Today's Top Gainer
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Tarun Jain, Director finance Sterlite Industries (India) Limitedshares his views with Sachin Shah on the future of cable industry in India and Sterlite?s growth plan. Sterlite Industries is a leader in Copper, Jelly Filled Telephone Cables (JFTC) and Optical Fibre Cables (OFC) sector in India. It has a sizeable share in both telecom cables and copper business. Sterlite?s sales have recorded CAGR 44 % in the past ten years and profits have increased by 43% CAGR.
This was achieved due to expansion of cable capacity, and backward integration into copper. Sterlite was also amongst the first to spot the growth in OFC sector and is the only Indian cable manufacturer who produces OF (main raw material for OFC). Tarun Jain, the 38 year old Director Finance of Sterlite started his career with Indian Rayon as a management trainee after completing his CA, ICWA and CS and after a year with the Birlas, Jain joined Sterlite, then a fledgling company and became a Director (Finance) two years ago.
What is Sterlite?s position in the telecom cable industry?
In India, Sterlite is the largest manufacturer of both Jelly Filled Telephone Cables (JFTC) and Optical Fibre Cables (OFC). Last year we manufactured 5.5mn CKM of JFTC and 90,000 FKM of OFC. We also have the largest market share, in both JFTC and OFC. In JFTC we have a market share of 21% and the next closest player has a market share of just 9%. In OFC, we have a market share of 25% while the next closest player has 16%.
At what rate do you see Sterlite growing?
We see Sterlite growing at 40% with the copper plant getting stabilized and operating at over 90%, plus with the demand for cables growing we think that this rate is achievable.
What is your outlook for the telecom cable industry?
With the boom expected in the telecom industry, I see a strong demand growth for telecom cables. DOT has set high targets for the growth of telephone lines in the rural as well as semi-urban areas, and with the track record of DOT we expect it to achieve most of the targets.
What is your outlook for OFC?
OFC will witness a strong growth, due to its application in high traffic areas and increase in urbanization. Even the private telecom operators will have to use OFC (except for the local loop). OFC demand should grow at the rate of 25-30%.
Do you see JFTC (Jelly Filled Telephone Cables) being replaced by high-technology OFC (Optical Fibre Cables)?
At least for the next five years, JFTC will not be phased out. However, its growth will slow down, but will still grow by 10-15%. As I mentioned earlier, growth in the telecom sector will come from the rural and semi-urban areas and in most of these areas it is not viable to lay OFC cables, due to fewer lines per one exchange and lower traffic. In urban areas also JFTC will continue to be used in the local loop ie from the local exchange to the subscriber.
Do you plan to increase capacities of JFTC and OFC?
Henceforth, we plan to increase our capacities of cables by acquisitions. With the over capacity in the sector, it is better to acquire capacities instead of setting up greenfield projects.
What is Sterlite?s position in domestic copper business?
We are leaders and have a market share of 40%.
What is your outlook for copper prices?
We are of the opinion that copper prices have bottomed out and I am expecting an upward trend from these levels.
Are you planning to restructure the business, by separating cable and copper business in two different companies?
Many shareholders have suggested this, as it is expected to improve the valuation of the cable business which is currently getting affected due to copper business which is cyclical in nature and is currently going through rough times. We are thinking on it, but there are lots of technical difficulties in implementing the scheme.
What is the status of the proposed greenfield aluminum project in Orissa?
We are still evaluating the project and have not yet made up our mind. We have presently invested only Rs120mn for acquisition of land and other preliminary work. The project cost is expected to be in the range of Rs30-40bn and therefore until an extensive feasibility study is completed we will not take the final decision.
There is a general concern that in spite of having an aluminum company in the group (MALCO), you are using Sterlite to raise funds for the greenfield project?
If we decide to go ahead with the project and that too in Sterlite, one thing is clear that there will be no equity dilution. Funds for the project will be raised through debt route and the balance through internal accruals.
If the court ruling goes against Sterlite in the INDAL case, what will be the Sterlite?s liability?
The issue is for the 0.97mn shares, therefore the contingent liability is to the extent of only Rs220mn.
Do you believe that the corporate image of Sterlite has been affected after the INDAL case though you might be legally on a strong wicket? How do you expect to re-appraise the spoiled image on INDAL matter?
To a certain extent the image has been affected. As far as re-appraising the image is concerned, we are awaiting the court decision and then we will take the necessary action.