Speaker #3: Ladies and gentlemen, good day and welcome to the Sterlite Technologies Limited Q2 FY27 earnings conference call. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes.
Speaker #3: Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded.
Speaker #3: I now hand the conference over to Mr. Raul Dharup, Head of Investor Relations. Thank you, and over to you, sir.
Speaker #4: Thank you, Steve. Good day, everyone, and welcome to STL's Q2 and H1 FY27 earnings call. To take us through the results and answer your questions today, we have STL's senior management represented by Mr. Ankit Agarwal, our Managing Director, and Mr. Ajay Janjari, Chief Financial Officer.
Speaker #4: Before we proceed with the call, let me remind you that the discussion today may contain forward-looking statements that may involve known or unknown risks, uncertainties, and other factors.
Speaker #4: It must be viewed in conjunction with our business risks that could cause future results, performance, or achievement to differ significantly from what is expressed or implied in such forward-looking statements.
Speaker #4: Please note that this also applies to the luxury targets that will be discussed on today's call. We have also uploaded the results and the earnings call presentation on STL's website, and the same is also available on the stock exchanges.
Speaker #4: We will begin today's call with a brief overview of our performance for the quarter and the first half of the financial year, followed by a brief Q&A session. With that said, I now hand over the call to our Managing Director, Mr. Ankit Agarwal.
Speaker #5: Thank you, Raul. Good day, everyone. I'll begin by highlighting a few key takeaways from our investor presentation, and then Ajay, our CFO, will walk you through the financials.
Speaker #5: STL is a global leader in digital connectivity infrastructure, serving data centers, telcos, citizen networks, and large enterprises. Our optical connectivity portfolio spans fiber-to-fiber cables, specialty cables, and connectivity solutions.
Speaker #5: We are also India's number one end-to-end optical manufacturer, with about 9% global optical fiber cable market share outside China. With over 35 years of leadership, more than 805 global patents filed and granted, and 10-plus advanced manufacturing facilities with zero waste to landfill and zero liquid discharge, STL is leading the next wave of global digital infrastructure build-up.
Speaker #5: We are among the few companies in the world with presence across the value chain—from glass to gigabit. Starting with the purest grade of silicon, which we transform through advanced processes like silicon tetrachloride formation, chemical vapor deposition, and high-precision sintering—we create ultra-pure glass preforms, which are the backbone of optical fiber.
Speaker #5: From there, we draw the highest-grade fiber, design high-density cables, and develop reliable connectivity products that power data centers and telecom networks worldwide. This full-stack integration, right from the raw material to network deployment, gives STL a unique edge in quality, cost efficiency, and innovation across the connectivity value chain.
Speaker #5: This deep integration also gives us one of the most complete portfolios across the industry—from specialty and next-generation fibers, to high-density cables, to plug-and-play connectivity for fiber to the home, and AI data center architecture.
Speaker #5: Back in September, we laid out a luxury growth roadmap to FY29, with the ambition of becoming one of the top five global connectivity players and reaching ₹20,000 crores in revenue.
Speaker #5: In FY27, the first year of luxury, we are putting this plan into motion across five clear execution priorities. On the market side, we're actively shifting our revenue mix towards high-value-added integrated connectivity solutions while rapidly scaling our footprint in the data center segment.
Speaker #5: To maintain our product edge, we're committing 2% of our annual revenue into R&D for next-generation optical platforms. At the same time, we are driving margin expansion by staying relentlessly focused on cost efficiency and delivering stronger value to our customers.
Speaker #5: Finally, to power this entire growth cycle, we're expanding our preform fiber and cable capacities by 50% and building a new painting facility for pre-terminated solutions.
Speaker #5: All of this is backed by a manual capex commitment of around ₹1,000 crore per year through FY29. As you all know, currently we're at the intersection of three powerful multi-year investment cycles: data centers, 5G and 6G networks, and fiber to the X.
Speaker #5: Over the last few quarters, each of these cycles has only become stronger. Data center remains the fastest-growing driver for optical fiber demand. CIO recently updated its 2026 demand projections for this segment to 89% year-on-year, up sharply from 63% last quarter.
Speaker #5: This is underscored by the acceleration of investments by hyperscalers and new clouds, with Morgan Stanley revising its 2026 forecast upward from $805 billion to $978 billion, and projecting $1.5 trillion of investment in 2027.
Speaker #5: On mobile networks, 5G adoption continues to scale rapidly, with global 5G subscriptions projected to reach 6.4 billion by 2031, and India alone accounting for 1 billion in the same timeframe.
Speaker #5: On top of this, with 5G expansion, global 6G subscriptions are forecast to cross 180 million by the end of 2031. Looking at FTTS deployments and FTTX, deployments are accelerating worldwide, expanding from 157 million fiber kilometers in 2025 to roughly 166 million fiber kilometers by 2030.
Speaker #5: In the US alone, more than 140 million new homes will be connected with fiber by 2030, backed by massive government initiatives like BEAD in the US and BharatNet in India.
Speaker #5: Together, these three converging cycles create a structured long-term demand tailwind for optical fiber and connectivity, positioning STL right at the center of the world’s next digital infrastructure build-out.
Speaker #5: Moving on, Slide 9 delves into how the AI revolution and rapid data center expansion are creating a once-in-a-generation opportunity for optical connectivity. Global data center capacity is expected to grow from about 82 gigawatts to about 219 gigawatts by 2030, with over 70% of the total demand coming from AI-specific infrastructure.
Speaker #5: AI is driving a fundamental step change in fiber intensity across three core dimensions. First, its scale-out, which appears between the racks. Fiber per switch rack has increased from 500 fibers in the cloud era to 12,000 in today's 72-GPU AI nodes.
Speaker #5: Heading towards 16,000 fibers in the upcoming architectures. Next is Scale Across, which connects multiple AI clusters, buildings, and data centers so they can operate as one unified AI infrastructure.
Speaker #5: Every new site multiplies interconnects — two data centers need one link, but six data centers need as many as 15 or more. And finally, scale-up, which takes place at the GPU rack level, as speed transitions from 400 gig to 800 gig and onwards to 1.6 terabit, copper hits its physical performance limits, making optical fiber simply non-negotiable.
Speaker #5: Together, these three dynamics present a structural step-change in fiber intensity. With a Neuralys end-to-end AI DC portfolio, STL is uniquely positioned to capture this multi-year structural growth opportunity across the stack.
Speaker #5: Looking at slide 11, let's examine India's infrastructure landscape, which is rapidly emerging as one of our most compelling long-term structural tailwinds. Looking at the capacity rollout, India's live DC capacity has reached approximately 1.8 gigawatts, following a record 258 megawatt addition in the first half of FY27 alone.
Speaker #5: Over the next few years, this installed capacity is set to increase nearly six-fold, to almost 10.5 gigawatts by 2031. What makes this investment cycle particularly powerful is the breadth of commitments across the board.
Speaker #5: Hyperscalers like Google, Meta, Microsoft, and Amazon are deploying tens of billions of dollars. On the other side, we have Indian conglomerates like Tata, Adani, and Reliance laying out massive, long-term capacity plans as well.
Speaker #5: Over the last few quarters, we've seen massive new announcements coming from Meta and Reliance, pushing forward with almost 3 gigawatts of development plans. In addition, Australia-based Air Trunk is committing almost $30 billion across Maharashtra and Andhra Pradesh for an overall 5 gigawatts of data center capacity.
Speaker #5: Adding to this momentum, our landmark commitments—like Adani talking about over $100 billion to build out 5 gigawatts of green AI data centers by 2035—this includes Adani Connect X, partnering with CoreWeave to build a 240-megawatt campus in Navi Mumbai, which is powered by Nvidia's Vera Rubin platform.
Speaker #5: Overall, a supportive policy environment with state incentives such as time duty waivers and 10- to 20-year electricity duty exemptions, power availability, and—very importantly—the tax holidays extending into 2047 is further de-risking and accelerating this data center build-out.
Speaker #5: Every dollar of this data center capex has a direct multiplier on fiber intensity, across DCI, metro, and long-haul networks. The next slide reinforces how big telecom operators and the big tech companies—from AT&T, British Telecom, and Airtel to Nvidia and AWS—continue to back optical fiber as the base of the digital future across 6G broadband, data centers, and AI.
Speaker #5: The takeaway is simple: fiber remains the core backbone of all digital infrastructure globally. Now, let's take a look at the global market context. We see a clear, multi-year upcycle in global fiber demand taking shape.
Speaker #5: According to CRU, global optical cable demand has been upgraded again and is now expected to reach 851 million fiber kilometers by 2031, reflecting a strong 7.5% CAGR through 2031.
Speaker #5: Looking ahead, growth is increasingly concentrated in North America and APAC ex-China. North America continues to be powered by AI-led data centers, DCI builds, and broadband rollouts, while India and Southeast Asia drive incremental growth across APAC ex-China.
Speaker #5: In fact, CRU expects AI data centers to capture one-third of total volume share by 2030 in markets outside of China. Overall, this points to a sustained multi-year upcycle in fiber demand, with STL's focus market expected to lead demand growth, and CRU projecting a 15.7% CAGR in 2030.
Speaker #5: We're seeing strong momentum in winning new business, and it shows clearly in our order intake. In the first half of FY27, we secured orders worth $32,000 crore.
Speaker #5: This is roughly four times the orders we won in the whole of FY26. The largest win this quarter is a new 5-year agreement with a potential value of $1.2 billion.
Speaker #5: It is with another global hyperscaler for AI-ready optical solutions. This builds on the $1.11 billion product award letter for optical connectivity that we announced last quarter for another hyperscaler.
Speaker #5: Together, these give us multi-year demand visibility, which is critical for the world's largest AI infrastructure players. We're also winning across our other core segments. We have signed multi-year supply agreements with major global telecom operators for high-density optical connectivity assemblies.
Speaker #5: In India, we've secured a significant optical cable supply contract, leading telecom operators. As a result, our order book today is well spread across customer segments, product categories, and geographies.
Speaker #5: More importantly, it gives us a much stronger visibility on our FY29 luxury targets than what we had even when we announced it. On market position and attached rate trends, our global ex-China OFC market share increased to 9% in H1 FY27, up from 7% in H in first half of FY26.
Speaker #5: Turning to optical connectivity, last quarter we shared that we aim to take our attached rate above 20% from this quarter onwards. I'm pleased to report that our attached rate has reached an all-time high of 24% in H1 FY27, up from 20% in H1 FY26, and this was achieved on a much larger OFC revenue.
Speaker #5: We remain fully focused on driving this 25% and beyond for the current financial year. This performance clearly demonstrates our strategic pivot towards selling higher-value-added integrated solutions rather than standalone products, which is gaining strong traction in the market.
Speaker #5: Innovation continues to be a key differentiator for STL, and this quarter delivered strong momentum across all these fronts. On key product developments, we strengthened our Neuralys portfolio with high-density pre-terminated fiber trunks, launched a pre-plenum-rated portfolio for inside data hall connectivity, and transitioned a hollow fiber cable into the first commercial pilot phase.
Speaker #5: On sustainability and next-generation technology leadership, our Chhatrapati Shambhaji Nagar plants transitioned to 100% green power, slashing our fiber carbon footprint by over 80%. We're very proud of this.
Speaker #5: A standout achievement this quarter was STL's recognition in IAM's Asia IP Elite 2026 list. IAM is a global benchmark of IP strategy, and this elite recognition confirms that our deep patent portfolio across glass chemistry, fiber geometry, and connectivity design directly positions STL as an indispensable technology leader in the global AI ecosystem.
Speaker #5: Our innovation engine is backed by a deep IP portfolio of over 805 patents, with 49 new filings this quarter, and has been recognized through multiple global awards.
Speaker #5: These advancements reinforce our position as a true technology leader, building future-ready capabilities for AI and cloud networks. Turning to our product portfolio, we're making tremendous progress with our Neuralys purpose-built portfolio in the AI era of data centers, which addresses two mission-critical needs: AI whitespace connectivity and high-speed data center interconnect.
Speaker #5: Whereas fiber density, speed, and simplicity matter the most. The highlight this quarter is the launch of our pre-terminated trunk assemblies in September. For our customers, this means faster deployment, fewer issues on site, and data centers that come online sooner.
Speaker #5: Put simply, they are factory-built, plug-and-play installations. Every assembly is 100% factory-tested and arrives ready to install with the latest high-density connector technology. Neuralys is emerging as a central nervous system of modern data centers, built for AI and ready to serve what's coming next.
Speaker #5: By leveraging STL's full vertical integration, Neuralys enables faster deployment and massive GPU clustering. It reduces deployment complexity and accelerates time to service. Supported by local manufacturing in South Carolina, this launch strengthens our position with US hyperscalers and new cloud providers.
Speaker #5: Slide 19 highlights STL's leadership in the next-generation optical fiber portfolio. It directly addresses the optical physics demands of the AIDC era through three flagship technologies. Firstly, our G654E fiber is now fully commercialized and delivers 30% lower signal loss.
Speaker #5: Secondly, hollow core fiber (HCF) cable that offers between 30% to 47% lower latency, and transition into the first commercial pilot phase. And finally, our award-winning multi-core fiber, expanding data capacity between 4 to 7 times within the same footprint.
Speaker #5: With successful real-world deployments of multi-core already underway in India and the UK, alongside partners like CDOT, IIT Madras, and others, this portfolio firmly positions STL to power the high-density, ultra-low latency infrastructure required for tomorrow's AI workloads.
Speaker #5: Now, I'll hand over to Ajay to take you through the financials.
Speaker #1: So, thank you, Ankit, and thanks everyone for joining us today. I am happy to take you through our financial highlights for Q2 and H1 FY27.
Speaker #1: If Q1 was historic, Q2 has raised the bar again. For the second consecutive quarter, STL has delivered its highest-ever performance across revenue and EBITDA impact. This quarter, revenue reached ₹2,529 crore, representing growth of 145% year-on-year.
Speaker #1: On a quarter-on-quarter basis, revenue grew 32%. On an H1 basis, revenue grew to INR 4,439 crore, up 116% compared to H1 FY26. Moving to EBITDA and margins, our operational EBITDA for Q2 FY27 came in at INR 685 crore, delivering a 27.1% margin, a significant quarter-on-quarter expansion of 624 basis points.
Speaker #1: On an H1 basis, operational EBITDA reached INR 1,082 crore, at a 24.4% margin, reflecting strong profitability across the first half. Note that reported EBITDA for Q2 FY27 was INR 846 crore, which includes a one-time net gain of INR 161 crore from a US tariff refund.
Speaker #1: Excluding this one-off item, our 27% operational margin reflects strong underlying fundamentals, driven by higher capacity utilization, a richer product and customer mix, and an increasing share of high-value optical connectivity.
Speaker #1: Turning to profitability, in Q2 FY27, it reached a record INR 517 crore, driven by strong revenue growth and margin expansion. For the first half, PAT reached INR 714 crore, up from INR 14 crore in H1 FY26, reflecting the strong operating leverage in our business.
Speaker #1: In summary, these results demonstrate strong revenue momentum, expanding margins, and bottom-line execution, setting us up remarkably well for the remainder of FY27. On the segment side, while telecom and citizen networks continue to be a core pillar, our data center segment shows strong momentum, contributing 33% in H1 FY27.
Speaker #1: Keeping us firmly on track towards scaling this segment to 50% of revenue in the current fiscal. From a geographic standpoint, our revenue mix continues to reflect strong global momentum. North America shares 2.61% in H1 FY27, driven by robust demand across AI and cloud infrastructure.
Speaker #1: While Europe contributed 21%, and the rest of the world represented 18%. While North America remains our key growth engine, driven by hyperscaler demand, our presence across Europe and ROW gives us a strong global footprint to capture market upside.
Speaker #1: Moving to our order book, our open order book stands at a record ₹35,274 crore, up 4.6 times from ₹7,687 crore at the start of this financial year.
Speaker #1: This reflects strong order inflows and the confidence our customers are placing in us through long-term commitments. Of this, about ₹3,021 crore is scheduled for execution in Q3 FY27, and the rest over Q4 FY27 and beyond.
Speaker #1: I want to highlight a structural change in how our revenue is built. Historically, a meaningful share of each quarter's revenue came from spot orders, won and delivered within the same quarter.
Speaker #1: As our multi-year agreements with hyperscalers and telecom operators scale up, more of our revenue now comes from the scheduled backlog, and spot business makes up a negligible share.
Speaker #1: This is a deliberate part of our luxe strategy. It gives us more predictable revenue, better capacity planning, and more stable realizations through the cycle. On slide 25, we have shared an abridged snapshot of our reported numbers for your reference.
Speaker #1: On the balance sheet, our net cash balance has improved to INR 703 crore from INR 483 crore reported last quarter, and we continue to be a net debt-free company.
Speaker #1: I am also glad to share that our expanded financial profile is now reflected in our credit ratings. CRISIL has further upgraded our long-term rating to AA Stable from AA Minus, and reaffirmed our short-term ratings at A1 Plus.
Speaker #1: With this, both CRISIL and ICRA now rate STL at AA Stable. Our disciplined capital allocation entails a mix of brownfield expansion, preform fiber and cable capacity by 50%, and a greenfield facility for pre-term solutions, with a total capex of ₹1,000 crore per year from 2027 to 2029.
Speaker #1: Finally, on slide 26, our Luxe growth roadmap. When we unveiled Luxe, we targeted revenue of INR 20,000 crore in FY29, about 4x our FY26 revenue, with an EBITDA margin of over 27%.
Speaker #1: The strong margin expansion we are delivering today, combined with the multi-year visibility from our record order book, gives us stronger confidence to raise the—
Speaker #1: Accordingly, we are upgrading our FY29 EBITDA margin target to above 30%, up from 27% earlier, while maintaining our FY29 revenue target at ₹20,000 crore.
Speaker #1: This performance underscored that we are not just growing; we are building a higher-margin, highly scalable business for the long term. With that, I'll hand it back to Ankit for an update on our social impact initiatives and closing remarks.
Speaker #2: Thank you, Ajay. Our CSR and sustainability initiatives continue to create deep, lasting, and measurable impact across healthcare, education, and women empowerment in the environment, and you will find the details in the presentation.
Speaker #2: We remain committed to achieving net zero by 2030, and, this quarter, our factories in Chhatrapati Sambhaji Nagar transitioned to 100% green power. Together with our commissioned green hydrogen and oxygen plants, we have reduced the carbon footprint of our core optical fiber by over 80%, while maintaining zero waste to landfill and zero liquid discharge standards.
Speaker #2: This disciplined approach to governance and sustainability continues to be recognized and backed by Synergy A rating and over 100 ESG awards to date. Now, before we open the floor for Q&A, I'd like to step back for a moment.
Speaker #2: When we announced Luxe in September, we set out an ambitious goal to become one of the top five optical connectivity players in the world.
Speaker #2: Two months into the journey, the goal is starting to show our results. With delivered back-to-back record quarters, our order book has nearly doubled, and attach rate has reached an all-time high.
Speaker #2: The confidence comes from this performance and has allowed us to raise the FY29 margin ambitions to above 30%. The world is building infrastructure for the AI era, and that infrastructure runs on optical fiber.
Speaker #2: With our full glass-to-gigabit integration, deep technology portfolio, and long-standing customer partnerships, STL is well placed to help build it and create it. We are proud of what we have achieved so far, and we remain focused on execution. There's a lot of work ahead, and we're excited about it.
Speaker #2: We're excited about India putting itself on the global AI map. Thank you. I'll now hand over to the operator and open the floor to questions.
Speaker #2: Jayant.
Speaker #3: Thank you, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touch-tone telephone.
Speaker #3: If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use a handset while asking a question.
Speaker #3: Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from Achal Lohade with Nuvama Institutional Equities.
Speaker #3: Please go ahead.
Speaker #4: Yeah, hi team. First of all, congratulations on a great set of numbers. So three questions, actually. First, with respect to the target luxe, the ₹20,000 crore revenue remained unchanged, while the margin got upgraded. If you could help us understand what has driven this upgrade in the margin?
Speaker #4: Is it largely driven by the, you know, the connectivity aspect of the business, or something else? And secondly, is there any further scope for even a revenue target upgrade?
Speaker #1: Yeah, hi Ajay. Thank you for your question. So I think what we've done for now is basically looked at the order book that we have and the improvements in our order book that we've showcased, going towards ₹35,000 crore.
Speaker #1: So that’s given us a source of confidence in how we see our performance going forward. And, you know, as we’ve shared, we’ve clearly been able to move our mix strongly towards the data center portfolio, which has higher margins.
Speaker #1: And we've also improved our attach rate. So, combining these factors and looking at how they are expected to grow going forward, this gave us confidence to improve our visibility from 27% to 30%.
Speaker #1: So right now, that's the visibility that we have. We continue to target ₹20,000 crore, and we'll continue to evaluate how our order book and execution are moving on our capacities.
Speaker #1: And then we can update on anything else in the future.
Speaker #4: Got it. The second question with respect to the order book is: are there more orders in the pipeline, sizable orders, et cetera?
Speaker #4: How is the order pipeline looking? If you could give some more color on that aspect, especially from North America.
Speaker #1: So, I mean, our first caveat is that we continue to work both with the telecom operators, neutral fiber providers, as well as data center companies.
Speaker #1: And as we shared in our readout, we're broadly looking at really focusing on long-term partnerships, and more and more technology partnerships with these customers.
Speaker #1: So that's the majority of our conversations that are happening. We clearly want to also have a nice, diverse set of customers—both in terms of types of customers, but also geography of customers.
Speaker #1: And that's also what we've been working on. So, yeah, at this time today, we feel confident. We continue to have conversations with other data center companies and telecom operators.
Speaker #1: And we're definitely looking at, as we get a good sense of their requirements, as some of our capacities come up in the coming two to three years, how we can maximize further partnership.
Speaker #1: That's something we're working on.
Speaker #4: Got it. And lastly, if you could provide some color in terms of how the pricing scenario is playing out, you know, on the table, and also on the performance of fiber prices, ideally over the last couple of quarters—how it has trended and what is the expectation one would have at this stage.
Speaker #1: So, we don't comment on prices specifically. Broadly, you know, from our side, our focus has been more and more on the, you know, very high-end cables, very high-end designs that we've been focusing on.
Speaker #1: And you would have seen we've launched some of these designs in the last few months as well. So, as we move forward, more and more of our sales will be these high-end products, which all come under the New Balance portfolio.
Speaker #1: And equally, our focus will be on some of our high-end connectivity products that we've launched, like Concat, like MMC connectivity, which are really at the cutting edge.
Speaker #1: More and more of our focus will be to supply those products into the market.
Speaker #4: Got it. You know, with respect to the raw material availability, there have been questions in the background. Mr. Achal, I'll fall back in the queue.
Speaker #4: Yeah. No problem. Thanks.
Speaker #1: Thank you.
Speaker #3: Ladies and gentlemen, in order to ensure that management is able to address questions from all participants, please limit your questions to two per participant.
Speaker #3: The next question comes from the line of Rabindranath Nayak, with Nirmalbank Securities. Please go ahead. Rabindranath, your line has been unmuted. Please go ahead with your question.
Speaker #4: Yeah. Am I audible? Yeah. Thank you for the opportunity, and congratulations on a good set of numbers. Sir, I have two to three questions from my side.
Speaker #4: So first of 161 crores, and then there is is there any further refund is expected that is one question regarding that. And there is an impairment of 39 crores, and there is an additional depreciation related to that, you know, 22 crores.
Speaker #4: What is that pertaining to? And why, despite the reduction in debt and also the borrowing reduction, why has the interest cost gone up by 15% year-on-year in this quarter?
Speaker #4: Does the receivables have also gone up? So is it a big worry? So for us, and the final question regarding, if you know, if you can share something on the what is the DC fiber contribution?
Speaker #4: You know, in this total revenue, what is the contribution of attach rate revenue on the DC side? In the contribution—so, total—see, if I'm talking about ₹500 crores of attached revenue in this, what is the contribution of DC attach revenue in this attach rate?
Speaker #4: So if you can answer those questions, thank you.
Speaker #1: Okay. Right. Thank you. So, firstly, on the refund—there is a process through which we get all these refunds. Broadly, we have got refunds for almost everything.
Speaker #1: There is a Phase Three, which is going on currently, and there's a small amount which we have already applied for. So that depends on getting that refund.
Speaker #1: In relation to the impairment and the increase that you are seeing in depreciation, that is broadly related to one of our subsidiaries, which is SpeedOn Networks.
Speaker #1: We have taken the impairment to square it off in full. On your question related to finance costs, broadly, in order to reduce our gross debt, we have also prepaid a few of the loans which were due at a later stage.
Speaker #1: And there were some penalties related to the prepayments, which we have squared off.
Speaker #4: Okay.
Speaker #1: Going forward, we'll look to reduce the net finance cost. That will be visible from Q3 onwards.
Speaker #4: Okay. Okay. And about, okay, the DC contribution, the data center contribution, fiber, and also attach rate—can you please comment on this, please?
Speaker #1: Yeah, we don't call that out specifically for competitive reasons. What we have called out is, of our total sales, how much is coming from the DC segment.
Speaker #1: And as we've also shared from our order book as well, you can get a good sense that a good portion of our order book, as we stand today, is from the DC segment, given the two deals we've announced.
Speaker #1: So hopefully, that gives you some sense of where the value and the margins are coming from.
Speaker #4: Okay. And this attach— is the attach rate a part of the order book, or is it not a part of the order book? Attach revenue?
Speaker #1: So, to summarize, we refer to the attach rate in relation to our accessories business. That also forms part of the order book, which we report on a quarterly basis.
Speaker #3: Thank you, sir. The next question comes from the line of Dev Jhatia with Seven Rivers. Please go ahead.
Speaker #4: Hi Ankit, congratulations to you and your team on a stellar set of numbers. My question is more macro in nature.
Speaker #4: There's a key debit debate in the US: whether the very high level of AI capex can be sustained if bond yields continue to spike.
Speaker #4: Raising the cost for hyperscalers to continue funding this build-out through debt. Now, I appreciate our industry forecasts on fiber demand, but my question is more specific about what happens beyond FY29.
Speaker #4: What level of annual global fiber demand growth or AI capex growth would be required for us to continue growing at a strong rate beyond FY29?
Speaker #1: Yeah, hi, Dev. Thank you. Look, I mean, you know, if we just break it up broadly, so far, where our conversations with the data center companies, I think broadly there continues to be strong investments from the balance sheet.
Speaker #1: Even Meta announced results yesterday, and continues to be quite strong, with around $140 billion in capex as an example. So I think your point in terms of longer-term—say, 2029, 2030 onwards—one of the things that we're seeing, interestingly, from the power side, for example, as a benchmark, is that there are contracts going out on the power side easily into 2031, 2032, and beyond.
Speaker #1: So clearly, there is a macro commitment and focus on the hyperscalers to continue to build this out, at least for seven to ten years, with a fair level of clarity.
Speaker #1: And so, equally, that gives us comfort as well, and also in our conversations, that these investments, certainly by the larger hyperscalers, will continue well beyond 2030.
Speaker #4: Got it. Thank you.
Speaker #3: Thank you. The next question comes from the line of Abhay Ajay Joshi, with Baroda BNP Paribas Mutual Fund. Please go ahead.
Speaker #4: Hey, hi. Congratulations to the team for the great set of numbers. My first question is on the margin guidance. Of course, you have raised the margin guidance from 27 to 30 for FY29.
Speaker #4: But if I look at the margin guidance earlier for FY27, it was 23% when you delivered 20% margin. Now you are already at 27%.
Speaker #4: How should we look at the margins for FY27? If you can give some color, because you know, over the past two quarters, we have been raising the guidance for FY27.
Speaker #4: So, just in terms of how we should look at FY27 as a margin, per se.
Speaker #1: So we would definitely like to perform better than what we have reported in Q2 of the financial year. So the target of Luxure aligns with the target of what we plan to or try to achieve from Q3 onwards.
Speaker #1: The reason for the consecutive increase in margin is because, you know, there's a change in our business mix. A lot of revenue is coming from the data center segment, which is more profitable than our normal telco business.
Speaker #4: Sure. But if I look at your H1 margins, it's already at 24, which is higher than your earlier stated margins. So do we.
Speaker #1: 23%.
Speaker #4: Yeah. Do we expect to deliver better than that? That is my question.
Speaker #1: Yes, sir. This is what I'm saying. So we plan to deliver results that are in alignment with our project Luxure, wherein we have already announced to increase it to 30%.
Speaker #4: Sure, fair enough. And my next question is on the order book. If I look at your net new orders for this quarter—out of the, you know, the $1.2 billion contract we had—which is also very strong, that's a 7,000 crore plus number.
Speaker #4: So, any breakup in terms of what will be the mix here? Is it still predominantly the data center, or is it a mix of both DC plus telco?
Speaker #1: So, outside of what we have shared, we continue to secure long-term contracts with telecom operators and also neutral fiber companies. These neutral fiber companies are effectively providing long-term leases and capacities, either through the telcos or through the data centers.
Speaker #1: So, this could be, you know, large players in Europe or the US as well. And we also announced one large telecom deal in India, which is in the public domain.
Speaker #1: So, outside of what we've announced, we continue to have strong partnerships on the non-DC side as well.
Speaker #4: Just lastly, from my side, what would be the guidance in terms of how much attach rate we should look at for these to reach the FY29 guidance?
Speaker #4: Like 2024, do you have any targets for attach rate?
Speaker #1: No, I mean, I think, look, we've reached a good level now. And clearly, you know, we want to keep growing the top line quarter on quarter.
Speaker #1: So I think we're looking at that closely, and more and more as a guide, we want to sell more and more of our portfolio as a solution—be it the cable and connectivity or the cable and termination.
Speaker #1: So that's what we're working on. We're also building a new greenfield site as part of our capex to increase our termination capability. So there's work going on in the background, but at a macro level, I think we've reached a good stage now.
Speaker #1: And we'll continue to work with our customers on new products and new solutions to see how we can, you know, grow the attach rate from here.
Speaker #3: Thank you, sir. Our next question comes from the line of Arithra Banerjee with Nomura. Please go ahead.
Speaker #4: Yes, and so the opportunity—and congrats for a very good set of numbers. So my first question was regarding this follow-up and multiple fiber. So, by when do you think these can be, you know, fully commercialized?
Speaker #4: And on the industry side, by when do you think the industry applications for these holocore and multiple fibers will become mainstream, at least in the US, going forward?
Speaker #4: If you could provide some color on that, please.
Speaker #1: Yeah, so I think look, firstly, I'm quite proud you know, as Indian company, we've built the holocore and multicore. We've also done some trials in the UK for multicore, most recently we did a trial for the for the holocore as well in you know, in India.
Speaker #1: So that's something that we are also working on. I think one thing to understand also is, not only are there challenges in the manufacturing of it,
Speaker #1: There are significant challenges for the entire industry around the installation and maintenance of these networks. So, I think those are some of the areas that, as an industry, we're all working in partnership to solve for.
Speaker #1: The performance on the network is very real, very tangible. The latency improvement is anywhere between 30% to 40%. And in the case of multicore, with effectively the same diameter, you're almost getting four to seven times more capacity.
Speaker #1: So it's clearly very, very valuable in various network scenarios. So we definitely are bullish about the growth of these technologies. But I would say that probably it'll be in the time frame of another one and a half to two years where the scale of these starts improving.
Speaker #1: And we are also actively working both internally to improve our production capabilities, but equally with installers and customers to make sure that these can be deployed successfully and ultimately be scaled up completely.
Speaker #4: And the second question is regarding the cable deal. That has seen a very sharp fall over the past few quarters. Just wanted to understand, is this a level where it will stabilize, or can we expect further reduction going forward?
Speaker #4: And what were the reasons for the drop in the first place in the cable deal?
Speaker #1: You see, broadly, you need to link it to our net working capital days, which have increased slightly in Q2. Broadly, we aim to remain in the range of 45 to 50 days for our net working capital cycle.
Speaker #1: Currently, this is a supply-constant market, so a lot of materials which we have to buy—the payment terms have changed. We broadly expect it to remain stable going forward.
Speaker #1: Equally, at the same time, we are working a lot on improving our data and inventory levels, which will be reflected from next quarter.
Speaker #3: Thank you, sir. Our next question comes from the line of Dhruv Satlani with Yamura Capital. Please go ahead.
Speaker #4: Thank you for the opportunity to interact with the management today. Firstly, congratulations on a stellar setup number and commendable execution. I have a couple of questions I would like to touch upon.
Speaker #4: My first question is: What was our average utilization for the quarter? And by when do we expect to reach full utilization for the current capacity?
Speaker #1: Yeah, so thank you for your question. You know, we have not been sharing specific numbers, at least recently. Broadly, what we've been talking about are some of our constraints around some of our raw materials.
Speaker #1: We've talked about things like germanium, helium, et cetera. So, happy to share that we have seen an improvement in our ability to procure our raw materials.
Speaker #1: We've also seen an improvement in our ability to diversify some of our key raw materials. So overall, as a result of this, our utilization continues to improve quarter on quarter.
Speaker #1: And clearly, we're in this important period where we are improving our utilization. At the same time, we want to start executing some of our capacity projects and bringing those online in the next few quarters.
Speaker #4: Okay, thank you. That was really helpful. My second question is that our company seemed to be at AIDC Cloud Share of 40 to 42 percent in Q2.
Speaker #4: And our peers seem to already be at 65. By when do we expect to get to those levels?
Speaker #1: So, you know, I would put it slightly differently. For us, what we're very, very focused on is securing long-term contracts and making sure whatever we sell is through long-term partnerships.
Speaker #1: The second part is, rather than anything that is sold on a, you know, anything that is commoditized—low-end fiber or cable—we're reducing that significantly.
Speaker #1: So, more and more of what we sell into the market will really be at the high end of the specs, whether it's in India, Europe, or the US.
Speaker #1: So that's really what we're focused on. I think you know, I think broadly we've guided that we feel confident that our DC share will be closely close to around 50 percent.
Speaker #1: And then I think by design that's something that we're driving—that it should be in this 50% to 60% share—because, you know, we also want to have a good mix of customers, both from a geography perspective as well as, you know, customer base.
Speaker #3: Thank you. Ladies and gentlemen, you are requested to limit questions to one per participant. If you have any follow-up questions, please rejoin the queue.
Speaker #3: The next question comes from the line of Rahul Agrawal with Everflow Partners. Please go ahead.
Speaker #4: Thanks, Ankit, and congratulations on a spectacular set of numbers. My question pertains to the attach rate for the business with connectivity solutions. Some of the global peers are north of 100 percent on attach rate.
Speaker #4: From a longer-term perspective, where do you see the trajectory on the attach rate possibility for us?
Speaker #1: Yeah, good question. I think, you know, we've been talking about this connectivity portfolio for several years. If you just reflect on how our journey has been, we even acquired a company called, you know, Optotec in Italy.
Speaker #1: We scaled up from there. Then we launched some products, particularly for the US market, like Concat and others recently. And most recently, we started working with the hyperscalers and data center companies to increase our terminations of the cable and provide the full Neuralysis stack.
Speaker #1: So, this has been the journey. Very proud of, you know, what we've achieved in the, you know, fairly short span. I think some of our global peers have been in this industry.
Speaker #1: You know, for a very, very long time, they are well established. You know, in manufacturing, they're well established. Technology, IP, and even the installers and others are well familiar with their portfolio.
Speaker #1: So, this is the work that we are doing. It's not just about capacity; a lot of it is innovation and co-development with the customer, building things that are customized for their future requirements—not necessarily for today.
Speaker #1: So this is something we're very proud of. This progress that we've made is truly remarkable in a fairly short period of time. And clearly, we see, understand, and respect the benchmark of our global peers.
Speaker #1: And certainly, we would also like to improve our attach rate, you know, quarter on quarter. But as you can appreciate, a lot of this takes time because it involves a lot of product development and co-development.
Speaker #1: And at some level, we have to bet on some future technologies. And that's where, you know, we talked about 2% of our R&D.
Speaker #1: You know, as you can imagine, year-on-year, this will start becoming quite meaningful. So that's how we are focused, and we look forward to scaling this up with next-generation technologies coming up.
Speaker #3: Thank you, sir. The next question comes from the line of Gopal Krishna with Motilal Oswal. Please go ahead.
Speaker #4: Hi, sir. Congratulations on the strong results and with our group. My question here is: given the recent delays in U.S. and global EAA and data center projects, do we see any risk to the delivery timelines of our certified 1,274 floor order books, or are customers proceeding as planned?
Speaker #1: Yeah, thank you. I mean, look, there are three or four things, right? One is, broadly, I think we're obviously watching the interest rates. We're looking at the balance sheets.
Speaker #1: And you know, what is the cash position of some of the hyperscalers? But also, we have to be mindful that there are some local execution challenges.
Speaker #1: Around, you know, land, power, water, and other local opposition. So I think, at a macro level, the investment plans continue to grow and scale up.
Speaker #1: But there will be, you know, execution challenges from time to time. The customers, hyperscalers, are also looking to diversify both across the US, but also in geographies like, you know, the Nordics.
Speaker #1: Of course, in India, we're seeing an expansion. Australia, Mongolia. So I think I think data center companies are also looking to diversify. Again, with that same ambition of you know, being able to rapidly scale up.
Speaker #1: I think the macros continue to be the same. There is genuinely a race for adding capacity. And with our customers, a good portion of our conversations are around how we can help them and innovate with them to help them speed up their installation, make it error-free, and get it first-time right.
Speaker #1: So, we haven't seen any changes in our conversations. But really, it's a unique opportunity for us. And again, as an Indian company, to be out there working with them and solving some of their execution timelines.
Speaker #3: Thank you, sir. The next question comes from the line of Sunny Ghoshal with MK Ventures. Please go ahead.
Speaker #4: Yeah, thanks for taking my question, and congratulations on a strong performance. My question is more on the medium to longer term, and in continuation with a question asked by the earlier participant as well.
Speaker #4: So, historically, we have seen optic fiber go through cycles, and there are lots of variations in the pricing environment, demand, and supply. This cycle seems to be, at least for now, slightly longer with better visibility.
Speaker #4: But how are we thinking about our business from a more effort '29 and beyond' perspective? Are we looking at new areas to diversify the business into, similar to what many global peers are doing with different things in glass technology?
Speaker #4: So, how are we generally thinking about diversification, or is there anything on the horizon broadly?
Speaker #1: So look, I mean, Sunny, at a simple level, first in the near term, we're doing everything to you know, secure and make sure that we're you know, stable in terms of our performance, which is looking at long-term contracts with you know, tier one customers on the telecom and data center side.
Speaker #1: And that's something we'll continue to focus on. Second is, I would say a pretty significant focus on R&D and this is a big you know, focus for us building the right team and product portfolio, making some strong bets of where the connectivity will move you know, along with you know, the latest tax of Nvidia and everything is going.
Speaker #1: And then, I think the third part is really making sure that our balance sheet is healthy, where we have a strong net cash position to make sure that we're able to sustain the future.
Speaker #1: And I think, you know, coming to your question of more longer term, we have, as you can imagine, over the last three to four years, been through a certain phase where we've actually significantly reduced our focus from non-core areas.
Speaker #1: Where we were looking at wireless and you know, various other things. Very happy that from a you know, focus that we brought into you know, the cable and connectivity and now into data center.
Speaker #1: It's been a very focused effort by our team and our technology initiatives to get to this point. Having said that, certainly, we do see that there seem to be strong tailwinds into the future.
Speaker #1: We have very, very strong glass technology. I would say it's amongst the best in the world. So, we'll continue to evaluate over a longer period how we can utilize these glass technologies.
Speaker #1: But I would still say that, in the kind of short term to medium term, we're very much going to be damn good at what we do.
Speaker #1: And the ambition to be, you know, top five in the world in where we are requires a lot of focus—just being very, very close to the customers and building some really next-generation technologies for them.
Speaker #3: Thank you, sir. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.
Speaker #5: Thank you, everyone, for taking the time to hear us today. We truly believe STL is well positioned to play a pivotal role in building digital infrastructure for the future.
Speaker #5: We remain available to take any follow-up questions. You may reach out to us at our official email ID, investors@sql.tech. Once again, thank you.
Speaker #5: We remain grateful for your continued support.
Speaker #1: Thank you. Thank you.
Speaker #3: Thank you, sir. On behalf of Sterlite Technologies Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
