DSIJ Interview with,Anupam Jindal,CFO, Sterlite Technologies
CFO, Sterlite Technologies
"Basis historical trend, we may maintain 24-25 per cent margin for FY19 and beyond that"
Anupam Jindal has been associated with the Vedanta Group since 1998 in various business verticals, including its aluminium and copper businesses. Having set up a large finance team for one of the aluminium entities in 2001-03 for a US$ 1 billion greenfield project, he moved to Australia in 2003 as head of finance for Vedanta Group's two copper mines, before returning to India in 2006 as CFO, Sterlite Technologies. Anupam has been heading a team of more than 100 people in his current role that drives the complete finance function of Sterlite Tech, along with multiple subsidiaries in India and overseas. As part of the senior-most leadership team at Sterlite Tech, Anupam has been instrumental in enabling the company's foray into various new business initiatives, investor relations, capex planning, financing and refinancing of its large telecom business with more than Rs 10,000 crore portfolio of transmission assets. He has also played a crucial role in the acquisition of Elitecore Technologies in 2015. Being a Chartered Accountant from ICAI, his focus areas have been finance, treasury, accounts and MIS.
As a CFO of Sterlite Technologies, what are your top three strategic priorities?
Our objective is to increase the shareholder value for all our stakeholders — suppliers, customers, employers, governments, authorities in India and outside, where we impact digital experiences.
On No.1 priority is the growth that we have committed to the market up to FY20. Beyond that, we need to create sustainable growth opportunities for the company. The entire executive management is working towards it. We have charted out a programme so that some of us focus on long term growth, while the team is focused on delivering the ‘here and now' happening on the ground.
The No. 2 priority is all about maintaining and improving our corporate governance standards. We have set quite high parameters to meet corporate governance standards, disclosure, transparency and communication. How do we further elevate this as we grow, remains a priority. We are driving this through systems, team building and culture building.
The No. 3 priority is beyond the company. How can we look at positioning the country in the overall global market as a thought and industry leader? There are overseas players like Cisco, Ericsson, Nokia, among other companies ruling the entire network and telecommunication industry. How can Sterlite Tech become a large company like those while driving the technology revolution in this space. We see a huge opportunity here and have started to think along these lines. It is a long and tough journey, but it's a job I'm driving along with my team.
Recently, you have acquired Metallurgica Bresciana. Can you through some light on the synergy of this acquisition? Also, can you tell us about your plans for inorganic growth?
We are a large global network solutions provider. On the optical fibre and fibre cables side, we hold about 6 to 7 per cent global market share. From a technology perspective, we are uniquely positioned. In India, we are the only company having the capability of making fibre right from silica, the basic raw material. Globally, we are among the only 10 companies which manufacture preforms and are currently addressing fibre demands of 8 among the top 10 global telecom operators.
From an international perspective, we have been able to secure a good market in Europe and China. Last year, our international revenue was nearly half of our total revenue. Of which, 27 per cent of revenue was from Europe and 18 per cent from China. With this large market in Europe, which has also grown over the last 2-3 years, we didn't have manufacturing base there until now. So, to serve the European markets better, we were looking at something closer which are not high-cost markets like France and Germany, but good hubs. We were looking for such opportunities for some time now, and found it in Metallurgica Bresciana.
The company is based in Italy and has the potential to ramp up significantly. Currently, this company is serving Italy and customers around the country. They have some Chinese customers as well. This company has fibre cable manufacturing capacity of 3 million and some copper communication cable, which serves new industry verticals that we didn't have access to. This opportunity was aligned to our existing offerings and is of value from day 1.
It also provides an opportunity to scale up, thereby getting better utilisation of the 3 million capacity, which is currently utilised up to 60 per cent. We may ramp it up to 5 million over the next 6 months or so by balancing and debottlenecking. Then we may look at expanding capacity further to help increase the market.
We have a clearly defined and articulated inorganic growth policy, which we have communicated to investors also from time to time. We would continue to look at inorganic opportunities which fits very well with our strategy of growing the company in all three industry verticals — telecom products, system integration and software solutions. There are certain financial parameters which we would continue to look at. Size does not really matter, but it definitely has to be within our reach and capability. The geography has to be closer to our customers, where we have market access, primarily Europe and China. We are also trying to enter the US where we see a huge opportunity for growth.
You have also forayed into 5G enabling front haul and fibreto- home network technologies. What kind of growth do you see from this segment? Over the next five years, what kind of revenue share do you expect from this segment?
The 5G is a very recent growth driver that is emerging. So far, the fibre industry was driven by the transition towards 4G, which was happening around the world. In India, we are still witnessing this transition. Large telecom operators in developed countries have started talking about 5G, taking up trials. The commercial launch will start as early as end of 2018, early 2019 globally. This will be a huge transformation in telecom and digital communication industry, where the network will get more and more dense with fibre.
Fibre demand in India is very small as compared to what will be seeing going forward. Today, the global industry is about 500 million km of fibre consumption per annum. With new fibre deployment, this 500 million may go up to 700-800 million km on a short-term basis. Post that, about 900 million - 1 billion km fibre will be globally consumed on a sustainable basis with rising 5G penetration. It will be at least 5 to 7-year demand cycle, if not more.
As far as our market share is concerned, we have consistently increased it in the global industry from less than 1 per cent to currently about 6 to 7 per cent. We are increasing our capacity from 30 million out of this 500 million market to 50 million, and I am sure by the time this 50 million capacity comes up by June 2019, the market will also have shifted from 500 million to about 550-600 million mark. We may increase to 8-9 per cent market share, depending on the market dynamics and will look at our own capability to increase capacity on the ground.
Currently, we are looking from the product segment, which is fibre and fibre cables, which together contributes 75 per cent of the revenue. This segment currently serves the needs of 3G, 4G. When the market moves to 5G and last-mile connectivity through fibre to the home (FTTH), the movement will not happen simultaneously in all the countries. Some countries move faster; some may move slower. For example, India lagged behind in terms of changeover to new network. India moved towards 4G with Reliance Jio pursuing it aggressively over the last 3-4 years. All existing players have been lagging behind in rolling out network because of many constraints. Fortunately, to grow, we aggressively looked at global opportunities in time.
While products business will have its own growth, we also have system integration and software businesses which are growing. We started services and software businesses 3-5 years back and these are getting good traction. The software business serves revenue monetisation and OSS/BSS requirements of telecom companies and has huge growth opportunity. Currently, it is about 20-25 per cent of our revenue profile and we see this growing in terms of absolute value, in our overall profile.
Your EBITDA margin over the past years is on an upward trend. What kind of margin are you looking for FY19E?
We have maintained EBIDTA margin of about 20-21 per cent on a long-term average basis. Essentially, we are a very cost-focused company. At the same time, we ensure that the customer is serviced with the best solutions at par with the global players. This creates the best profitability in the industry. The margins are already at a high level. While the long term average is 21-22 per cent on EBIDTA, in Q1FY19 we have delivered EBIDTA margin of 29 per cent. I won't say that 29 per cent would continue as it's a function of how our services and software businesses pick up. Within products business, it is a play of optical fibre, which is a high margin business, versus optical cable, which is a relatively lower margin business. EBITDA margin is a combination of all these three businesses of telecom products, services and software. Basis historical trend, we may maintain 24-25 per cent margin for FY19 and beyond that.
What is your view on ongoing trade war?
This trade war between two of the largest economies of the world is unfortunate. We don't see an immediate threat to the company, but it's quite complicated. Fortunately, fibre is not a commodity or product that is exported from China to US. China itself is consuming huge amount of fibre. But in retaliation to the US measure of curbing or imposing high duty on Chinese products, there is a possibility of China imposing huge duty on imports from US or the US players setting up shop in China. This may have some impact on the industry, but presently, I don't see that as a significant challenge.
India does not export much of engineering products to China, apart from companies such as ours. As per my knowledge, India generally exports more of raw materials and natural resources than actually importing. The impact on the Indian economy may be seen if aggressive imports from China could be coming into India because of the gates to the US getting closed or getting higher. That may result in some dumping and that's where the government has to act to protect local industries.