Sterlite Technologies is looking to capture a sizeable market share in a smaller market size compared to earlier, Managing Director Ankit Agarwal told CNBC-TV18.com.
The company had mentioned during its acquisition of Impact Data Solutions Group (IDS) in September 2019 that the deal will take them a step closer towards expanding its Targeted Addressable Market to $75 billion by 2023.
However, three years later, the company divested the acquired 80 percent stake in IDS last month.
Speaking of the $75 billion TAM, Agarwal said that TAM is now lower than the earlier envisaged target. "Our aim is to build a strong competitive presence and capture a sizeable market share in this smaller TAM," Agarwal said. The company has decided to focus management bandwidth and resources on this smaller market instead of spreading in multiple areas.
Sterlite Tech's MD also added that the company is now focused only on the global optical business (ex-China) and the services business in India and the UK. When asked about the TAM now that IDS is no longer part of the group, he said that the company now operates in a smaller TAM with a focus on the above-mentioned areas.
But what pushed Sterlite to divest its stake in IDS despite the bullishness three years earlier?
IDS contributed only 2.6 percent to Sterlite Tech's overall revenue in financial year 2022, which, according to Agarwal is a very small part of the value chain. The acquisition announcement mentioned that Sterlite Tech will acquire the remaining 20 percent in IDS over the next few years, something that never materialised.
Agarwal clarified that they had an option "but not an obligation" to acquire the remaining stake. "The deal was structured in such a way that the acquisition of the remaining 20 percent was to be done over four years starting the current financial year," he said. "Because we chose to divest IDS earlier, we chose not to exercise the option to acquire the first 12.5 percent tranche this year."
With the launch of 5G services in India, the company is looking to capitalise on the opportunities from the same as well as BharatNet. Earlier this month, it launched India's first multicore fibre and cable with an aim to change the optical connectivity landscape in the country.
The company has expanded its geographic presence, reducing its reliance solely on India. As of the June quarter, India's share of the overall revenue came down to 27 percent from 65 percent in financial year 2020 while North America's share has grown to 28 percent. Agarwal says that he continues to see very strong global demand from across customers in Asia, Europe and the US.
Despite the geopolitical headwinds emerging out of Europe, which contributes to a third of the overall topline, Agarwal is confident that the balanced geographical division of the business will enable the company to increase revenues in other geographies, in case one is facing economic or any other headwinds. He also expressed optimism that the company is on track in terms of their near-term topline and bottomline expectations.
The increased raw material costs has hit Sterlite Tech's margins. Logistics costs have started to ease but costs of certain raw material like helium remain elevated. Agarwal expects the impact of lower costs to reflect starting the December quarter. "Our margins are still below the normalised margins, although they increased in the first quarter," he said. "We should have normalised margins in the optical business in the second half of the year."
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