STL to invest Rs 800 cr to expand optical fibre capacity

Sterlite Technologies Ltd. will be investing Rs 800 crore by end of FY24 to expand its optical fibre manufacturing capacity to 42 million fibre kilometer from 33 MFKM, according to Managing Director Ankit Agarwal.

With the 5G rollout underway across the world, the company expects demand for fibre optic cables to rise not just in India, but globally as well. In some countries, work has progressed to sixth generation telecom networks as well.

Sterlite Technologies is expanding capacities across its India, Italy, and U.S. facilities. “We have been actively working on the expansion of the cable part, in particular,” Agarwal told BQ Prime in an exclusive interview.

“The U.S. facility is operational, as we speak. We are in the process of both getting technical approval and also just scaling up the capacity, making sure that operation systems, quality, IP systems… all of that are in place. I am pretty confident of scaling that up quickly in the next few months,” Agarwal said.

The additional capacities in Italy and India are expected to be ready in the next few months, he said.

“The investments are in place. We plan to invest close to Rs 500 crore in FY23. Out of that, around Rs 250 crore was invested in the first half, while the balance Rs 250 crore will be deployed in the second half.”

The company also plans to invest around Rs 300 crore in FY24 towards optical capacity expansion, he said.

Greater Demand
Deployment of optical fibre by telecom operators kicked off after the allocation of 5G spectrum.

There is need to build converged networks that would require tremendous amount of fibre to connect the towers, Agarwal said.

According to Agarwal, Sterlite Tech has about 30-35% of towers with backhaul and fibre, which connects the core with the subnetwork. That needs to be expanded to around 80-90%, which will mark an important shift. With every tower, there will be three to four small cells that would require backhaul and fibre, he said.

The same telecom operators are connecting enterprises on fibre networks and providing them with high-speed capacity, Agarwal said. Operators including Bharti Airtel Ltd. and Reliance Jio Infocomm Ltd. are looking to connect up to 30-40 or 50 million homes on fibre, he said.

“So, when you look at this converged network that is going to be created in India, and equally in other parts of the world, there’s a strong demand for fibre. Today, India consumes anywhere between 20-25 million fibre km. That should logically increase by at least two times, the way all this demand should come up.”

Sectors Driving The Demand
India has recognised that rural India needs to have a robust fibre network and the government is keen to bridge the digital divide, Agarwal said.

The company is positive on growth opportunities coming from the next phase of Bharat Net, where around three lakh villages will need to be connected to a robust ring architecture on fibre.

“The government will look to take that project forward over the next two to three months. Some progress should be made on that, and once that gets announced, definitely STL will be looking to play a major role in enabling that network,” Agarwal said.

The second major contributor to demand is expected to be the defence sector as they are “showing intent to upgrade their communication network across the Air Force, the Army, and the Navy”. This will get converged to build a robust fibre network for their requirements, he said.

Another important segment will be the data centres, he said. In the last few years, the segment has seen investments worth around $10 billion. And apart from international players like Google Inc. and Microsoft Corp., even Indian players have stepped up investments and are building large-scale data centres.

Company Financials
Container prices (door-to-door) —that had risen more than three times to $22,000 per 40-feet equivalent containers—have come down to $11,000, and the normalisation is expected to reflect in Q3 FY23 and Q4 FY23 numbers, he said.

The price of raw materials that goes into polyethylene used for cables and oil prices have also moderated, which should get reflected in Q4 FY23 earnings, Agarwal said.

However, there are some constraints in terms of helium gas prices due to shortage.

Overall, the situation has been positive from the supply chain metrics point of view, he said.

“We have worked on reducing supply chain risks. Broadly, we were in the range of about Rs 5,000 crore revenue for the last three years. This year, we believe there’s a good breakout towards the Rs 7,000 crore range from the topline perspective.”

The company is confident of its core optical business operating margins to remain north of 20%. In the services business, the company is looking to improve Ebitda margins in the network deployment business to 10-12%, which the company terms a ”work in progress”.

Outlook For Fibre Optics Business
There are strong tailwinds driven by deployment of 5G networks. In the next four to five years, subscribers in India are expected to expand from one billion to four billion. Then, there is a fibre-to-home and various government network deployment programmes across the world that will drive demand, Agarwal said.

Even in places like the U.S., only 43% of the homes are connected to fibre. Similarly, Germany, various parts of India, and Australia are undergoing a similar transformation. Hence, there is a lot of work to be done, he said.

“With all these requirements coming up, on top of government programmes around the world, we are confident that over the next four to five years, there will be strong demand, particularly in the areas that STL has focused on.” Bloomberg