. And that has seen funding, a substantial jump in CapEx that's coming over the next significant years, next few years. And that -- this just provides a perspective of the kind of depth. This provides a perspective of the kind of investments that we are seeing in digital infrastructure. And this is happening, really, at a global level. Other than the quantum of investments, we are seeing a good degree of technological shifts also happening. 5G is clearly growing -- continue to grow at a really fast click. There are more than -- almost 2 billion connections by 2023. At the same time, the entire 5G deployment is back on the backhaul of very small cells with the optical technology. Fiber to the edge, whether it is homes, whether it is enterprises, data centers or small cells is growing at a rapid click across the world. And the wireless shift moving towards open RAN technologies is continuing. The growth is continuing unabated. So what we've been discussing and talking for the last several quarters about -- that this cycle about -- of infrastructure creation, digital infrastructure creation has a sustained cycle for the next 7 to 10 years. And this is clearly getting showcased in terms of the demand for optical fiber as optical, which is clearly the backbone for all these networks. We are seeing the service providers globally are aggressively investing in fiber for their networks the demand for CRU from about 490 million, supposed to go to almost 610 million kilometers, almost a 20% jump in the next couple of years. And we see evidence of an imminent uptick in demand base just as an indicator on the China Mobile tender, which is almost more than 140 million kilometers is a single [ 10-code ] requirement. And the pricing, as a result of these standards, has also gone up significantly in that market. A similar thing that we're seeing on the policy reforms in India, the initiatives by the government in terms of the moratorium on EGR payments, in terms of 100% FDI approval, in terms of the PLI scheme for domestic manufacturing, it's all moving in the right directions. And we are already seeing signs of that in terms of CapEx coming in from the providers in the country, whether Airtel, Jio and, to an extent also, indications coming from Vodafone Idea. Looking at these -- all of these 4 themes that we talked about, we can confidently [ re-trade ] that we're in a multiyear network build cycles across the globe. The 3 investment cycles of 5G, FTTH as well as continued investments by the various Internet providers are coinciding and these are expected to continue for the next 7 to 10 years. So in light of these industry developments, we just thought to recap the overall STL strategy. As you would recall, our clear business model entails a portfolio of 3 core solutions, which is the optical solutions, which is wireless solutions and the software solutions are integrated with our own end-to-end system integration services. And this is the -- for us, the entire integrated go-to-market model. Over -- and over the last 5 years, across all these portfolio pieces, we have made strategic investments in a very designed manner in terms of adding capabilities, in terms of adding global footprint and in terms of adding scale. So for instance, for the -- in the optical business, we increased the scale on the fiber side from 20 million to 50 million, cable side from 12 million to 42 million. In terms of global footprint, we've acquired an entity in Europe called Metallurgica. As well as in terms of portfolio augmentation, we added an optical interconnect in Optotec. And a similar very deliberate focus was there across each of the 4 areas in terms of investing in capabilities, in terms of investing in physical assets as well as investments in the people assets. And that has very well played out for us in -- as a company. These strategic investments that we did have led to an increase in overall total addressable market by almost 5x from about $8 billion that we had in 2016 to almost $40 billion market, which has broken in optical connectivity as a significant part of this market opportunities of almost USD 18 billion; system integration, about $14 billion; and about $8 billion split between wireless and network software. And wireless piece, the piece that we are talking currently is about the Open RAN-use only. So our focus is on gaining market share, continuing to gain market share for -- in this total addressable market. And we shall, as we have communicated earlier, which shall gain market share in -- through our 3 focused levers of growth. First is towards growing the optical business. Second part, globalizing the system integration business and consolidating the market leadership position that we have in India. And the third part is building a strong wireless solutions business. And we will now move forward towards strategy execution and I request Ankit to take this on. As I had informed all of you that I shall be transitioning from STL on the 2nd of December. And I really want to thank all of our shareholders, research analysts, the leads needs in the investment community for the continued support throughout the evolution and the transformation phases of STL. The company is extremely well positioned for the next phase of growth with a very focused strategy and a great, great leadership team. We had identified Ankit as an overall part of the succession planning exercise that we do in the company and I'm very happy to introduce and welcome Ankit as Managing Director of STL. Ankit clearly embodies the spirit of innovation and brings an exceptional leadership track record. He has strong international exposure and a unique ability to forge long-standing relationship with our customers, partners and our employees. He has successfully led the optical networking business for more than 10 years, and I'm extremely confident that he is the right leader for SPL for the next phase of growth. With this, I hand over to Ankit to take you to the next part of our presentation.

Thank you, Dr. Anand. I want to thank you for your exemplary service. Taking the matter from you is truly a privilege and honor for me. My focus will be to propel STL to the next phase of growth journey based on the strategic levers and financial targets that we have chalked out. As always, we shall continue our growth journey adhering to the financial discipline and conforming to the highest corporate governance standards. I'm also looking forward to working closely with all our shareholders and stakeholders in the investment community. As Anand touched on, in terms of growing our optical business, we continue to see our momentum on our Opticonn solution. In the optical business, we are witnessing of favorable momentum of a sustained market expansion since December 2020. Furthermore, the market is shifting towards high-value integrated solution approach, essentially of the optical fiber cable and the optical interconnect solutions. On the OFC side, if we look at the CRU FOCI Index on the top left, you will see that this is a measure of a global demand in price growth estimates. And it has grown significantly over the last 10 months. This is in line also with how we have taken our capacity utilization and continue to improve that on a quarter-on-quarter basis. Optical interconnect is a technology-oriented business which is on the growth part on the back of increased network connections. At STL, we recorded double-digit revenue growth in this quarter in this business. STL is well positioned to offer end-to-end optical solutions through the Opticonn offering that we have. If you look at our journey over the last few years, our optical fiber cable market has -- for the global market, excluding China, has grown more than double in the last 5 years and has now reached almost 10%. Particularly in the European market, we have grown our market share in a focused and designated manner from a meager 3% in FY '16 to almost 26% as of now. This has been a dominant part of our strategy framework over the last 5 years, and we intend to follow a similar playbook for optical interconnect products in Europe as well as take the same playbook to other markets globally. We are strongly positioned to increase our global market share in the coming years. Optical interconnect is a technology-oriented business with a strong opportunity for solutions' end. The market is expected to grow from about $7.5 billion to close to $10 billion by 2025. Optical interconnect business is one of the same scale as the optical fiber business globally and is, in fact, more technology-intensive as fiber is reaching closer to the consumers. It is a large growing segment adjacent to the core strength of STL, having the same customers and the same CapEx area. Optical interconnect is a customized and engineered solution for fiber management and domination as shown in the infographic. Some of the key products for FTTH and data center segment are shown here. STL key differentiation in the OI products are ease of installation, low optical loss, reduced cooling requirements and also lower carbon footprint. Our confidence with respect to the multiple growth stems essentially from this slide. As you can see, through the Optotec acquisition that we completed recently, we've been able to increase our attach rate to about 8% currently. But we have a long runway ahead of us. And we can see that the industry is at a attach level of about 100%. So clearly, there is room for this business to grow, where essentially you would have a one-to-one match of our optical fiber sales to our optical interconnect sales. As Opticonn provides partial network deployment, better quality network infrastructure and reduces overall network cost, we believe that this end-to-end optical connectivity solution will continue to grow, enabling us to gain market share. In the last 5 years, we have grown 6x in the system integration business, and we're continuing this trajectory in attractive customer segments. In the defense segment, we are executing high-profile and critical end-to-end network modernization projects for both the Indian Navy and -- Indian Navy and Army. In the telco segment, we are working closely with both Jio and Airtel for tower fiberization and also Fiber-to-the-Home. In the citizen networks, we're executing projects in Maharashtra and Telangana. In the data center segment, we are building a business -- we are building the businesses on a growth part with the marquee customer base. With market leadership in India, we have embarked on a global growth journey, starting with the U.K., and have already started getting some good network creation projects. In line with that, we are delighted to announce our follow-on wins first, the first order that we announced previously. We have partnered with 2 leading alternate service providers in the U.K. We shall deploy FTTx Mantra to connect homes with broadband. These are GBP 42 million projects cumulatively and expected to get completed in the next 12 to 18 months. In order to further accelerate our system in taking business in Europe, we've acquired Clearcomm, a provider of end-to-end optical network integration services in the U.K. We have successfully completed the business integration of Clearcomm with STL. We are now -- we now have a combined employee center of more than 100 employees and more than 20-plus partners on board. This traction achieved in the U.K. underscores our globalization strategy. In terms of execution, our speed has increased in this quarter. Our project completion status, as you can see, is as follows: Project Varun is at 99% completion. Among BharatNet projects, MahaNet, almost 100%, close to 99% again; T-Fibre is at 34% completion, including all packages. Fiber rollout for the large Indian operator is 62% complete. Fiber-to-the-home rollout in the U.K., the first project, is 2% complete. And Project 2 and 3 that I just brought up are at the starting stage. In the data center connectivity projects in this quarter, we have completed 44 projects and are currently working on 21 further projects. In the wireless business, our product development is on track. On the back of efforts by engineers, we have 54 patents on our name as of now. We continue to invest in R&D. We have invested close to 3.5% of revenue in R&D in quarter 2, and 70% of it has gone in developing wireless solutions. In terms of customer engagements on the wireless side, we have almost 11 early-stage engagements and 14 participation-stage engagements as of now. As Anand mentioned earlier, we have a focused strategy in place, which, coupled with our experienced leadership and execution of the strategy, provides a win-win combination. We have Paul Atkinson, a veteran from Prysmian Group, leading optical business. We have Mr. Praveen Cherian, who has joined us as the CEO of the System Integration business. He has more than 27 years of experience in the industry. On the wireless side, Chris Rice is an experienced leader with 25 years at AT&T. Binding it all is Sandeep Girotra with 25 years of experience in the communication industry and is leading the key account management for us globally. In the last 4 to 5 years, we have consistently increased our R&D investments. As a result of these efforts, our patent count has reached to 636 at the end of quarter 2 FY '22, and we will continue to invest in R&D going forward. We have delivered robust financial performance, and I'm confident that we are on a path to deliver our financial targets. To talk about our performance highlights, I will now hand over to Mihir to discuss the financials.

Thank you, Ankit. A very good day to everybody. Let me quickly take you through the key elements of our financial performance. To start with, right at the top of the funnel, as you see, our order book has grown significantly in the last 3 years, essentially showcasing the breadth of our portfolio, the deep customer engagement that we have and are continuing to build and, of course, the global footprint. The order book spread is also well very balanced. I think the remaining 6 months of FY '22 is approximately INR 27 billion and beyond that is about INR 88 billion. As you see, our order book is well diversified across customer segments. And importantly, we are also building an O&M order book, which are starting significant revenue front from FY '23. Further down, our revenue mix is just moving in geographies in segments of our choice. It is simply to -- we are increasing our share in the telco space in terms of geographies. We are increasing our share in EMEA, European market being larger there and American markets. Specifically some notable wins in this quarter, we've won multimillion dollar deals with service providers in the U.K. to connect homes with broadband. We have also won a significant order for Opticonn Solution from a large European telco. Additionally, we entered into a strategic partnership with a leading Indian public enterprise to deploy a unified network management system. All in all, happy to share that the revenue mix is moving in the right direction. In terms of absolute revenues and the growth, as expected, we are back on growth trajectory, both Y-o-Y and Q-on-Q. Our quarterly revenue grew by 30% year-on-year to INR 15.08 billion. And the EBITDA grew 27% year-on-year to INR 2.69 billion. Of course, our optical business and the total business continued to grow on a Q-on-Q basis. Our project execution in India and U.K. shall further strengthen from Q3 FY '22 onwards. And we do expect to continue our Q-on-Q growth momentum, as we have been talking about and as we've planned. As we have been talking about reaching the INR 100 billion annualized run rate by quarter 4 of FY '23, just wanted to share the 3 growth levers that we believe will drive us and propel us towards that number from the current INR 60 billion revenue run rate. The 3 levers are the first one being in our optical network business, the OFC volumes are expected to increase to INR 42 million as we expand capacities, particularly in the U.S. and U.K. So we expect the volume there to increase to INR 42 million annualized rate. We also expect to increase the optical interconnect revenue by increasing the attach rates, which are currently in single digit, closer to the global benchmarks, which are as high as 1:1. So we're looking forward to using the optical business lever to get to INR 100 billion annualized run rate. The second lever that will support us and help us in the system integration business, particularly the globalization of that, the revenue from Europe shall strengthen from quarter 3 onwards and O&M revenue shall continue to increase. Last but not the least, the wireless solution business is the new stream of revenue being built on the back of new products, and we are very excited to take this to market and grow it further from here on. The net debt-to-equity ratio, as expected, as we have been talking about, has now peaked out in this quarter and has -- will start its journey trending downwards from here on. We've already generated a positive operating cash flow of INR 0.71 billion in the first 6 months of the year. Our cash outflow in organic and inorganic investments, at close to INR 4 billion in the first half is our investment, which increased our net debt a little bit. We paid dividend in line with our dividend policy. And with those investments and dividend payout, our net debt at 30th September, end of this quarter, stood at INR 28.15 billion. But as we had mentioned earlier, our investment cycle for the past few years for capacity augmentation, capability building, et cetera, is largely complete. And as we look forward, our investments would more focus on R&D, which has grown to now approximately about 3.5% of our revenues and paying a little bit of the balance of CapEx which is underway. But overall, the larger capital investments are behind us, and we expect the debt to start moving downwards from now on. If I just share a snapshot of how the last 3 years have been and what we expect from FY '22 to onwards from a capital allocation standpoint, you would see that we spend considerable amount on organic and inorganic investments. And now that is almost at the [ far ] end of the cycle. Whereas going forward, a large part of the cash flow from operations will go towards reducing the debt, thus getting us to the goal of bringing the debt equity ratio to 0.5. We've placed the abridged version of the financials for your perusal. Happy to announce the growth momentum back, both versus previous year as well as quarter to quarter, and we hope to continue to do that. In summary, we're committed to delivering our financial targets revenue run rate of INR 100 billion per annum by the end of FY '23; a net debt equity ratio of less than 0.5, again by the end of FY '23; and get our ROCE higher than 20%. I think along with being financially strong, STL's endeavor is to be a responsible leader in ensuring a connected and inclusive world. ESG is a very important element for us as a company, and this focus reflects in the way we have designed and implemented our ESG agenda. We are constantly working to ensure what we call a circular economy, where the waste is not only diverted away from landfills, but reduced at source, recycled and reused as input by other industries. And to make this possible, we set ambitious ESG goals for ourselves. We're fully committed to achieving these targets on the ESG side. In summary, I'd like to say that our strategy to increase the market share in now what is the $40 billion TAM on the back of the 3 growth levers that we discussed is showing results. In the optical networking business, the global OFC market, the cables market share is increasing, and optical connect attach rate is also on the rise. The system integration business has taken its step outside India into the U.K.. We have integrated Clearcomm, secured new orders in the U.K., and now we are ramping up the execution there. The wireless solutions business, we continue to invest in R&D, develop new products and take it to customers. Net-net, plan to reach the INR 100 billion revenue run rate by the fourth quarter, net debt equity of less than 0.5% and ROCE of 20% plus.

[Operator Instructions]

Anand, first of all, we are really going to miss you. It has been a great experience working with you and learning from you. Best of luck for your future endeavors. Ankit, many congratulations on the new responsibility. We are looking forward to our continued interactions over the next many years.

Thank you. Thank you, Mukul.

To start the question on -- a quick view on how you see OF pricing going forward, especially after the surprise which just happened at the China Mobile tender. And you would also have started seeing some benefit because of increasing penetration in the U.S. market where pricing has remained elevated.

So yes, absolutely. So I think, definitely, it was an important development, China Mobile, close to 140 million fiber kilometers that we shared earlier. I think that's certainly overall a positive for the entire market and industry in terms of both the absolute volume as well as the pricing. It's also an important measure of possibly that the other telecom operators in China could also look at larger volumes than they have taken previous year. So I think that's positive. We also see that the large players in China possibly would then also be looking to supply into these large requirements that have come up. In terms of the pricing, I think currently, at least, we continue to see that they are stable and inching up a little bit. As we have shared in the past, we continue to have long-term contracts with our customers. And we will continue our discussions with them, certainly in newer contracts that we see. As we said, more and more as cable interconnect, it will be important to see how we place our pricing for those newer contracts. On the U.S. part, I would say, generally, whether it's Europe or U.S., as sharing most of the -- our sales are more and more towards the cable and interconnect side. And there, we are certainly ensuring that we have the right portfolio and we're selling at the right market price.

Sure. The second question was on the optical interconnect market side. Can you just help us understand what is your key competition in that market? How much of that market is serviced by the optical fiber cable guys, your competitors? And what are the advantages of buying from the fiber vendor? You said like the factory to the kind of deployment as one of the key advantages, what are the advantages of that? And is that something which is already being done by your global peers?

Sure. So good question. I think at a macro level, we're certainly very excited with, post the Optotec acquisition and our bringing on this capability on board. Since we already had relationships with Tier 1 operators globally and we had strong touch points with their technical teams as well as the supply chain teams, we're very quickly able to leverage some of those relationships and our conversations have moved from just supplying the cable to providing end-to-end solutions. And our conversations now are very much around end-to-end offering of how do we ensure they have the best cost for home paths and time to connect. What we're ultimately doing for the customers is solving for some of their bigger challenges. Very often, they don't have enough trained manpower or it takes power to long -- to deploy these networks or the costs are very high, like we see in a variety of our customers in the U.K. or U.S., across Europe as well. So what we've been able to do is bring in through this combined solution of the world's leading class, bringing it into our cables and then along with our connectivity. The Opticonn offering that we have started to offer is very, very exciting for the customers because we are able to demonstrate value and savings across these parameters on a total solution basis. So that's essentially how this is creating value for STL. And why we see that attach rate, from where it is, 8%, that it can go towards this industry norm of about -- at 100% level. It's -- some of the players were -- we won't be able to comment on the competition specifically, but I think, certainly, there are other players in the market, especially in Europe and North America, who do have certain amount of portfolio, both on the cable and the interconnect. And we certainly see that some of our own unique offerings that we have already filed some patents and we will continue to file, we will continue to ensure that we have our own unique offering to the customer in this space.

Sure. Just one clarification, if I can just get on the receivables and payables side. The receivables especially has gone up this quarter. Can you help split out what the break is between the public and private customers?

So Mukul, we don't split that out specifically, but we have reduced the receivable on the public side. Part of the increase in receivables also because if you see the other assets, which is the unbilled amounts, have reduced. So some amount of movement has happened from the unbilled to the debtors and, therefore, the debtors look higher. I think overall, what I'd say is the net working capital has improved this period and the breakup of that is favorable for the public accounts.

We will take the next question from the line of Mr. Neerav Dalal.

A couple of questions. First is that in your presentation, you're talking about increasing the OF. So one of the drivers going ahead is increasing the OF volumes from 28 million to 42 million. The idea for us was we were going to increase from 18 million to 33 million. So are we still -- so the balance is still to be added? So that's the first question. The second question is on the M&A strategy. Now that we've done an acquisition in the U.K., we've extended the U.K. system integration, we've done the Optotec. So going ahead, what would be the specific areas where we would be looking at M&A? And thirdly, in terms of CapEx, if you could just remind us in terms of what would be the split between FY '22 and FY '23 in terms of CapEx?

Sure. I can take the first question. Certainly, as we have already shared previously, we are looking to expand our capacities, take it from 33 million to 42 million fiber kilometers. We believe the timing of that will be in first quarter of the next year for us and -- fiscal year. As well as -- so the current thought process clearly with our progress, we're seeing on these large investments globally and certainly in our engagements with our key accounts, we are very confident that we do see the demand. And we do continue to believe we will grow faster than the market is growing. So that's the reason for our continued investment. And -- but also, as you would know, we are fully backward integrated on our fiber side at 50 million fiber kilometers. So the plan continues as we have stated previously, to be end-to-end and be fully backward integrated. And to the customer, be much more forward-oriented in terms of our end-to-end solution. So that's on the first question. I think 33 million is done. So 33 million, we finished it in June of this year and currently already operating that almost...

Okay. Got that. Sure.

I think on the M&A part, I think in all of that has been aligned, as Anand was also showing, in terms of a variety of whether it's capability or adding scale, et cetera, that we have done through the period of time. So to that extent, I think a lot of those levers are in place. And we will certainly look on how do we maximize our output from all of those. And we will continue to look to evaluate opportunities if there are certain capabilities that come to be available, we continue to evaluate those.

Any specific areas we would look at? Because we are, like, now full in terms of -- I believe, in terms of the optical. In terms of the system integration, we are -- we have done U.K. So what would be the additional -- what would be the other area that we are looking at, at the moment in terms of M&A?

So as I said, there's nothing specific that we have, that we could share. We clearly laid out our strategy in terms of growing, globalizing and building the 3 businesses that we've touched on. So that is very much -- we believe we have the pieces in place to execute that. And certainly, if there are one-off capabilities or opportunities, we would evaluate those, but nothing on the table right now.

Okay. Okay. And on the CapEx side.

On the CapEx -- yes, I'll take that. So on the CapEx, we've spoken about spending about INR 500 crores. That's about INR 5 billion this fiscal FY '22. More than half of that has been paid out in the first half. And the remaining INR 200-odd crores will get paid out in the second half of this year. Next year, we will be in the range of INR 200 crores to INR 250 crores, around that range of CapEx, which will be more in the nature of sustainable or small, call it.

Thanks, Neerav. We'll take the next question from the line of Mr. Harshit Patel.

First, just a couple of bookkeeping questions. Could you highlight what was the manufacturing capacity utilization for us on both the OF and OFC fronts in the last quarter?

Yes. So overall, the utilization was about 70% on the optical fiber side. And as we just shared, close to 85% on the cable side. So overall fiber capacity at 50 million and the cable capacity at 33 million.

Sure, sure. And then Mihir said the value highlighted is almost INR 7.5 billion to INR 8 billion of CapEx over the next 2 years, FY '22 and '23. So does that number also includes the CapEx payables, I mean, at the end of FY '21? If I look at the annual report, we had almost INR 450 crores of CapEx payables left, so -- which were part of our other financial liabilities. So does that number include those INR 450 crores as well?

So this is a cash outflow. So it does -- I'm not sure the total INR 450 crores related to specific CapEx or not. But I think to answer your question, it includes -- it's a cash outflow. So yes, it includes the [indiscernible]. Yes, did you hear that? I guess...

You just got disconnected for a moment.

Yes. So I'll repeat the last sentence. What we are talking about as the INR 750 crores to INR 800 crores over the next 18 months includes payables. So there's no additional -- it's a cash flow number that we have, yes.

Sure. Understood. And just in last week, in a traditional way, where you used to share the breakup between products and services in the traditional way. So what would that breakup be for the second quarter? And that would be my last question.

2/3 is products and 1/3 is services this quarter. There tends to be lumpiness sometimes in -- depending on how the projects are tracking, et cetera. So this quarter is more like 2/3, a little bit 2/3, 60-40 to 2/3 for products.

Thanks, Harshit. We'll take now 1 question from the chat, which has come from Mr. Vinu Gopal. The question is what type of global capacity is built by our peers in the last 2 to 3 years ex China? Can you please throw your views on this?

What type of capacity. Yes, sure, so I think, certainly, a lot of our -- historically, if we step back a little bit, we had a phase where some of our large players, 3 or 4 large players had been adding capacity in China. In addition to that, we have seen that in the more recent couple of years, again, because of seeing this sustaining the 7 to 10 year network build out, we are seeing some of our peers in Europe, in particular, adding certain capacity. There have been some announcements. And then more recently, also in North America, a couple of our peers have announced investments anywhere between $50 million to $100 million of investment, specifically in either fiber capacity or cable capacity. So that's what we are currently observing. We continue to believe that both the demand will continue to grow. And as -- we also believe clearly, whether it's the government sector or private equity or other sources, there will be sufficient and more capital deployed to ensure this -- the deployment is there for 5G and FTTH, et cetera.

The next question, we'll again take from chat from Mr. Sanjay Gupta. Could you please provide update on status of our PLI application and how we are going to get benefited from it?

So we have -- the PLI application that we had done has been approved. We've done it in the name of STL Networks, which is a subsidiary company in that group. We are looking essentially at using that entity for our wireless and telecom equipment, hardware business as it pans out. So the benefits would accrue in terms of the percentage of production-linked incentive that come through. So the exact quantum is not available right now, but the application has been approved, and we are a PLI-approved manufacturer.

Thanks, Anand. We'll take the next question from the line of Mr. Vikrant Gupta. Vikrant, you can ask your question now.

Am I audible?

Yes, please do.

Just a couple of questions. Firstly, if you could just provide an update on the execution of the telco project, the large telco project that we had. And secondly, given that a couple of our large projects, the Defense one, the Navy one and the MahaNet project nearing completion, how do we propose to sort of backfill these or replenish our order book? What sort of pipeline do we have in these segments?

Sure. So firstly, I think the -- on the private sector, we continue to see a pretty strong demand of fiber network buildout. As we said, both fiber-to-the-home, then in large projects, investment decisions already announced by the telecom operators. In addition, as we're clearly seeing the government take strong policies towards both improving the health of the sector as well as taking 5G on a strong footing, we continue to believe a pretty large fiber network would need to get rolled out, both in advance and then during this 5G network buildout. So we clearly see, even in India itself, pretty large and strong demand for that. Within that, we believe we'll continue to get a strong share and we will be able to provide some of our leading solutions to make sure that we capture this share profitably. In terms of the other projects I think we're continuing to evaluate a wide variety of projects across the defense as well as the citizen networks. As you would be aware, the citizen network, specifically BharatNet, there has already been an announcement by the government even of around INR 20,000 crores which will be available in a B2B format. So we are closely evaluating that as a certain amount of projects will come up at some period of time. In addition, we talked about globalizing this business. And certainly, that continues to be very important. We've -- as we just shared, close to about GBP 42 million of opportunity have been secured in a very short period of time with that business, and we continue to believe that more opportunities will be made available with that business.

Okay. Just one follow-up. So do we now see the skew of the services or the system integration side more towards Europe and North America rather than India incrementally?

No, I think that this will continue. I mean, our home, so to speak, our current projects, a large portion of system integration will continue to be in India, both on private sector and the public sector. We also continue to see -- we've not talked about a lot, but we continue to see a large amount of data centers getting built out and probably some wall for next year within that as well on the data center interconnect side. So I think that will continue to be a focus area. We can probably foresee that in a couple of years, probably 1/3 of business will be outside India and 2/3 business in India.

Thanks, Vikram. The next question from the chat from will come from [ Needha ] . Any update on the wireless solutions project that you were working in the U.S.? Have we completed the testing phase? Also, when we see 11 engagements, would mean that we have secured these and are in testing phase? Can you please explain.

So the U.S. project, the testing is currently still underway for -- on the lab and the field trials. For the 11 engagements that are going, they are in various stages, between the field trials, lab trials and POC. These are not currently purchase orders, but trials in advanced phases. The one that we are clearly executing and that we've communicated in the past in form of an order is the radio order that we got from Facebook connectivity, where we're developing the radios for them as well as we'll be co-marketing them globally as soon as the development portion is done.

Thanks, Anand. The next question, we'll again take from chat from Mr. Saket Kapoor is how is H2 likely to shape up?

I think I'll answer that in 2 ways. I think one is given the market opportunity and our readiness to address that, we're are absolutely on track to hit what we've shared as the objective 6 quarters from now, which is a INR 100 billion or INR 10,000 crore annualized run rate. Having said that, I think from an immediate sense, as this quarter has already shown, our momentum on growth quarter-on-quarter and year-on-year is continuing, and we will keep focusing on that every quarter to make sure that we continue to grow. So the next 2 quarters are, hopefully, expected to go up that trajectory.

Thanks, Mihir. One next question, we'll again take from chat is from Mr. Vipul Kumar Shah. He is asking, when you reach INR 100 billion turnover at the end of FY '23, what will be the split between fiber, cable, optical interconnect solutions and services?

So fiber cable, optical interconnect and services. So let me answer it this way. We expect the chunk of optical networking business, which is the fiber, cable and optical interconnect put together to be 55-ish percentage. We expect system integration to be about 40. And we expect the access solutions business to be about 5%. I think that's the broad split that I would be comfortable with sharing, because that's the way we look at our businesses. Within that, I think just one more level of color that I can give you in terms of how we are looking at it, as Ankit also referred earlier, that between the optical interconnect to our cables business, the current attach rate is in single digit. It's about 8%, and we would want to raise that as we go further. And that will give you a sense of what the optical interconnect versus cables mix within the optical networking business would be like.

Sure. Thanks, Mihir. We will take the question from the line of Mr. Nagendra Maurya. Yes, so I think Nagendra's not on the line. So we'll take a couple of more questions from chat as it comes. Yes, please, Nagendra, go ahead.

I have just 1 or 2 questions regarding the debt position. As you Mihir said, this quarter, the debt has been eased out, and from the current level, it would be going down. So how much, by the end of year, we are looking to decrease those debt? This is one question. And secondly, on the question you asked here that we have currently not any M&A deal on the table. So are you -- is the current capacity sufficient to increase our current quarterly run rate of INR 15 billion -- sorry INR 16 billion annual run rate -- to the annual run rate? Are we looking for any new product development launching for the new next couple of quarters? What are your views on this?

Sure, Nagendra. So let me take the debt-related question. Yes, completely agree that as per the plan and as we had communicated in the past we believe that the net debt has peaked out for us. And it will start maturing, our debt now. While we'd want to reduce it as much as possible in the immediate term, I think I would say that our eyes are set on the 0.5% net debt-to-equity ratio. And to kind of indicate anything in the short term may be unfair given that we may need to make business decisions which will move some things from one quarter to the other. So at this stage, what I would say is that we are -- we're starting a journey of reduction of absolute net debt in rupee terms as well as reduction of the net debt-to-equity ratio. I don't want to make simplistic assumptions. But yes, it will -- over the next 6 quarters, it will reduce one piece at a time.

There was a question on the M&A part. To the extent I heard it, I just want to reiterate that, we do believe that we have our pieces in place for our 3-pronged strategy on the grow, globalize and bid. Specifically on the wireless part of the business, we continue to invest in R&D, and we believe that's critical for future growth of that business, which is obviously all done with our own teams internally. So at this stage, we do not see any immediate requirement for M&A, but we continue to evaluate options from a capability requirement as I stated earlier.

Okay. Any new product development in line which we are planning to launch in the next couple of quarters?

Any new product developments. I think broadly, we continue to have a very strong pipeline as you can also sense from our number of patents we have now built close to 6 -- more than 630 now. So we're continuously innovating and continuously looking to bring products to line. Our intent is always to do this working very, very closely with our key accounts, as we have stated earlier. So I'm sure you will continue to see a strong portfolio of products in the quarters to come. And we will certainly share those announcements in the near future.

Okay. Got it. One more question. One more question.

One more question, please go ahead.

Yes. Just one more question about, I believe the book-to-bill revenue also in the overall revenue, Can you give us a snip from the previous quarter how much book-to-bill revenue and how much from the order book?

So typically, Nagendra, the book-to-bill in a different business will differ. But I would say 20% is -- 20%, 25% is a good assumption every quarter that may not have been a part of the open order book at the beginning of the quarter. While I must quickly add that it differs from quarter-to-quarter, but one can assume a 20% to 25% a book can be.

So we kind of do this ratio for the annualized rate of? On the annual basis, sir?

Well, every quarter, this is the number. So dependent on what is the starting point for the open order book that you take, that is -- that we decide how that percentage pans out.

Thanks, Nagendra. So with this, we come to the end of question-and-answer session. And I now hand it over back to Mr. Ankit Agarwal for closing remarks.

So I'd like to thank everyone for attending this call and for showing interest in our company, and I hope we were able to address and clarify all your queries and comments. For any further questions and discussions, please [ feel ] free to contact the Investor Relations team, which includes myself and Mihir, and we really look forward to continuing the conversation with you in the future. Thank you.

Thank you, all. Miraj, you can close the session, please.