Sterlite Technologies Limited (STLTECH.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Sterlite Technologies Limited Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. Before we start the call, let me remind you that the discussion may contain forward-looking statements that may involve known or unknown risks, [uncertainties] or other factors. It must be viewed in conjunction with our business risks that could cause future results performance or achievement to differ significantly from what it is expressed or implied in such forward-looking statements. Please note that we have uploaded the results and earnings call presentation on STL's website and the same is available on the exchange. To take us through the results and answer your questions today, we have senior management of Sterlite Technologies Limited presented by Mr. Ankit Agarwal, Managing Director; and Mr. Ajay Jhanjhari, Chief Financial Officer. We will start the call with a brief overview of quarter gone past and then conduct the Q&A session. With that said, I will now hand the call over to Mr. Ankit. Over to you, sir.

Thank you. Good day, everyone. Thank you for joining us for STL's Quarter Two FY '26 Earnings Conference Call. STL is a global leader in digital connectivity infrastructure, enabling advanced networks for telecom operators, data centers, citizen networks and large enterprises. We operate through two core business segments: optical networking, which includes our fiber, copper and connectivity solutions. Digital and technology solutions encompass cloud, cybersecurity and AI-driven digital services. With the legacy of over three decades of industry leadership, we are proud to be India's first and only end-to-end optical fiber and cable manufacturer, holding approximately 7% share of the global optical fiber cable market. Our commitment to innovation, sustainability is reflected in our portfolio of 750 patents and our 10-plus sustainable manufacturing facilities, all operating with Zero Waste to Landfill. Through innovation, scale and sustainability, STL continues to power the world's digital future. At STL, we're one of the very few companies in the world to have mastered the journey from Glass to Gigabit. It starts with the purest grade silicon, which we transform through advanced processes like silicon tetrachloride, Chemical Vapor Deposition, High Precision Sintering to create ultra-pure glass preforms, which is the backbone of the optical fiber. From there, we draw the highest grade fiber, design high-density cables and develop reliable connectivity solutions that power data centers and telecom networks worldwide. The full stack integration right from raw material to network deployment gives STL a unique edge in quality, cost, efficiency and innovation across the connectivity value chain. This deep integration enables us to engineer next-gen fiber cable and connectivity solutions that are redefining global connectivity. To highlight a few examples, Stellar is the world's first G.657.A2 compatible legacy -- compatible with legacy networks with ultra-low splice loss, superior band performance and future-ready resilience. Stellar extends network life operators while cutting total cost of ownership. Celesta Ribbon Cables are purpose engineered for hyperscale networks. Celesta Compact Intermittent Bonded Ribbons deliver high-density packing, faster installations and superior ducting utilization. Multiverse, our multi-core fibers are truly industry game changers with Multiverse multiplies the fiber capacity by 4x within the same footprint, unlocking exponential bandwidth for AI cloud and 5G, 6G workloads. There is also quantum secure enabling future-proof network integrity and Opto Blaze, which is a compact pre-connectorized system that revolutionizes FTTH deployments with tool-free rapid installation, bringing scalability and simplicity to last-mile fiber rollout. With over three decades of expertise, STL continues to lead the global shift from Glass to Gigabit. Our end-to-end innovation from advanced material science to intelligent optical systems empower the world's largest network creators to build denser, faster and more reliable digital highways for an AI-driven future. As we complete our first half of FY '26, directionally, our strategic priorities remain the same in the optical networking business. Our focus remains on driving growth by increasing market share in optical fiber cables and improving our connectivity attach rates. We're also rapidly expanding our product portfolio for data centers, recognizing the rising demand for high-speed scalable connectivity driven by the rise of AI-enabled data centers. Additionally, we will sustain our efforts to drive technology and cost leadership in the optical domain. On the other hand, our ambition is not just to grow, but also to build for the future through STL Digital. We are consciously investing in building our technology and domain capabilities, laying a strong foundation for long-term differentiation. And most importantly, we're ensuring that all of this translates into profitable, sustained growth. Together, these priorities will guide our journey through FY '26, helping us not just respond to today's market needs, but actively shape tomorrow's digital future. Moving on, we will now speak about our performance in the optical networking business and our focused journey towards gaining market share. What's truly exciting is that these three mega investment cycles, FTTH rollout, data center expansion and 5G densification are coinciding for the very first time. Together, they are creating multiyear super cycle for optical communication demand and positioning STL right at the heart of the digital infrastructure buildout. Starting with FTTx, over 100 million U.S. homes still await Fiber-to-the-Home, with North America expected to see a 10% CAGR in fiber deployments between now and 2030. Globally, FTTH deployments are projected to go from 150 million fiber kilometers to 170 million fiber kilometers, underscoring a sustained fiber expansion opportunity. Next, data centers are fueling strong fiber demand with global optical demand for AI data centers projected to grow at 28% CAGR between 2025 and 2030. In India, data center capacity is expected to grow almost 5x by 2030, supported by almost INR 30 billion in planned investments, while in North America, capacity is expected to expand from 21 gigawatts in Q2 2025 to almost 80 gigawatts by 2029, with a market surpassing $4 trillion by 2030. On the 5G front, the momentum remains robust with 6.3 billion global 5G subscriptions expected by 2030, representing 67% of all mobile users. With 80% of global mobile tariff -- traffic will be carried over 5G networks, driving the fiberization of the mobile sites itself from 38% in 2024 to 63% by 2029. This surge is being supported by record Big Tech CapEx projected to exceed $600 billion by 2027, along with two major government programs such as India's INR 1.3 trillion BharatNet Phase III and USD 97 billion broadband funding initiative, including a $42 billion program of BEAD, which we have spoken before. All of these points -- all of these point to a multiyear network build cycle and STL is strongly positioned to lead and enable this global digital transformation. Next, we have highlighted how global telecom and tech leaders are unanimously betting on optical fiber as a foundation layer for digital future, be it 5G broadband data centers, AI infrastructure, the message is clear. As you can see on the code from Unity, for example, they expect an entire new build-out of the national fiber infrastructure, both metro as well as long haul. The world is in the midst of an AI-driven surge in data center capacity projected to grow by 3.5x by 2030, with AI workloads accounting for more than 70% of this demand. These GPU-intensive data centers require up to 36x more fiber, creating a transformational opportunity for STL. Beyond hyperscalers and cloud companies, we are now seeing strong traction from telco and alternate players investing heavily in backbone and data center interconnect opportunities. This new wave of DCI build-out is expanding the addressable market for STL as these players look for high-capacity, low-latency optical solutions. The hyperscale data center opportunity is scaling rapidly. The global hyperscale CapEx is expected to cross $600 billion by 2027, fueled by AI cloud edge deployments. Overall, data center IT CapEx is set to reach USD 2.8 trillion by 2029, underscoring the massive digital infrastructure build-out underway. This surge represents a multiyear growth runway for STL across our product portfolio of fiber cables and integrated network solutions that enable this world backbone -- data backbone. We are at the forefront of this global shift with the AI optimized scalable optical solutions designed and manufactured entirely in India. Our enterprise and data center business continues to gain strong momentum, now contributing 21% of revenue in H1 FY '26, and we expect this growth trajectory to accelerate further in the coming quarters. According to CRU, the global optical fiber demand is witnessing a turnaround in 2025 with a 1.7% year-on-year growth after two years of declining, making it the start of a positive long-term cycle for the industry. Demand fundamentals remain strong, driven by FTTH rollouts, AI-led data center expansion and rising connectivity needs worldwide. North America and Europe are expected to lead this resurgence with North America growing at 12% CAGR to 2030. We're also seeing encouraging trends in India, Southeast Asia and parts of Europe, all closely aligned with STL's strategic priorities. As we enter a multiyear up cycle in global fiber demand, STL is making the most from this momentum. Our order intake has grown over 2x year-on-year, reaching INR 1,340 crores in quarter two FY '26. The momentum is broad-based. We have secured multiyear supply agreements with leading European operators and regained strong order inflows from top-tier U.S. telecom players after a year's pause. With several large data center segment opportunities in the pipeline, we're entering the second half with a strong momentum. Being at the forefront of technology leadership, STL delivered key innovations last quarter with the launch of our next-gen data center portfolio and India's first MultiCore Fibre Multiverse for high-capacity AI-ready networks. Extending this innovation wave into the current quarter, first, we expanded our U.S. connectivity portfolio with CONCAT, a plug-and-play solution that simplifies broadband rollouts. Secondly, we made our FTTH solutions more efficient for Netomnia, enabling faster and more cost-effective deployments. And the third and most critical, we launched the world's slimmest 864 fiber IBR cable, especially designed for hyperscalers. Together, these innovations reinforce STL's position at the forefront of next-generation optical infrastructure. Our innovation engine remains strong with 26 new patents filed in Q2 FY '26, taking us to the 750-plus patents in total. And the current pipeline includes building future-ready capabilities like hollow-core fiber and AI-powered fiber sensing, which is also leading in sustainability with our green hydrogen pilot. STL's new data center portfolio is engineered to meet the performance, speed and scalability demands of the AI era. The comprehensive suite includes fiber and copper cabling solutions, pre-terminated multi-fiber systems and a high-density Celesta IBR technology, enabling low latency, high-capacity deployments across data centers, campuses and smart infrastructure. This quarter, we further strengthened our data center portfolio with the launch of our -- one of our most critical innovations, the world's slimmest Intermittent Bonded Ribbon Cable. The newly launched Celesta IBR cable packs 864 fibers in a very compact 11.7 millimeter diameter, optimized for jetting in a 14-millimeter inner duct and demonstrated the fastest time on record for installation performance, achieving a whopping 4,700 feet of jetting in just under 20 minutes. This breakthrough marks STL's entry into the elite league of companies capable of delivering ultra-high-density optical fiber solutions for hyperscalers. Through our go-to-market partnership with Tech Data, we now reach 70 cities across India, ensuring strong market access through a robust distribution and financing network. Building on our progress in next-generation optical technologies, last quarter we introduced one of our most exciting innovations in optical networks, Multiverse, a multicore fibre. Multiverse delivers 4x to 7x more capacity with the same fiber footprint, enabling operators to scale bandwidth rapidly while keeping deployment costs low. The performance has already been proven through successful joint trials with C-DOT and IIT Madras, validating secure high-speed transmissions across both aerial and underground networks, a milestone that marks STL as the first globally to deploy across both terrains. While with this, STL is now playing the leading role in shaping global standards for multicore fibre design and testing, placing us at the forefront of next-generation fiber innovation for AI data centers and 5G-ready networks. This quarter, we showcased our Multiverse portfolio at Connected Britain, one of the most influential digital infrastructure events globally. The solution received a strong and strategic response from multiple partners, including a POC pilot with a major alternate operator. This marks the beginning of commercial adoption discussions in key hyperscaler-driven markets. As per CRU data, our market share has moved year-on-year in the global OFC market outside China from 8% to 7% in H1 FY '25. While the first half of FY '26 reflects normal seasonality, we continue to focus on expanding market share through deeper customer engagement, product differentiation and stronger presence in international markets. In the optical connectivity attach rate, we maintained a healthy level of 20% in H1 FY '26 compared to 22% in FY '25, sustained traction in our high-value connectivity portfolio. This reinforces our strategic emphasis on moving up the value chain from just fiber to integrated connectivity solutions, positioning STL as a trusted end-to-end optical solution partner. Now turning to the financial performance of our optical networking business. In line with our expectations, Q2 FY '26 revenue stood at INR 980 crores. On a half year basis, revenues grew by 6% to INR 1,941 crores, supported by improved volume and stable pricing. EBITDA for Q2 FY '26 was INR 136 crores with a margin of 14% -- 14.1% for H1 FY '26, up from 12% last year, a clear outcome of our ongoing focus on product mix change, cost efficiency and operational excellence. With a strong foundation, healthy margins and improving market dynamics, STL remains well positioned to drive profitable growth and strengthen its leadership in the optical networking segment in the quarters ahead. Now let me take you through the continued growth momentum in STL Digital. STL Digital continues to build a strong growth momentum driven by its expanding global presence, its domain depth and focus on customer-centric innovation. In Q2, we added three new logos, taking our customer base to 33 and secured multimillion, multiyear cloud-based connectivity contract with a leading global information solutions company. Strong project deliveries across engineering, enterprise application and support services reflect growing customer trust. The robust open order book of INR 286 crores, a team of more than 1,100 people and deep capabilities in AI, cloud, cybersecurity and SaaS. STL Digital is well poised to scale further and drive innovative-led growth across key industries. STL Digital delivered a strong performance in Q2 FY '26. We posted a INR 65 crore revenue. Our sharp focus on profitable growth is yielding results with EBITDA of INR 1 crore in quarter two FY '26. We remain committed to sustaining this positive trajectory and confident maintaining momentum in the coming quarters. Now I will hand the call over to Ajay Jhanjhari, the CFO of STL, to take you through the financials.

Thank you, Ankit, and thanks to everyone for joining us today. I'll take you through the key financial highlights for Q2 and H1 FY '26. This quarter, we delivered a steady performance with Q2 FY '26 revenue of INR 1,034 crores driven by consistent execution across all business segments. EBITDA stood at INR 141 crores with a margin of 13.6%, reflecting a strong year-on-year improvement driven by our continued focus on cost optimization and operational efficiency despite the prevailing tariff headwinds. On H1 basis, our revenue has grown by 6% and absolute EBITDA has increased by 46% year-over-year. Our PAT has improved from losses of INR 62 crores last year to profit of INR 14 crores this year, reflecting strong profitability and improving fundamentals. In summary, these results demonstrate stable growth, expanding margins and disciplined execution, setting up well for the rest of financial year 2026. Our operational performance continues to strengthen, demonstrating sustained margin expansion driven by a higher-margin product mix and improved business contribution from the U.S. market. Operational EBITDA improved sequentially from 11.2% in Q2 of FY '25 to 14.4% in Q1 FY '26 and further to 16.7% in Q2 FY '26, underscoring the resilience of our core operations and the effectiveness of our strategic initiatives. However, during Q2 FY '26, a mid-quarter reset of U.S. tariffs temporarily impacted reported margins by around 300 basis points, reflecting as a headwind of 3.1% on EBITDA. Excluding this impact, our underlying operational profitability trajectory remains robust. We continue to engage closely with relevant authorities on the ongoing USA, India bilateral trade agreement discussions, which once finalized, are expected to provide clarity and potentially elevate some of these tariff-related pressures going forward. Overall, we remain confident in our ability to deliver sustainable margin improvement, supported by operational efficiencies, favorable mix and disciplined execution across key markets. In first half of the financial year 2026, we continue to strengthen our global presence with notable order wins across key markets. If we look at our geographical mix, we continue to maintain a well-balanced global portfolio. Europe remains our largest market, contributing about 42% of revenue in H1 FY '26 and continues to be a strong base for us. What's encouraging is the steady progress we are making in the U.S. North America has increased to 33% this year compared to 25% last year. This is exactly in line with our strategic priority of deepening our presence in the U.S. market. The rest of the world contributes the remaining 25%, which gives us a balanced global footprint and reduces concentration risk. So overall, the distribution reflects a healthy geographical spread with Europe leading and the U.S. is scaling up nicely as we execute our growth strategy. Moving to the order book, we have seen continued momentum this quarter. Our open order book stood at INR 5,188 crores in Q2 FY '26, up from INR 4,888 crores in Q1 of this year, reflecting healthy order inflows and strong market confidence. Of this, INR 820 crores is slated for execution in quarter three of FY '26, while the remaining INR 4600 crore -- INR 4,368 crores is scheduled for execution over FY '26 and beyond. This robust order pipeline provides strong revenue visibility and reinforces our growth outlook for the year. Here, we have shared a brief snapshot of our reported numbers for your reference. Net debt stands at INR 1,313 crores with debt-to-equity ratio of 0.64 and net debt to EBITDA at 2.33x. We are focused on bringing this below 2x going forward. With this, now I hand it over back to Ankit for updates on our social responsibility initiatives and closing remarks.

Thank you, Ajay. At STL, we lead with purpose. We are committed to building a more connected, inclusive and sustainable world. Since FY '19, our efforts in education, women empowerment, health care and sustainability have touched millions of lives across India. Through our RoboEdge program, for example, we have touched over 10,000 students across 12 schools. Our Jeewan Jyoti program has empowered more than 6,000 women artisans with vocational skills. Many of them showcased their work under the Akai brand, building livelihood and confidence. On the sustainability front, we have installed 4,500 kilowatts of solar capacity, reducing emissions and promoting clean energy across our facilities. We're also partnering with 53 villages to support forestation and water conservation, planting thousands of trees and rejuvenating local ecosystems. And through the Swasthya Suraksha, we have provided health care access to over 2.6 million underserved individuals in rural Maharashtra. At STL, sustainability is central to our purpose. We are proud to hold MSCI ESG A rating and are committed to achieving net zero emission by 2030. Our strategy is built on three pillars, environmental sustainability, since FY '19, we have diverted 274,000 metric tonnes of waste, recycled 10 million metric cubes of water and reduced over 41,000 tonnes of carbon through energy efficiency. Over 36% of our procurement is local, and we have partnered with Hygenco to advance green hydrogen. Social responsibility, aligned with the 16 UN SDGs, we are positively impacting 900,000-plus lives through education, women empowerment and healthcare, alongside installing 4,500-plus kilowatts of solar capacity. Strong governance with two Big Four auditors and robust governance committees, we've earned 100-plus ESG awards since FY '19. Notably, STL is the world's first optic fiber manufacturing certified for Zero Liquid Discharge and Zero Waste to Landfill, setting a truly -- true industry benchmark. As we move forward, our focus remains on strengthening both pillars of our business. In the optical segment, we are driving technology and cost leadership to position ourselves amongst the global top three while expanding in focused markets and enhancing optical connectivity and data center offerings. At the same time, our digital business continues to build scale with a clear emphasis on profitable growth. Together, these strategic priorities position STL as a key enabler of the world's digital infrastructure with a disciplined approach to value creation and sustainable profitability. Thank you.

[Operator Instructions] The first question is from the line of Debashish Mazumdar from SVAN Investments.

Sir, three questions. One is how much of the demand has got postponed because of this uncertainty related to tariffs? Because if I see the numbers correctly, our U.S. growth is still strong in this quarter and majority of the impact has come from the EMEA region. So just wanted to get some sense that where exactly the impact is coming and how the Q3 and Q4 will be looking like?

Yes. Thank you, Debashish. Yes, I think broadly, we've called out that how the tariffs have impacted us in quarter two and would continue to impact us in as long as these tariffs are there. But principally, we continue to be excited across the geographies. We particularly do see increasing demand cycle in North America, both from the telecom segment as well as the data center segment. On top of this, we do expect the BEAD-related projects to start kicking off from -- at some point next year. So that will be an additional demand in the market. So overall, we do see disproportionate demand positive signals coming from North America. But at the same time, Europe continues to stay positive, both for our cable as well as connectivity.

So sir, just to clarify, despite your impact -- uncertainty around tariffs, our U.S. business has still grown by 50% in this quarter. Is my understanding correct?

Not exactly 50%, but yes, it has increased substantially. And Debashish, to answer your question, the very fact that even after the tariff, the orders are coming in from U.S. is a positive sign, which is also reflected in the kind of growth which is expected by others. We have already mentioned that the CAGR 12% growth is going to be there.

So what is the -- based on the current order book, what is the kind of growth you are seeing in the U.S. market over the next 6 to 12 months? Broadband.

We won't be able to comment specifically on -- we won't be able to give a forecast specifically by market. As he said, overall, we do expect this momentum to continue. And certainly, if the tariffs were to be reduced anywhere, that will definitely help us both in terms of the market as well as our profitability.

Understood. And because of this, currently, we are coming under 50% tariff bracket. Is my understanding correct?

Yes.

And what is the price differential that we have compared to, let's say, cables that are getting supplied from Mexico? With this 50% tariff, what is the kind of price differential that we have with the Mexico supply?

Again, won't be able to give a specific number. But basically, it varies a lot because there are different and unique designs that we provide. There's certainly high-density cables that we manufacture for certain customers. So the pricing varies quite a bit by the design. Again, there's certainly a lot of credibility we have built in the U.S. market by nature of our product portfolio and also the fact that we also have a facility locally. So I think that's certainly to our advantage right now.

So is it fair to assume that despite this 50% tariff, our price differential is not that high? And even if it is high, clients are ready to bear that amount? Because you were saying that order book is still coming in.

Yes. I mean, I would say that, obviously, everyone is watching it closely, including the customers. And we're all hopeful of some solution coming to this. So I would just leave it there to say that genuinely, it will help in terms of giving some clarity and remove some of the concerns of our customers, both current and potential new customers.

Okay. And one last question on U.S. market again. At the beginning of the quarter ...

Sorry to interrupt, sir.

Yes. Ma'am, this is my last question, this is my last question. Just a related question, so I want to complete it, please.

Yes please, surely sir go ahead.

Sir, at the beginning of the quarter, what was the kind of growth you were anticipating? And at the end, what has actually come up? So just trying to get some sense what is the surprise factor that has come because of this kind of [indiscernible] uncertainty.

So I would not say that there is any surprise as such. But see, a few things have changed. So I would say, yes, there is still a decline in what we were expecting in the beginning of the quarter, but not basically because the demand is not there. Basically, there were challenges in terms of supplying that material on time to U.S. So that is hardly any impact. What we are trying to see is that we grow consistently and which is clearly demonstrated if you see the kind of growth we have shown in revenue in U.S. market. And that trajectory is going to continue for upcoming quarters as well.

[Operator Instructions] The next question is from the line of Saket Kapoor from Kapoor & Co.

Sir, when we look at your presentation, you have mentioned about a 300 basis point reduction in our margin for the U.S. business. So that means that the tariff part has been shared proportionately by us or in some proportion by us also, that is what signifies to this margin erosion?

So Saket, see, how the business operates is that most of our key accounts operate with a six months lead time for order execution. And the contracts which were in mid-execution where the prices were already agreed and fixed, that entire burden has to be borne by us because more than the current situation, there are customers on which we are seeing a long-term partnership. So I would say majority of the impact for Q2 was taken by STL on all these sales which we have made.

Okay. Sir, can you quantify the impact, sir, in terms of the hit we have taken on the bottom line?

We have already quantified it if you see, we have clearly mentioned that there is an impact of 3% on our EBITDA.

The total sales impact, can you give the sales number then?

Sorry to interrupt, sir. But if you have any follow-up question, please.

No, ma'am, it is only -- what sir is answering. We are -- I'm only asking sir, for further details. No new question it is.

Saket, that's the extent of the information we can provide for competitive reasons.

Okay. Okay, sir. And lastly, on the utilization levels, if you could give some color and join the queue sir. How are our U.S. operations, U.S. plant, which we have commissioned one year ago, how are the utilization levels being ramped up that would …?

Again, I won't specify by each factory, but I would say, overall, we are seeing our utilizations improve, and we do expect that to continue to improve between now and end of the year.