Sterlite Power is a leading Indian private sector company that specializes in power transmission infrastructure and solutions. Its business revolves around developing, building, and operating transmission systems, as well as manufacturing products and providing innovative solutions. The company’s business is divided into three segments: Transmission, Products, and Solutions.
**Business Segments:**
* **Transmission Business:** This segment focuses on developing and operating high-capacity power transmission lines and related infrastructure. Sterlite Power participates in competitive bidding, mainly through the Tariff-Based Competitive Bidding (TBCB) process. Revenue is generated through long-term transmission service agreements (TSA) with distribution companies (DISCOMs) or utilities, offering stable cash flows over 25-35 years.
* **Products Business:** This segment involves manufacturing and supplying key components like power conductors, optical ground wire (OPGW), and high-performance cables. These are sold to utilities, independent power producers (IPPs), and infrastructure developers in domestic and international markets.
* **Solutions Business:** This provides end-to-end solutions to enhance power grid efficiency and reliability, including grid optimization, asset management, and technologies like AI, IoT, and machine learning. Revenue comes from contracts with utilities and other power infrastructure companies, often involving long-term service agreements.
**Strategic Initiatives and Growth Areas:**
Sterlite Power is increasing its focus on renewable energy projects, including transmission lines for wind and solar farms. They are also pursuing strategic partnerships like the joint venture with GIC to expand their transmission business. Global expansion is another key strategy for diversifying revenue and mitigating market risks.
**Addressing Challenges in the Power Sector:**
The company recognizes the changes in India's power sector and is committed to speeding up transmission line construction to meet power demand and support renewable energy projects. Sterlite Power is working to overcome challenges such as the lack of affordable large-scale storage solutions and the need for distribution reforms through innovative technologies and collaboration.
**Demerger and IPO Plans:**
Sterlite Power plans to demerge its transmission and product businesses to allow for a sharper focus on decarbonization and renewable energy. The demerger is expected to create distinct value for shareholders. After the demerger, the Global Products and Service Business IPO will be initiated, while the Transmission business will remain unlisted, supported by GIC investment. The global products and services business has an order book of INR 6,000 to 7,000 crores. The NCLT’s final order on the demerger is expected in Sept '24, with the Infra business getting demerged into entity SGL-5.
**Partnership with GIC:**
Sterlite Power has a significant partnership with GIC to form a $4 billion joint venture for transmission projects in India. This aims to increase Sterlite Power's market share, leveraging GIC's financial strength and Sterlite Power's expertise.
**Future Outlook:**
The company's order book as of March 31, 2024, includes INR 4,748 Cr for Conductors + OPGW, INR 1,130 Cr for Power Cables, INR 827 Cr for MSI, and INR 5,456 Cr for Infra, totaling INR 12,151 Cr. The overall order book comprises INR 6750 Cr for GPS business and INR 5456 Cr for Infra business.
The India conductor market demand is projected to double by FY26, with certain segments of the Power cable market like EHV and Solar growing at a CAGR of 15-25%. To meet growing demand, a capex of Rs 450Crs is underway to increase conductor capacity by 45% to 1,55,000 MT. The demerged GPS Co – SPTL is expected to see 30% revenue growth upto FY26, with PAT growth of 62%.
SGL5-Infra Co in FY26, EBIDTA and PAT are estimated to be Rs 943 Crs and Rs 737 Crs respectively, leading to ROCE of 37% and ROE of 29%. The company targets to acquire up to ~18% of upcoming TBCB projects, valued at $12Bn, by CY2025.
**Financials:**
* **Demerged SPTL (GPS Co consol.)**: In FY24, Total Income was INR 4,842 Cr (47.1% YoY), EBIDTA was INR 522 Cr (27.0% YoY), EBIDTA Margin was 10.7%, and PAT was INR 241 Cr (30.9% YoY).
* **Infra business – India**: In FY24, Total Income was INR 1,630 Cr (94.1% YoY), EBIDTA was INR 112 Cr (-65.4% YoY), EBIDTA Margin was 7%, and PAT was INR (259) Cr (-240.7% YoY).
* **Infra Business - Brazil:** Revenue was Rs 1,545 Crs, EBIDTA was Rs 66 Crs, and PAT was (370) Crs.
* The company’s long and short-term borrowings were Rs 6,739 Crs at the end of FY24.
**Valuation of Sterlite Power:**
Currently, in the unlisted market, it is available at INR 785 price and with ~12 crores shares, the Mcap is close to ₹9500 Cr. The company's Transmission Lines business is estimated to be worth approximately 8,000 crore while Sterlite Power Global Products and Service Business could potentially be valued at over ₹8,000 crore. The company's valuation stands at around ₹9,500 crore, indicating significant upside potential.
**Market Outlook:**
In FY24 year to date, 22 Tariff-Based Competitive Bidding (TBCB) bids worth ₹43,314 crore have been completed, and Requests for Proposals (RFPs) have been released for an additional 23 TBCB bids worth approximately 88,153 crore. The addressable global market of power conductors is 1.35 million metric tons (MT) and is slated to grow at 5-6% over the next 4 years. The addressable global Power Cable market size is USD 6.7 billion and is expected to grow at a blended CAGR of 8% over the next 4 years.
