Sterlite Technologies Limited (532374) Earnings Call Transcript & Summary

Hello, ladies and gentlemen, good day, and welcome to the STL's Q3 FY '25 Earnings Conference Call. My name is Chetan Wani, and I head Investor Relations at STL. We are joined by Ankit Agarwal, Managing Director, STL; and Tushar Shroff, Group CFO, STL, to walk us through the Q3 FY '25 results and to answer any questions that you may have. [Operator Instructions] You can download a copy of the presentation from our website, that is www.stl.tech. Please note that this call is being recorded. Before we proceed with this call, I would like to add that 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 clauses indicated in the presentation also applies to this conference call. I now hand over the call to Ankit Agarwal for opening remarks. Over to you.

Thank you, Chetan. Good day, everyone. Thank you for joining us for our Q3 FY '25 earnings conference call and wish everyone a fantastic 2025. As we advance the end of FY '25, directionally, our strategic priorities remain the same. In the Optical Networking business, our focus remains in driving growth by increasing market share in optical fiber cables and improving our connectivity attach rates. To achieve our goal of generating significant revenue from data center and enterprise segments, we will accelerate the development of comprehensive data center product suites to tap the vast potential of this market. Additionally, we will sustain our efforts to drive technology and cost leadership in the optical domain. On the Global Services business, we will build capabilities and value-added services while optimizing the project mix to boost profitability. Concurrently, we will work towards completing the demerger of the Services business. On STL Digital, we aim to scale the business through strategic investments in new technology and domain capabilities while maintaining a complete focus on the profitability. STL has always endeavored to be a responsible leader in ensuring we have a connected and inclusive world. Through our various initiatives in education, women empowerment and health care, we are very proud to share that we have positively impacted millions of lives since FY '19. To highlight the achievement of some of our initiatives, we are proud to share that 13 students from our RoboEdge program proudly represented India recently at the prestigious Robotox International -- Robotex International Championship in Estonia. The program has impacted over 5,000 students over 11 schools in Aurangabad and Silvassa and fostering innovation and excellence in STEM, education and robotics. Our flagship Jeewan Jyoti program founded by Ms. Jyoti Agarwal has empowered more than 5,000 women artisans with vocational training and now showcasing their products under the Akai brand. With a focus on sustainability, we have installed 4,523 kilowatts of solar panels across our plants, contributing to a significant reduction in our carbon footprint and advancing our renewable energy adoption goals. These installations not only reduce greenhouse gas emissions, but also demonstrate our commitment to energy efficiency in manufacturing. Additionally, we actively collaborated with 26 Gram panchayats on afforestation and water replenishment programs, planting thousands of trees and rejuvenating water bodies to support biodiversity, improved groundwater levels and create resilient ecosystems. Through a hybrid health care initiative, Swashthya Suraksha, we have delivered primary and telehealth services to 26 lakh underserved individuals in rural Maharashtra. At STL, sustainability is at the core of everything we do and we are firmly committed to achieving net zero emissions by 2030. Since FY '19, we diverted over 260,000 metric tons of waste from landfills and recycled over 930,000 metric cube of water, reflecting our focus on resource efficiency. We have also partnered with Hygenco to adopt green hydrogen, and we are proud to be the world's first optical manufacturer certified for zero liquid discharge and zero waste to landfill. Our eco-label products not only use 52% less energy, but also extend network lifespan by almost 13 years, combining innovation with environmental care. Aligned with 16 of the 17 UN sustainable development goals, we proactively and positively impacted over 910,000 lives and earned over 100 plus ESG awards, proof of our unwavering commitment to build a sustainable and inclusive future. In the next few slides, we'll highlight Optical Networking business, and our efforts with becoming the top 3 players in the Optical Connectivity business globally. Reflecting on the past quarter in the year 2024, CRU's latest estimates show some contraction in the global OFC demand through 2024, driven by reduced demand in China in particular. 2024 volumes are estimated to be the lowest in the last 4 years. Despite lower demand in recent quarters, we have seen steady fiber deployment and ongoing client commitments towards network expansion going forward. Data center demand for cable is emerging as a key growth driver. And various analyst estimates assume a steady demand improvement from 2025 and a robust demand growth from the medium to long term. CRU projections indicate a steady increase in fiber optic cable demand reaching 620 million fiber kilometers by 2028, with more than 4% to 5% annual global growth and over 8.5% annual growth outside of China between 2024 and 2028. STL's key markets, North America and India, expected to grow even faster. North America's demand expected to grow by almost 12% in 2025 and 14% until 2028, driven by both the BEAD program as well as continued data center demand going forward. We believe that the inventory normalization and consistent deployments are steadily driving a market recovery. The surge in data center demand for optical products fueled by Generative AI is set to accelerate further. We projected 22% annual growth in global data center capacity between now and 2030. By then, 70% of total capacity is expected to cater to advanced AI workloads highlighting the potential supply deficit in the future. One of the estimates suggest more than 2 billion CapEx in fiber-related infrastructure over the next decade. This presents a significant opportunity for companies across the data center value chain to address the capacity crunch. In India, GPU-based server capacity in AI-driven data centers is expected to reach 5.2 lakh GPUs by 2026. We believe that these CPU racks require significantly more fiber compared to regular -- compared to regular data centers. The STL's AI data center portfolio Make in India innovation is tailored for GPU-dense data centers require high bandwidth, low latency, AI data center requirements. Featuring high-density celesta ribbon cable with IBR technology, advanced MPO panels, LC panels, patch panels and copper connectivity systems ensures high bandwidth, low latency as well as scalability. We are proud to report that 22% of this quarter's revenues came from our data center and enterprise suite products. We have focused on driving rapid product development and significant revenue growth from AI data center and the enterprise ecosystem. Global investments in 5G networks, FTTx deployments and cloud data centers continue to fuel strong demand for optical connectivity products. In Q2 2024, CapEx amongst the top 10 telecom operators increased by 2.9% year-on-year, primarily driven by 5G fiber deployments and high-speed broadband expansion. Private players allocating substantial resources to enhance 5G infrastructure, achieving widespread 5G coverage. The number of global 5G operators risen from 582 across 173 countries in quarter 4 2023, to more than 618 operators in 184 countries and they expand the gigabit broadband access to both urban and rural areas. The growth is further supported by finalization of 5G advanced standards in June 2024, which is accelerating its adoption. FTTx deployments globally are expected to grow by a CAGR of 7.1% from 2024 to 2029 with North America, almost 14.6%; Middle East, 11%; and Eastern Europe more than -- almost 19%, driving this expansion. North America is projected to become the largest FTTx market with the U.S. targeting 100% FTTx coverage by 2029, backed by government initiatives such as the BEAD program. In Europe, the transition to full fiber broadband is gaining momentum due to copper switch-offs, with Portugal, Spain and Sweden leading the way. As per FTTH Council Europe, at least 14 countries in Europe are in different stages of transitioning from copper network to fiber networks, which would enable the demand for optical products in these countries. In India, telecom giants are Jio and Bharti aggressively pursuing fixed 5G base fixed wireless and fiber-to-the-home services, bundling broadband with pay TV offerings. These programs could lock a significant [ $11 billion ] to $15 billion in annual revenue opportunity for them in India, underlining our immense potential of the fiber connectivity market in the region. Over the past 3 decades, we have developed deep technology expertise across the optical fiber value chain offering a seamless glass to gigabit experience. Our advanced solutions include industry-first innovations like India's first multi-core fiber, Multiverse and the ultra slim fibers with diameters of 180 and 160 microns supported by a robust 740 [ patent ] base. This quarter, we achieved significant milestones led by our world-class product offerings. We obtained self-certification for our buy -- Build America By America-compliant optical products, strengthening our position to be a key supplier for the federally funded broadband infrastructure projects under the BEAD program. Through our South Carolina manufacturing plant, we are collaborating with U.S. broadband providers to meet the rising demand of both federal and private broadband projects, including the BEAD initiatives. We achieved initial commercial success with first [ larger ] order win of our newly launched AI fiber optic sensing solutions, Sensuron. The success of AI FOS fiber optic sensing Sensuron opens a huge market opportunity for STL as well. We also continue to support India's progress in fixed wireless solutions by providing optical products and copper products to large telecom companies in India to enable enhanced connectivity across the country. Reflecting on the market share in optical connectivity attach rates, according to CRU global consumption data, we held an 8% market share in optical market -- cable market across the globe ex China during quarter 3 FY '25. We are constantly focused on increasing our market share across our focus geographies. For 3 consecutive quarters, we have sustained more than 20% optical connectivity attach rate, a testament to our product superiority and customer validation. We expect this momentum to build up further backed by strong funnel order book and growth across our customer segments. Now let us look at the financial performance of the Optical Networking business. As we reflect on the financial performance of the optical business, in line with our guidance, Q3 FY '25 revenue stands at INR 924 crores, which shows healthy improvement on year-on-year basis. EBITDA for the quarter stands at INR 119 crores at 12.9% of the revenues. EBITDA margin reflects substantial improvement year-on-year basis, driven by constant focus to drive cost leadership. As we have been sharing with our strategically located manufacturing units, completed capacity expansions and well-executed CapEx cycle aided by constant focus on optimizing our cost structure and expanding our data center product portfolio, we are well positioned to capture significant market share as demand grows. Now let us focus on our Global Services business. In the Global Services business, Q3 FY '25 revenues stand at INR 289 crores. Our selective order intake and execution focus has helped us achieve a Q3 FY '25 EBITDA of INR 20 crores and EBITDA margin of 6.8%. As you may notice, the EBITDA margins have improved year-on-year and Q-on-Q basis despite a reduction in revenue, which is attributed to our select project intake and strong execution focus. We'll continue to build our capability towards value-added services and system integration to improve our margins and reduce the fund involvement going forward. In our Global Services business, we made steady progress on key large-scale projects in this quarter. Notably, we secured the strategically significant INR 2,600 crores BharatNet Phase 3 Project in Jammu & Kashmir. This project aligns with the STL's commitment towards the nation building and expanding broadband connectivity, enhancing opportunities in education and health care and economic development for the remote regions of our country. Additionally, we continue to build a strong track record in large network deployments, having successfully executed projects like Mahanet in Maharashtra and T-Fiber in Telangana. With over 150,000 kilometers of fiber laid across India, we are well positioned to capitalize on any major programs involving nationwide fiber network rollout in the coming quarters. We're happy to share with you that we see very healthy order participation and funnel development for our Global Services business that should translate to large order book in the future. Now let us discuss our STL Digital business and its performance. In our STL Digital business during quarter 3 FY '25, we observed robust deal flow during -- across geographies for marquee customers. We continue to acquire new global customers and added SAP and Oracle in our elite customer list during this quarter. Another notable highlight, we successfully led Vedanta's digital transformation program across through Project RISE and SAP spanning 8 companies and serving 15,000 users globally. The capabilities and experience from such a program strongly positions STL Digital to undertake further large transformation opportunities in the future. Our growth is underpinned by a strong partnership ecosystem comprising 40-plus active technology partners. We're happy to share that with the STL Digital open book standing at strong INR 451 crores at the end of the quarter. This, coupled with a healthy order pipeline, execution capabilities and strong leadership team. We are well positioned to drive sustained future growth. In light with our expectations and despite muted industry environment, we achieved quarter 3 FY '25 revenues at INR 77 crores, which is a healthy improvement on Q-on-Q basis. Our focus on profitable growth are showing results as we achieved our first EBITDA positive quarter in quarter 3 FY '25. We're happy to share that STL Digital business EBITDA stands at INR 4 crores. We shall continue to stay focused and grow further in the coming quarters. I now hand over to Tushar to talk about the consolidated financials.

Thanks, Ankit. Good day, ladies and gentlemen. In line with our guidance, the consolidated Q3 FY '25 revenue stands at INR 1,261 crores. The Q3 FY '25 EBITDA stands at INR 133 crores, and EBITDA margin stands at 10.5%. For Q3 FY '25, profit after tax loss stands at INR 23 crores. The quarter-on-quarter revenue decline is attributable to lower OFC volumes and lower revenue in [ GSV ] business. Profit after tax losses are narrowing on year-on-year basis. As we look at STL's 9 months FY '25 performance, 9 months FY '25 revenue stands at INR 3,892 crores, the EBITDA stands at INR 378 crores, and 9 months [ FY '29 ] after-tax loss stands at INR 83 crores. In last quarter, we witnessed a strong new order book addition with several large new orders and key contracts signed with prominent customers across the region. Notable wins include the new orders from leading American clients for OFC supply, a major U.K. telecom operator for optical connectivity and fiber solution, we also received the new orders for optical fiber cables and specialty cable products in Italy. Additionally, we secured the fiber supply contracts with major French customer. In Digital business, we secured large long-term outsourcing contract from industry leader. Thanks to our global business and customer base, our revenue mix was well diversified in quarter 3 FY '25 as we reflect on our order book situation. Based on our strong new order book addition during the last quarter, despite of the significant order descoping, our open order book stand at INR 9,050 crores, as of quarter 3 FY '25. The order book is well diversified across the customer segment and business verticals. We have provided the abridged version of our reported numbers for your review. The net debt of the business stands at INR 2,195 crores. Let us now discuss the update and the status of Global Service demerger. We are making steady progress on the demerger process. The shareholders and creditors of STL India approved the scheme of arrangement in a meeting held on July 10, 2024. Following this, the demerger petition was filed admitted with NCLT during October 2024. The final hearing date is scheduled on 30th January 2025 with NCLT Mumbai bench. The final approval are expected in Q4 FY '25, after which resulting companies anticipated to be listed on the stock exchanges. However, the progress remains contingent on NCLT scheduling and hearing. In summary, our focus areas for the business are clearly [ defined ] as in Optical Networking business, we aim to drive the technology and cost leadership with the goal of being 1 of the top global top 3. We will drive the sales in a focused market to expand our Optical Network business and close the volume gap. Our focus will remain on growing the Optical Connectivity business and increase the attach rate. Additionally, we will prioritize the rapid development of our data center product portfolio. In the Global Service business, we'll continue to focus on the select projects intake to improve the profitability and optimize the net fund involvement. We also aim to complete the demerger by first quarter FY 2026. In the STL Digital, [ we ] will continue to scale the business and grow our revenue along with the focus for profitability. With this, I now hand over the call back to Chetan.

Thank you, Tushar. Ladies and gentlemen, we have now come to the end of our presentation, and we shall move to the Q&A session. [Operator Instructions]

We will take the first question from Nikhil Choudhary.

This is Nikhil from Nuvama. My first question is on the data center opportunity. Thanks for highlighting that. So Ankit, can you give some color, especially regarding our capability and how we are positioned vis-a-vis our competitor. What we have seen globally some of your peer launched data center specific products, right? So just wanted to understand how we are positioned especially in data center [ capability ]? And second part of the question is the 22% contribution you have given for data center enterprise. So if you can break it especially for data center and if you have some comparison of how much it was same period last year.

Thank you, Nikhil. So I think as we've been sharing in last couple of quarters that clearly, this is -- from a sheer CapEx spend, we continue to see that globally data center spend will only continue to grow and accelerate. And within that, we are seeing that certainly as the shift goes from CPU based to GPU-based, the amount of fiber optics required will also grow multifold within that. We are seeing the connections of fiber optics up to the servers and go beyond that. So both in terms of copper as well as for fiberoptic connectivity, we do see that the growth will be quite strong. Within that, we are closely evaluating both in terms of opportunities for STL globally as well as particularly in India. In India, we see that the data center capacity will grow from around 1 gigawatt now to about between 2 to 3 gigawatts in the next few years. So clearly, again, a large opportunity here. And more and more possibly of the data centers in India will either look for us for Make in India solutions. So it presents an interesting opportunity for STL. I think we do have some base of portfolio of [ products ] both on the copper and fiber optic cable. But equally, going forward, if we really have to cater to this market, we need to hold a portfolio of product and make sure that we can really provide an end-to-end solution to the various data center players. From my perspective, I think this will take some period of time. Probably over the next 1 to 2 years, we will continue to build the portfolio, build our own IP, and in parallel continue our conversations which are going on currently as well with various DC players. But as I shared last time as well, this is clearly a priority for us. We cannot give any specific forecast at this time. But what we are starting to call from this quarter onwards is data center plus enterprise as a segment, we will start calling out what percentage of our revenue of optical ONB business is coming. And as that we do expect that to continue to grow going forward. To your second question, in terms of [ breaking ] out between data center and enterprise, we don't want to split that up for competitive reasons. But we are seeing increased demand of various solutions on -- particularly on our copper connectivity, which are going to various enterprises, whether it's GCCs or elsewise. And at the same time, we are also -- we have some unique communication cables for the railway segment. And as we are seeing a rapid expansion of these requirements, particularly in Europe and possibly also in India going forward.

Second question is on demand environment. Last year was a tough year, especially for optical industry. So how is the outlook for CY '25? Any early indication you are receiving from telecom OEMs in general for CY '25 as well as if you can touch upon any update on BEAD? You last time highlighted some [ delay ] but any updates.

Absolutely, no, spot on, Nikhil. So I think from what we have been sharing even last quarter, we have seen that there has been -- on the positive side, there are now at least several states, including particularly Louisiana, et cetera, which are expecting, what they're calling shovel on the ground based on BEAD funding in the next 100 days. So say, 3 months or so from now, where probably some first investment and execution will start by at least one of the States. But if we had to speak at a larger level, we do expect that H2 of this calendar year, and definitely probably our, say, Q2, Q3 kind of time frame is where we expect initial bead investments to pick up and hence our fiberoptic solutions to be starting to be required for that. But really, we expect that the larger and more significant demand will come from a calendar '26 perspective. So probably some portion of our financial year, quarter 3, quarter 4, we should see benefits of our BEAD requirements. We are well placed for that as recent as last few days, we also made an announcement where we have been on the official list of self-certification. And again, that places us very well and amongst few companies who can provide the [ cable ] solutions for the bead requirements. In terms of overall market demand, we continue to be focused in our geographies, which are in Europe, U.S., North America broadly as well as in India. In India, we are seeing that on the back of BharatNet, broadly, there should be an increased demand over the next 4 to 5 years. As the advanced purchase orders get released, some of them have already happened in the last few days and others should happen in the next few weeks. That should result in demand for both our cables as well as fiber to other cablers. And of course, from a services business, we should be also getting our purchase order for Jammu Kashmir [ project ] hopefully in the next few weeks. So that's on the India market. Europe has been flattish. But as we talked about this transition from copper switchoff for copper to fiber is happening in a few markets, particularly in U.K., in Poland, in Germany, et cetera. So some pockets, we do expect to see some strong growth. But the largest growth continues to be in the North America market. We have seen some of the inventory inventories reduce over the last few quarters. We probably have maybe a quarter or quarter or 2 left of inventory absorption. But broadly, this is all placing us well for a good growth in North America demand in the coming year and is important for us is STL to capture some of that growth going forward.

The last one, if I can squeeze in for Tushar, especially on margin. So decent performance on margin on both the side, optical business as well as digital business. So optical business, what was the moving part despite of lower revenue, we were able to maintain the margin. And in digital business, we saw uptick in the revenue as well as first time adjusted EBITDA profitability. So was there some, let's say, some onetime revenue because of completion of some milestones which led to revenue bump as well as profitability. Or can we sustain this profit going forward as well?

So Nikhil, as you are aware that for the last couple of quarters, we have been extremely working to ensure that our cost structure remains in our control. So from that perspective, a lot of efforts have gone on optical network business to set the cost structure right. So as far as the ONB business is concerned, I think these are the sustainable in terms of the profitability margin is concerned. With respect to service business, I think what we have seen is in spite of the lower revenue, we have been able to more or less be able to maintain the kind of EBITDA margin that we have generated in last quarter. This is also on account of some kind of cost initiatives that we have gone ahead in that particular service business as well as we are expected to demerge this particular business to a separate [ entity ] in coming quarters. So from that perspective, at STL level, whatever the cost optimization efforts that we've been putting, which is yielding the results and which is -- in spite this quarter, we have a lower revenue, we have been able to maintain the margin percentage as such. So that's something I would say is on account of a lot of other -- I mean, initiatives on a cost perspective.

Digital business, sir.

The digital business, I mean it is more or less, I think, the way we have seen this particular business is we have a good long-term order book, which has happened in this particular quarter. And the kind of the new orders that we have been executing are at the better margin as compared to the earlier period. So from that perspective, the overall margin from the -- I mean the existing [ contracts ] are much better as compared to the earlier period. So the overall improvement in the project margin, the way we have been getting the new orders is giving the positivity in terms of sustaining the margin for the digital business.

We'll take next question from Sunny gosar.

My first question is on the optical business. So basically, I just wanted to get some more understanding on this bead program. So in U.S., the sustainable demand, which was there, like, say, 2 years back, -- so going forward, is it fair to assume that all the CapEx that even the telcos are trying to do will get folded under the bead program and bead will be the sole driver for demand. Or bead demand will be over and above the demand that the telcos had for their own network-related CapEx. And once this inventory adjustment or the inventory [ destocking ] gets completed or gets more normalized in the U.S., there could be like dual legs of growth, one in terms of the normal demand from the telcos and second from the bead program. So how should we look at that at a more normalized level?

Yes. Absolutely, Sunny, I think a good question. I think exactly from the market perspective, I actually think it's going to be 3 elements in parallel. You're Going to have the telco and the ISP demand, which is continuing, in fact, if you see the announcements recently from AT&T, Verizon, you see the announcements from various Tier 2, Tier 3 players, Windstream, everyone else. They're actually talking about accelerating their fiber deployment. So we continue to see the telcos invest and build out their fiber infrastructure. Everyone is clearly talking about fiber being simply best medium for providing high speed. And by the way, more and more operators are looking to move from about 1 to 2 gig service to between 4 to 8 gig service. so even the requirements and the speeds that they're now competing in are moving more and more where simply only fiber can provide that solution. So I think that's a very positive sign. I think bead, as I said, while the timing may have shifted, and from our own view, there's very much a continued focus on making this happen. I just gave 1 example of Louisiana state. But equally, other states have gone through -- all the states have gone through the process. And now slowly, we'll see state-by-state coming. And as the winners of the projects in the states move forward, that should lead to the demand. So that will be a second driver. And then the third driver will be this whole switch from the CPU to GPU based and that will lead to further demand of fiber for the data center segment. We do believe all 3 should play out in terms of the demand for North America. To give you ballpark, this broadly should lead to demand in North America going from current base of 70, 80 million fiber kilometers to north of 120 million fiber kilometers annually. So this will be a plus, plus in our view, that should partially play out in 2025 and then certainly 2026 onwards.

Got it. That's helpful. And have you seen improvement in terms of the new inquiries and -- any feedback from your customer discussions -- for the normal telco related CapEx demand. So how -- what is this status there. Are there green shoots? Is it still -- it is still slow in terms of conversation. So any thoughts or feedback on that?

Yes. I think broadly, I would say that we've definitely seen more incoming. When you look at our pipeline of opportunities, definitely, it is stronger than it was last quarter, I would say that, and particularly in North America itself. So I would definitely say that we see more opportunities, customers asking for more quotes. The way America works is on calendar year basis. So as the operators have now decided their budgets in kind of November, December time frame, this is the period now in Jan, Feb onwards where they start quire process and they decide on their partners for the current year. So this is a very important period between now up to March, April, where we should have visibility of how things will pan out for the rest of the year.

Got it. That's helpful. My second question is on the build service business. So we won 1 package in the BharatNet order, when do we expect to start execution for this package and like what would be the [ execution ] time line for the same?

Yes. So we have won the Jammu Kashmir project, which broadly is about a 3-year execution and 10-year maintenance. In terms of the time line, as I said, some of the other participants or winners have got their advanced purchase orders in the last few days. Ours is probably expected in the next few weeks maximum. And then probably the final purchase orders, formal purchase orders will also come in probably towards the end of the quarter or early Q1, maximum. So post -- of course, our work in the background has already started in terms of the survey and whatever else we need to do. And so I think it would be fair to say that probably at some point in Q1 the work would start in terms of various planning and other things also that go into it, and similarly for other players who have won the other projects. So this is important for us as a project, not only for services, but also for the optical [ business ]. So all those conversations are going on in parallel.

Got it. And have you seen any improvement in our working capital from the service business in the last 1 or 2 quarters, -- have we been able to get down the contracts assets and receivable.

So Sunny, I think -- so the -- relatively, the working capital has started reducing in the service business. But the kind of a pace that we have been expecting, it is little slower as compared to what we were expecting. So with respect to our plan and the budget that we had, I think, the -- presently, it is not at that level. But yes, definitely, on a quarter-on-quarter basis, we are seeing that improvement in terms of reduction in the working capital.

Got it. And I have 1 last question before I get back in the queue. Basically, our net debt as compared to the pre-QIP period, is down by about INR 800-odd crores. However, if you look at the interest cost reduction, we have come down from about INR 94 crores, INR 95 crores per quarter to INR 83 crores, INR 84 crores. So the -- it seems like the interest cost reduction is relatively lower than the reduction in the net debt. So I have 2 questions. Basically, what should be the sustainable quarterly interest cost going forward? And is there any like one-off cost in the finance -- in the interest cost line item in this quarter In terms of any refinancing cost or any bank charges or anything.

Yes. So I think Sunny, best way to look at the number is on a year-to-date basis, if you look at the overall finance cost, which has gone down from INR 281 crores to INR 238 crores. So there is almost like INR 50 crores in terms of reduction in overall finance cost. Now when we talk about this finance cost, finance cost also includes some of the bank-related Charges, correct, maybe the operational or it may be related to the financing. So from that perspective, it is not only the interest cost, but also the operational, in terms of a bank charges, which we incur as well as the bank cost, which is related to funding of the activities are also a part of the finance cost. So it is not only the interest and the bank charges, which is associated to borrowing. But there is also some element of the operational cost, which is also included in the finance cost.

So is it fair to assume that INR 83 crores, INR 84 crores will be like a sustainable quarterly run rate forward? Or do you see this coming down in the coming quarters?

So it should come down over a period of time. especially with the quarter 1 FY '25, '26.

We'll take next question from Arun Malhotra. Please state the name of your organization and then share your question. Arun? By the time Arun comes back, we'll take question from Rishikesh [ Yoja ].

Hello. Yes.

Arun, you are there.

Yes, I am there. Sorry. Sorry.

Please go ahead, Rishikesh will take your question after this.

Yes. I think there have been a lot of the huge demand that is there both from the data center and other aspects. But can you also comment on the supply-side dynamics and our competitive position to gain order or gain market share. Because I'm actually extending further to the pricing because if there is so much demand and supply is not there, do you expect buoyancy on the pricing side also going forward? And can we go back to the 2019 price levels as well as the profitability?

Yes. So Arun, I want to break it into 2, 3 parts. I think specifically to your question on the data center/enterprise side, I think definitely there we do see that there's fewer players who have the portfolio, and who can cope with the full solution. And I think that's certainly one -- on one side, we are definitely looking to see how we can scale that up. But definitely, We see a good opportunity there for having a healthy pricing and margin. And as we progress in terms of quarter-on-quarter improving our sales to this market, you should start seeing that. In terms of the market, I think globally as well, I think we are in an interesting place where when you look at much government-funded projects like bead, et cetera, going forward. There is an expectation that there should be premium for that because it has very stringent Made-in-America requirements, which naturally would be at a higher cost base. So I think, again, from that market perspective, as that demand comes in, and there are limited suppliers who can provide those solutions, I think that will again give us an opportunity to improve our realizations. Of course, broadly, as the market itself improves as we get into second half of FY '25, that should give us an opportunity to improve our realization globally. And of course, at the same time, in BharatNet as well kind of projects, as that demand improves and increases in India over the next few years, that should also help us improve our [ realization ].

See, orders like BharatNet, are they going to be lower margin orders or a normalized margin?

So just to start on the services part, we are very confident that we have got this order at healthy margins. And so of course, it's now down to our execution. So -- but principally, I would say that I'm confident that we booked it at the services business level at a healthy margin. Equally, on the Optical business, I think definitely, we are confident that we will look at vicinities both on cable and fiber both for our own services requirement as well as for other winners of the projects.

Sure. Just to Extend this again, sorry, we have seen buoyancy on the demand side, but the revenues have declined, if you see quarter-on-quarter, the margins are still not healthy. So what is causing this dampening both on revenue and margins?

Yes. So specifically, I think, see, one part on the positive side, Arun, as Tushar said, a lot of work has gone in internally in the last, I would say, 12, 15 months on our cost reduction initiatives, and you will see that flowing through our P&L. On the market side, as I said, we've had somewhat of a flattish demand in Europe and also because of high inventory over the last 12, 15 months in the U.S., even though the execution of new projects and fiber to the home, all of that was all-time high, the new demand from suppliers like us and others had been on the lower side. So that -- in that market, we had seen some realization reduction. And as I'm suggesting that as the demand picks back up in probably second half of this calendar year, et cetera, then we also expect with that demand, we do expect that both the lead times and realization would increase.

Okay. And firstly, on the -- this -- can you elaborate on what is this attach rate and what is the significance for this number?

Yes. So it's a metrics that we use, and we've been sharing for the last few quarters. But essentially, what happens in the telco ecosystem or the ISP ecosystem is that you need both the cables as what we call the optical interconnect to go together, especially as you're connecting homes or towers, et cetera. So what we've been historically been doing is selling a lot of [ cables ], but then with the acquisition of Optotec and some of our product development, we've also been able to push forward into our customers more of a solution sell of the cable and the connectivity together. What we call is the attach rate is that for every dollar of cable we sell, how many cents of connectivity that we sell. And so ballpark now for about $1 of cable that we sell, we sell about $0.20, $0.22 of connectivity products. And historically and going forward, we expect the connectivity portfolio to have even better margins than the cable portfolio.

All right. And lastly, on the receivables. Last quarter, you mentioned that you are expecting some receivables, INR 1,000 crores, and there's one more. Any guidance on that?

So Arun, last quarter, we spoke about very specifically on liquidating some of the outstanding that we have in the Service business. It's not only the outstanding, but there are certain working capital like work in progress that we have in certain contracts like T-Fiber and Mahanet. Unfortunately, it is little slower as compared to what we planned.

Is there any time line sir?

Yes. So I mean, these are unfortunately, these are the state government-backed projects. So a lot many times, it depends on the budgetary allocation coming from the state government to liquidate some of these receivables. So we are waiting for a budgetary allocation to happen for this particular project so that we can liquidate our receivables and the contract assets that we have.

We'll take next question from Rishikesh Yoja. Please go ahead with your question and request you to state name of your organization.

Rishikesh Oza from Robo Capital. First question is if you could share our revenue and margin guidance that we have for FY 2026.

Rishikesh, we actually don't give a guidance or forecast on an annual basis. What we have been -- I can just share what we've been guiding is that as a business, particularly the Optical business, we really -- our vision is to make this a world top 3 business. We've been talking about that from a growth perspective. In terms of, for example, the Optical Connectivity business, we've been talking about how we see a lot of potential in that. We want to scale up our attach rate between our cable and connectivity. We are in process of our services business demerger and definitely continue to see a lot of opportunity and pipeline to scale that up over the coming years. And of course, our focus is being ultimately to generate cash and reduce our debt, thereby also reducing our interest on an ongoing basis. So these are some of the elements that we have been guiding, and we continue to stick to that. We don't have any specific numbers to guide at this point about FY '25, '26.

Got it. No problem. Also, second question is regarding the BharatNet. For BharatNet order size, if I'm not wrong, is INR 2,000 crores. Are we expecting any further orders? And when will the revenue recognition start from bharatnet.

I think we'll have to come back to you in terms of revenue recognition. As we said, there's this process in between of us getting advanced purchase order, then getting the final purchase order. After that, there would be a period where you do various amounts of survey and other things. So I think there is a certain amount of time period, let us first get the purchase orders formally. And then probably in our next earnings, we can give you better time lines around what could be the potential revenue that we could get from this on a quarter-on-quarter basis.

Could you share that what margins have we got the BharatNet order?

We won't be able to share that, again, for confidential reasons. I can again, be rest assured, this is in Jammu Kashmir, we have executed NFS project, almost 10,000 kilometers in that region in the past. So we have a lot of experience in Jammu Kashmir. We are very confident of the region, and we understand the region. And hence, we are confident that we have won it at a healthy margin.

So Rikishi, this particular order that we've been talking about, is better than the margin that we have been accruing in this particular business.

We'll take the next question from [ Rohan Bora ]. We'll take questions from Vipul Kumar Shah.

My question is what is our OF and OFC capacity as on today? And what is the capacity utilization today? And what was the same last year same quarter?

Capacity in place. So I'll just start out on that. So as we've been guiding in terms of our volumes have been fairly flattish. I'm just talking on quarter-on-quarter basis for a minute. So similarly, like we got last quarter as well, we've been broadly at that around 50% utilization. As we've shared in the past, we are practically completely done with our capital and our capacity additions globally. We are very, very well placed with our capacities, north of $50 million on the glass and fiber side and north of [ $42 million ] of cable side, including our investments in the U.S. So we are fully set up on our investments. In fact, if you look at our capital spend for the year, it will probably be around INR 120 crores, INR 130 crores maximum. So we are really, from compared to previous years, our capital expenditure has also started to come down and will largely be much more of maintenance CapEx and some investment on the interconnect side. In terms of overall utilization, as we said that as the market improves, particularly in North America, India, et cetera, we do expect that utilization should improve in the coming year.

So [ Naresh ], I know that you don't give the exact rate at which you sell fiber or cable. But if I have to compare it with '18/'19 prices where the profitability was really superlative then how much we are in percentage terms, how much are we Down?

I would say ballpark, I would say, over both America and Europe from, say, peak prices as of the period that you mentioned, I would argue that depending on the market, we're probably between 20% to 30% down in realization. And as I talked about earlier that we do expect that some of these, particularly in North America, we do expect these realizations to also improve. And we've seen this in the past through various cycles that we do expect the realizations also to improve as the demand comes back and improves going forward. So I think it's -- and equally on our side, we have been taking a lot of initiatives on the cost reductions. And so we are quite confident that the operating leverage will definitely kick in as the factory utilization improves.

Sir, what is our capacity in U.S.A. Is it only cable? Or is it fiber also?

We don't disclose specific numbers by factory, but it's essentially a cable factory. And we are very well set up now in the factory there in terms of product portfolio and capacity. So we're very well set up now.

But we would not like to disclose the exact capacities by U.S.

We will take only last question from your side, please go ahead.

So return to profitability at net level what should be our utilization in terms of percentage?

So Vipul, I take this particular question. If we have to go back to the 20% in terms of EBITDA margins, we need to be at a capacity utilization about 70% to 75%. That is the kind of a capacity utilization will yield about 20% in terms of an EBITDA margin for Optical Network business.

Thank you, everyone. With this, we now come to the end of our question-and-answer session. And now I hand over the call back to Ankit Agarwal for closing remarks. Ankit?

I'd like to thank everyone for attending this call and showing your interest in STL. Despite a challenging market environment and shorter quarter, we have made progress on key strategic priorities. We remain focused on the factors in our control, emphasizing customer centricity, building a lean and agile organization and driving growth through technology leadership. We will continue to aggressively pursue business opportunities in our key regions, leveraging our advanced manufacturing innovation and industry-leading products. As demand normalizes, we're well-positioned to execute effectively, Deliver strong results and create shareholder value. I hope we were able to address all 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 Tushar. We really look forward to continuing the conversation with you in the near future Thank you. [Foreign Language]