Sterlite Tech Surges 5% as Nomura Launches Coverage with Buy Call

Sterlite Technologies Gains Momentum as Nomura Initiates Coverage with Positive Outlook

Sterlite Technologies’ shares surged 5% following a bullish coverage initiation by Nomura, signaling strong growth potential in the optical fibre cable sector.

Strong Demand Drivers in the Optical Fibre Sector

Nomura’s analysis highlights a multi-year demand upcycle in the optical fibre cable (OFC) industry, primarily fueled by escalating data centre (DC) capital expenditures. The firm predicts a compound annual growth rate (CAGR) of 50% in revenue and an impressive 89% in EBITDA from FY26 to FY29. This growth is attributed to the increasing reliance on digital infrastructure and the need for enhanced connectivity.

Supply Constraints and Market Opportunities

The brokerage points out that the OFC industry is currently experiencing supply constraints due to limited glass preform capacity and raw material bottlenecks. These challenges have resulted in a persistent supply deficit, compelling hyperscalers to enter into multi-year supply agreements. This scenario presents a significant opportunity for Sterlite Technologies, which is well-positioned to leverage its integrated manufacturing capabilities to capture market share from non-integrated competitors facing supply issues.

Strategic Investments and Future Growth

Sterlite Technologies plans to invest ₹30 billion over FY27-29 to expand its capacity by 50%, reflecting confidence in future demand. Nomura forecasts that the share of revenue from data centres will increase dramatically from 1% in FY26 to 40% by FY29, indicating a strategic pivot towards high-margin optical connectivity solutions. This shift is expected to enhance EBITDA margins significantly, potentially rising from 12% to 24% as the company capitalizes on lucrative DC and optical connectivity contracts.

Financial Health and Future Outlook

Despite the anticipated capital expenditures, Nomura emphasizes that Sterlite Technologies is expected to remain largely free cash flow positive, thanks to a strong EBITDA-to-CFO ratio. The brokerage also notes that the ₹15 billion Qualified Institutional Placement (QIP) planned for July 2026 should aid in deleveraging efforts, further strengthening the company’s financial position.

Key Highlights

• Nomura initiates coverage of Sterlite Technologies with a ‘Buy’ rating and a target price of ₹1,350.
• Projected revenue CAGR of 50% and EBITDA CAGR of 89% from FY26 to FY29.
• Supply constraints in the OFC industry create opportunities for Sterlite Technologies.
• Plans to invest ₹30 billion to expand capacity by 50% over the next few years.
• Expected increase in data centre revenue share from 1% in FY26 to 40% by FY29.
• Financial health remains strong, with anticipated free cash flow positivity despite capital expenditures.

Investor Note: The positive outlook from Nomura highlights the potential for Sterlite Technologies to capitalize on the growing demand for optical fibre solutions, making it an attractive prospect for investors looking to tap into the expanding digital infrastructure market.