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Edited Transcript of STRTECH.NSE earnings conference call or presentation 18-Jul-19 11:30am GMT

Q1 2020 Sterlite Technologies Ltd Earnings Call

Jul 22, 2019 (Thomson StreetEvents) -- Edited Transcript of Sterlite Technologies Ltd earnings conference call or presentation Thursday, July 18, 2019 at 11:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Anand Gopaldas Agarwal

Sterlite Technologies Limited - Group CEO & Whole-time Director

* Anupam Jindal

Sterlite Technologies Limited - Group CFO

* Vishal Aggarwal

Sterlite Technologies Limited - Head of IR

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Conference Call Participants

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* Augustya Dave; CAO Capital; Analyst

* Jayesh Gandhi; Harshad H Gandhi Securities Private Limited; Director

* Mihir Manohar; CapGrow Capital Advisors; Analyst

* Mukul Garg

Haitong International Research Limited - Research Analyst

* Neelam Punjabi; Perpetuity Ventures LLP; Analyst

* Neerav Dalal

Maybank Kim Eng Holdings Limited, Research Division - Analyst

* Pranav Kshatriya

Edelweiss Securities Ltd., Research Division - Research Analyst

* Pritesh Chheda; Lucky Investments Manager Private Limited; Analyst

* Sangameswar Iyer; Consilium Investment Management; Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Sterlite Technologies Limited Q1 FY '20 Earnings Conference Call. (Operator Instructions)

Please note that this conference is being recorded. I now hand the conference over to Mr. Vishal Aggarwal, Head Investor Relations and M&A, Sterlite Technologies. Thank you, and over to you, sir.

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Vishal Aggarwal, Sterlite Technologies Limited - Head of IR [2]

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Good evening, everyone, and thank you for taking the time to join us for today's conference call and review of our business results for the first quarter of FY '20. Joining us today are Dr. Anand Agarwal, CEO; and Anupam Jindal, CFO of Sterlite Technologies.

Let me quickly outline the agenda for today's call. Anand will provide you a brief update on the industry and then spend some time walking you through our market positioning and performance. Anupam will then follow it up with financial highlights for the quarter, after which we'll be taking your questions.

We have also uploaded the presentation on our website for those who cannot access it live. Before we proceed with this call, I would like to add that some elements of this presentation may be forward-looking in nature and must be viewed in relation to the risk pertaining to our business. The safe harbor clause indicated in our presentation also applies to this conference call.

With this, I turn the call over to Anand.

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Anand Gopaldas Agarwal, Sterlite Technologies Limited - Group CEO & Whole-time Director [3]

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Thank you, Vishal, and good evening, everyone. We have entered FY '20 with yet another exciting quarter and have seen excellent growth on both our operational as well as financial numbers. The way I see from a holistic perspective is that on one hand we are innovating for today with our comprehensive network and data center design and development for the navy, deploying Citi networks at 40% to 50% higher speeds and commissioning the one-of-its-kind Industry 4.0 optical fiber plant. On the other hand, we are disrupting for tomorrow by participating with the open source network ecosystem to build disruptive software-defined networking solutions.

We ran our full-scale benchmark test on the Open Networking Foundation compliant programmable FTTx solutions that can emulate thousands of subscribers. This is a precursor to STL's launch of the -- our PODS, which is the Programmable, Open, Disaggregated Solutions later this year. We also launched Intellza, which is an AI-powered Big Data next-gen business intelligent solution that helps analyze telco user data to make real-time network and customer-targeting decisions.

So all of us at Sterlite are brimming with excitement, looking at what lies ahead of us in the near term and future.

All right. So with this, I will now come to the presentation. Clearly, what we see are major trends that are shifting in the industry. We see the trends of 5G, we see massive shifts happening on our data centers, both at the hyperscale kinds as well as the edge kinds. We see and are connected everything embraced by IoT, and we are seeing all this being supported with a virtualized disaggregated software-defined networks.

So we are clearly seeing that early 5G commercial launches have started across major markets, like South Korea, China as well as U.S.A. We are seeing a massive hyperscale as well as edge data centers are getting built, which have resulted in almost $66 billion of cumulative annual CapEx by the top 3 cloud providers globally. And we are also seeing enterprise and smarthome applications have been growing, but number of IoT connections are expected to see a massive jump of almost reaching a number of 25 billion IoT connections by 2022. All these trends are extremely encouraging for us as we continue to serve the requirements of our customers through newer and innovative solutions for varied applications in new-age data networks.

These new services and applications are driving the need for more capable network infrastructure that must deliver, amongst other thing, higher speeds, lower latency and 100x more bandwidth density. Densification of network, amongst other trends, is becoming a critical element of data network. It is estimated that the amount of fiber required to connect all expected 5G cells is almost 20x to 30x greater than that was necessary to connect 3G and 4G microcells. And what is truly encouraging is that our customers themselves have started to openly acknowledge the need of deep fiberization as the plan for their 5G networks. Just to give you an example, it is estimated by Fiber Broadband Association that only the top 25 cities in the U.S. would require close to 180 million kilometers for 5G rollout, which is 3x the annual demand of U.S. So for each city to be 5G ready would require almost 6 million to 7 million kilometer each.

And where we see India in this is that it is just at the start of the network creation cycle. It is an exciting part because it offers us not only opportunities across the globe but also immense potential in India, which is our home market. India's fiber kilometer per capita is 17x lower than that of U.S. and 14x lower than that of China, and that's the huge potential that lies in our country for fiberization.

All these opportunities that we see in the overall market space are creating extremely unique opportunities for STL. The current operating environment for us is changing as an outcome of the customers evolving needs. What we see are high-density architectures are necessary to carry the optical signal deeper into the network and customers are looking for end-to-end network creation partners, which significantly increases our addressable market. Apart from that, the customers are looking for more and more innovative and open architecture software-based solutions, which in the coming time is the focus of our investments. I would say that the culmination of these levers of new-age networks are continuing to create evolving opportunities for STL, leading to an addressable market of $75 billion by 2023.

And we, as a company, are at the forefront of these megatrends by offering integrated solutions across all our customer segments. We continue to focus on our 4 customer segments of telcos, of cloud companies, large enterprises as well as Citizen Networks. And our offerings to our customers are increasingly evolving from component-based products from singular components to system-based solutions. These systemic solutions that we sell are increasingly co-created for specific customer application and typically involve our complete capabilities from silicon to software. We are increasingly offering unique fiber and cable designs for a particular network application, which may include our network monitoring software, our OSS/BSS capabilities. And we are doing this with clear focus on our pillars of customer engagement, technology, execution, global delivery and supply chain as well as talent.

To talk about this approach in more details of how we are adding customer engagement and technology, we'll be talking about a few typical engagements, which are getting transformed with our system-based solutions approach. This slide needs your undivided attention because what you see on the screen is a snapshot of such integrated offerings for our customers. So for instance, for one of our large global telco client, for their high-speed fiber-to-the-x application, we are providing our algorithmic FTTx solutions of Sterlite FTTx Mantra as well as I-CORE.

For a hyperscale cloud customer, for their high capacity with extreme low latency demand, we are meeting that with the STL TruRibbon solutions, which provides 4x faster installation compared to legacy high-density fiber solutions. And for 2 of the disruptive telcos in Asia, we are providing our STL Programmable, Open, Disaggregated Solutions for their seamless WiFi offload. And this provides an example of all the solutions where it's a combination of STL offerings, which provides an integrated, unique unified solution for our customers.

These solutions that you are seeing are a demonstration of our shift and focus on end-to-end system-based offerings. These solutions are truly a culmination of our product design, of our services and software offerings that are created on the foundation of technology and deep customer engagement.

Now we will talk about our execution capabilities and the focus and more particularly on network services, where we have also received feedback from you all, on giving more color on our offerings and execution. Our team has done a great job on conceptualizing the entire architecture and are accelerating the pace of the project since its inception. For navy, we are doing the end-to-end system design engineering right from network to data center to applications for 33 data centers with more than 600 network elements across the country.

To name a few capabilities, we are designing and implementing regional, dense wavelength division multiplexing at 7 metro cities in the country for transport layers connectivity at edge locations. We are building data center in accordance with international standards and first-of-its-kind explosion proof architecture. We are providing satellite connectivity to Andaman/Nicobar and Lakshadweep and a centralized hub created in Southern India. We are doing end-to-end storage, compute and security through 2 dedicated NOCs in the country. We are doing umbrella network management systems for managing the entire data network. And we are implementing dedicated private cloud on a virtualized platform with our software offerings. The navy communications command control system will support analytics and strategic decisions for Big Data platform and on-prem cloud services with multitenancy in defense network. We are incredibly proud to partner with navy to build such a secure world-class communication network, first of its kind, in India. The project is almost 50% complete and is running on schedule.

Up next, the projects that we are doing, MahaNet, in the -- in Maharashtra is an example of what we are doing in terms of overall rural connectivity. This project would ensure connectivity from taluka to gram panchayats and horizontal connectivity to government institutions and facilities, the delivery of e-governance of services such as health care, education, agriculture of Maharashtra impacting almost 7.5 million lives. Our scope includes planning, deploying, end-to-end integration, testing and commissioning of underground and aerial networks along with power and solar infrastructure, which could, of course, include 100% sterilized optical products, operation and management, and facilitating service provisioning of the established networks for 3 years post execution on turnkey basis. This project is about 30% complete and is also running on schedule.

The next example that we want to talk about is our Kakinada Smart City. This is an example of what we have done where we have truly showcased an end-to-end IoT network, which includes the fiber backbone, data routing and switching multiple data centers, IoT sensors across the city and ERP applications converging the city's citizen services. For this project, we worked with the city from conceptualization of the network design to the overall deployment. This project is complete, and we will continue to be engaged with the city for 5 years for network management, and it is -- this project is true testament of our network capabilities for an IoT-driven infrastructure.

Moving on to our global delivery and supply chain, we are proud to show you pictures of our newly commissioned capacity. Just to share with you our internal designation of this CapEx project is called Gaurav, which means pride, and we at STL very fondly take pride in building this new facility. With this added capacity, STL is now positioned to be among the top 5 global integrated manufacturers of fiber. We are extremely proud of the team for onboarding this capacity in record time, which has been made possible with strong focus on technology, robotics and automation.

The new state-of-the-art Industry 4.0 plant would enable us to speed up the innovation engine for photonics and material science, such as the new fiber technology as well as fiber-optic sensing solutions. This facility is undergoing commissioning currently and would be gradually brought up to capacity between now and end of this year. We have also completed our 1-year anniversary of our Europe acquisition, which we did around this time last year, and we are happy to see how beautifully it has weaved into our business. As part of our cabling expansion plant announced last year, we are redoubling our capacity of the Italy plant from 3 million kilometers to 7 million kilometers. This expansion is mainly for our niche micromodule cable offerings for our European customers. This acquisition has been extremely strategic for our European business, bringing us closer to our customers to serve for their requirements with a much faster response time. And our plan to increase our optical fiber cable capacity from 18 million kilometers to 33 million kilometers in a modular fashion to finish by June 2020 is fully on track.

And yes, coming to our most important pillar, talent. We -- it has been a continuous endeavor to continue to provide growth platform and opportunities for our internal team and also bring in the best-in-class industry experts. Some of the names that you see on the slide are leaders in their own domain coming with a pedigree of working with globally reputed companies. This talent inclusion is a part of our continuous investment in technology and customer-centric city. We are also now a Great Place To Work certified company, which is a step towards our endeavor to continue to make Sterlite STL a greater place to work every single day.

With this, I now come to an end of the business overview and hand over to Anupam.

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Anupam Jindal, Sterlite Technologies Limited - Group CFO [4]

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Thanks, Anand, and good evening to everyone. Coming to the financial performance, we have delivered yet another strong quarter with more than 60% Y-o-Y growth in revenue and 32% Y-o-Y growth on EBITDA. We have outperformed on our ROCE benchmark and stand at 28% ROCE for the quarter. Our current order book is at almost INR 10,000 crore and new products with a revenue ratio was 21% during the quarter.

We have continued to show the Y-o-Y revenue growth of 60% for this quarter after following a great 60% full year growth in FY '19. On a Q-o-Q basis, there is a revenue dip, majorly on account of low revenues in our services business as compared to the last quarter, which is more of a timing issue. On a yearly basis, we expect to execute most part of our navy and MahaNet project and increase network rollout of some of the leading telecom in the companies -- in the country.

The EBITDA in the current quarter was quite impressive supported by operations at full capacity, higher contribution by high value-added products and solutions and increasingly integrated system-based offerings, better operating efficiencies and improved profitability in the services and software business. As we have commissioned the expanded facility earlier during the quarter, this has resulted in higher depreciation in interest as compared to the last quarter. As a company, we continue to be focused on overall revenue growth with profits growth, while maintaining a ROCE in excess of 25%.

On a geographic basis, India and Europe continue to be our strong markets where our entrenchment and innovative offerings have lead to superior financial returns. Export accounted for about 36% to our revenue in the current quarter, showing an impressive growth over the last quarter, in absolute terms, and similar to the mix of the whole of the last year.

On the customer front, our mix is now becoming more balanced amongst our 4 segments of telcos, Citizen Networks, enterprises and cloud providers. We had some major traction with one of the top global cloud providers with our data center interconnect solution and see this as a start to the many mega opportunities in times to come.

Our order book visibility continues to be high with more than INR 750 crore of new order books obtained in the current quarter. We end this -- we ended this quarter with a healthy open order book of around INR 10,000 crore with many more orders in pipeline.

STL focuses strongly on good corporate governance practices as key to sustainable corporate growth and long-term shareholder value creation. Sterlite's approach towards growth, earnings and capital allocation are well chartered to help it grow in a value-accretive manner for all its stakeholders. The company's success will continue to be backed by a strong foundation that will enable its sustainable growth going ahead.

For your reference, we have captured an abridged version of the P&L. Our trailing 12-month performance has been the highest ever and stands at more than INR 5,600 crore of revenue and PAT of more than INR 580 crore. Our current debt at the month end -- at the quarter end of June is at around INR 1,980 crore as compared to INR 1,733 crores at the end of FY '19.

With this, we come to the end of our opening commentary and would be happy to take the questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Pranav Kshatriya from Edelweiss Securities.

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Pranav Kshatriya, Edelweiss Securities Ltd., Research Division - Research Analyst [2]

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Sir, can you give us some color on how the product versus services business shaped up during the quarter? And secondly, given the commissioning of the capacity has happened during the quarter, can you please share that how much of the gross block addition which has happened? How should we see the depreciation? And how much is the net debt currently?

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Anand Gopaldas Agarwal, Sterlite Technologies Limited - Group CEO & Whole-time Director [3]

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Yes, Pranav, in terms of the overall color on the breakup, I think, it's becoming increasingly difficult as we are offering more and more integrated solutions to most of our customers. But in terms of the overall breakup, the products is about 60% and the services and softwares are about 40%. And this is also one of the reason you will -- you have seen margin at a company level showing improvement. The second question in terms of the capacity getting commissioned, so it has got commissioned, there is still some part of the capacity, which is getting commissioned in the time to come. In terms of the gross block, I don't have the exact number, but it would be close to about INR 900-odd crore, which has got capitalized. In terms of the depreciation, definitely, that's one of the reason and the interest also some impact has come because of the capitalization. So this is what we have.

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Pranav Kshatriya, Edelweiss Securities Ltd., Research Division - Research Analyst [4]

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Can you share the net debt number?

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Anand Gopaldas Agarwal, Sterlite Technologies Limited - Group CEO & Whole-time Director [5]

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Yes. So that was covered in my commentary. So my net debt is INR 1,980 crore, roughly.

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Pranav Kshatriya, Edelweiss Securities Ltd., Research Division - Research Analyst [6]

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Okay. And sir, can you just give some commentary on how the demand environment is for the OF and the OFCs because when we hear from the commentary of the competition, they are talking about very low OF prices, and how it has any bearing on our business?

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Anand Gopaldas Agarwal, Sterlite Technologies Limited - Group CEO & Whole-time Director [7]

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So Pranav, we clearly operate in a global market. Our fiber realization is a mix of both the standard products as well as the value-added products that we do. Our value-added products sale has been increasing year-on-year, quarter-on-quarter, which is currently at north of almost 30% and our realization for fiber where we sell as a bare fiber product is north of $7. I would not be able to comment on a particular competition. But clearly, in the global market, if you see the commentary whether from Corning or from Prysmian, or from the people from Japan, the realization continues to be at this level, which is a mix of the current generation products as well as the future generation products.

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Pranav Kshatriya, Edelweiss Securities Ltd., Research Division - Research Analyst [8]

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Plus the kind of customers.

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Anand Gopaldas Agarwal, Sterlite Technologies Limited - Group CEO & Whole-time Director [9]

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Plus the kind of customers base, clearly, that people have.

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Operator [10]

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The next question is from the line of Mukul Garg from Haitong Securities.

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Mukul Garg, Haitong International Research Limited - Research Analyst [11]

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Congrats to the team for scaling up the DCI business. It's an interesting new area, which is growing quite fast. Anupam, to start with, if you can just help us with the utilization in the product business on fiber and cable side. And what production capacity you had this quarter on the fiber side, given that new capacity came on board in June month.

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Anupam Jindal, Sterlite Technologies Limited - Group CFO [12]

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Sure. So I think if you look at overall existing capacity of 30 million and in fiber cable also about 18 million, and we have broadly operated at full capacity of that. As far as the new capacity, which has started to come online and getting commissioned, that is still running, I would say, in trial. So that volume will start picking up, I would say, more prominently from Q3 onwards. Currently, that is up to the mechanical -- I would say, commissioning is getting done, and it will take some time for it to start giving revenue.

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Anand Gopaldas Agarwal, Sterlite Technologies Limited - Group CEO & Whole-time Director [13]

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Commercial sites.

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Anupam Jindal, Sterlite Technologies Limited - Group CFO [14]

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Yes.

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Mukul Garg, Haitong International Research Limited - Research Analyst [15]

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Understood. Anand, the other question was just on your comment on the bare fiber prices still being north of $7. So should we expect that the margin profile this quarter has been maintained compared to historically where you guys were reporting your operating margins. And a connected question is, when I actually look at, in past, whenever we had oversupply scenario in the spot market, what has been your experience in terms of divergence between spot and long-term markets in terms of pricing and margins?

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Anand Gopaldas Agarwal, Sterlite Technologies Limited - Group CEO & Whole-time Director [16]

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For us, what we have seen is that the broad pricing range in the contractual price has been between $7 and $8. When we saw that over the last couple of years, there was a tightness in supply, even long-term pricing was moving closer to $8. Now we see that the long-term pricing is also moving closer to -- between, I would say, the range closer to $7 and north of $7. The spot pricing is extremely by nature of it very spot and fickle. And we consciously do not operate in that market because we hear all kinds of pricing, and there is nobody who kind of -- who maintains a trend of that or who is able to give us a good analysis. So for us, we see how the industry leaders globally are trending, we see how the industry reports are and we see how our contracts with our customers go. And we are currently north of $7, which is a blend of both the standard products as well as the value-added products.

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Mukul Garg, Haitong International Research Limited - Research Analyst [17]

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Sure. Maybe like if I can ask this slightly differently. If you look back in past and maybe these similar sort of a near-term capacity overcrowding happened somewhere in 2001/2002 period, what sort of price correction can happen in the long-term market if the overcapacity remain, therefore about like 6 months to 1 year period? And in conjunction with this, do you think the overcapacity is easing a bit, there would have been a tenting of China telecom in China as well? So any sense of that?

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Anupam Jindal, Sterlite Technologies Limited - Group CFO [18]

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Mukul, let me just take this up. If you look at this talk or discussion around prices having gone down to $4, $4.5, even sub-$4, it has been talked about for almost like 7 months,, 8 months now. And in spite of that, we have been able to talk, I mean give a confidence that our price range is something close to $7, $7.5, $8, in that range. Now coming to what you are seeing, even if you look at or talk to those guys, they will also be talking that price, even in China or some other places, have sort of bottomed out. I don't see that people are talking about prices going up beyond what it is today. In fact, we have started seeing some upside, even in some of those markets, but it may take another 6 months, 9 months for even that. But the point is that overall demand continues to move up. That is a very clear trend. Even in China or other markets, we are seeing early adoption of 5G happening and therefore the demand coming in.

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Mukul Garg, Haitong International Research Limited - Research Analyst [19]

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Understood. And if I can squeeze last question...

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Anand Gopaldas Agarwal, Sterlite Technologies Limited - Group CEO & Whole-time Director [20]

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Sure.

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Operator [21]

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Sir, I think we have the lost line with the current participant.

(Operator Instructions) The next question is from the line of Parthiv Johnson (sic) [Parthiv Jhonsa] from NVS Brokerage.

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Unidentified Analyst, [22]

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Can you just cite what would be the order book between your software and your product and your services? Can you just give a small breakup on that front? And what would be there margins from each?

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Anupam Jindal, Sterlite Technologies Limited - Group CFO [23]

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Yes. I think the order book broadly consist 55%, 57% from our products and balances from service. And margin profile is basically similar to what we have been talking. So we continue to say that our order book reflects broadly the revenue profile we have.

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Unidentified Analyst, [24]

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Okay. And sir, I believe the cost of materials as a percentage of the top line has gone up. Can you just cite the reason for the same for this quarter?

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Anupam Jindal, Sterlite Technologies Limited - Group CFO [25]

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I think maybe if I can correct, the overall cost of goods has gone down in the current quarter, and that is again a reflection of, as we spoke in the beginning, is a reflection of mix, the products and the services, product being higher as a percentage of the [count now].

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Operator [26]

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The next question is from the line of from Pritesh Chheda from Lucky Investments.

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Pritesh Chheda; Lucky Investments Manager Private Limited; Analyst, [27]

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Sir, couple of questions. One on the product side that is the fiber side. Last quarter, we had indicated that the margins in products was about 26%. And whatever news flows on realizations, et cetera, have been floating around, just wanted to prick your brain on how would have margins and realization moved between the 3 quarters that has got reported in the current results, which is quarter 1, quarter 4 and quarter 1 last year? So is there any material difference on margin and realization on the product side in these 3 quarters or it largely remains where it is?

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Anand Gopaldas Agarwal, Sterlite Technologies Limited - Group CEO & Whole-time Director [28]

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In terms of, I would say, last year the margins were closer to 32%, 33% at this point in Q1. Q4, we were closer to 26%. Now we are closer to 28% with our value-added product offering increased.

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Pritesh Chheda; Lucky Investments Manager Private Limited; Analyst, [29]

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Okay. And this is after whatever changes in the long-term contracted realization that would have in the backlog and in the revenue number? Or the backlog is yet to see it in terms of maybe whatever $0.5 or whatever contracted realization?

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Anupam Jindal, Sterlite Technologies Limited - Group CFO [30]

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So I think -- let me take -- because the revenue is reflecting what we are selling, and that is after considering everything which we have. So if you look at the range, it is 26%, 28%, maybe 1% or 2% here and there because we continue to look at value-added products, continue to look at cost optimization, leverage the opportunity of squeezing the cost on all fronts, and this is getting reflected. So I think it's a pretty reasonable range to play in. And going forward, also the backlog we have wherever we will see correction that gets reflected in -- I mean if you -- as I said last 9 months, 8 months, this price discussion has been happening. But if you look at our performance, we have been pretty range bound.

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Pritesh Chheda; Lucky Investments Manager Private Limited; Analyst, [31]

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Sir, on the backlog side, you have reasonable visibility in terms of your delivery of fiber and cable. What is the delivery requirements for FY '20 in terms of fiber kilometers?

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Anand Gopaldas Agarwal, Sterlite Technologies Limited - Group CEO & Whole-time Director [32]

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So FY '20 in terms of fiber kilometers, we took order with the kind of visibility that we have -- we had on the capacity getting ramped up. We started off the year at a capacity run rate of about 30 million. We think by the time we end the year in Q4, we would be at a run rate of closer to between 40 million kilometer to 45 million kilometers, and we'll end the year at something between these 2. You won't have the exact number, and we will keep reporting as we go along during the year, but it would be the exit rate; starting was at 30 and ending would be between 40 million kilometers to 45 million kilometers.

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Pritesh Chheda; Lucky Investments Manager Private Limited; Analyst, [33]

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So this is your utilization of your facility exit run rate.

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Anand Gopaldas Agarwal, Sterlite Technologies Limited - Group CEO & Whole-time Director [34]

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Absolutely, which is in accordance with how we have done our order booking also.

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Pritesh Chheda; Lucky Investments Manager Private Limited; Analyst, [35]

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Okay. And lastly, on the project side, what was the scope of work or value of work that is expected to be executed this year out of the current backlog that you have?

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Anupam Jindal, Sterlite Technologies Limited - Group CFO [36]

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I think we have been showing a run rate -- currently, like we have software and services put together almost like INR 600 crore in the current quarter, and I think that run rate plus is going to continue. And we are going to have good growth because we have these 2 projects, large navy and MahaNet to be completed, and then we continue to get more orders from telecom operators in India. So I think it's a good visibility which we have, plus we also build order book for the next year.

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Pritesh Chheda; Lucky Investments Manager Private Limited; Analyst, [37]

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So these 2 projects would be what portion of your backlog -- projects backlog?

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Anupam Jindal, Sterlite Technologies Limited - Group CFO [38]

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Currently, there's a substantial portion of our backlog in the services business.

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Pritesh Chheda; Lucky Investments Manager Private Limited; Analyst, [39]

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Okay. And lastly on the CapEx side and the peak debt side, so where are we on the CapEx for the capacity of this 50 million FKM -- sorry, additional 20 million FKM in fiber and some capacity that we are going to add in cable? And where will the net debt figure look like?

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Anupam Jindal, Sterlite Technologies Limited - Group CFO [40]

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So currently our net debt was, as I said, INR 1,980 crore, and overall, we have said that in the current year, we will have CapEx of close to INR 550 crore. That will pretty much cover the CapEx of this expansion of 20 million, which is taking the capacity to 50 million, and some part of the CapEx, which we are doing for cable capacity from 18 million to 33 million.

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Pritesh Chheda; Lucky Investments Manager Private Limited; Analyst, [41]

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So what will the net debt look like?

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Anupam Jindal, Sterlite Technologies Limited - Group CFO [42]

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The net debt will continue to be a function of not just the CapEx but our operating cash flow including change in working capital. So I think we have a larger ratio to be looked at, which is debt-to-equity, which we're saying that we'll continue to maintain at about 1.

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Pritesh Chheda; Lucky Investments Manager Private Limited; Analyst, [43]

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Okay. So you said you'll spend INR 530 crores in FY '20 and there will be some residual CapEx for cable, which will come in FY '21, that's how it is, right?

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Anupam Jindal, Sterlite Technologies Limited - Group CFO [44]

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Yes, INR 550 crore, I said.

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Operator [45]

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The next question is from the line of Jayesh Gandhi from Harshad Gandhi Securities.

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Jayesh Gandhi; Harshad H Gandhi Securities Private Limited; Director, [46]

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So what is the increase in working capital or [deterrent-specific] for March and June quarter, I mean quarter-on-quarter before this quarter?

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Anupam Jindal, Sterlite Technologies Limited - Group CFO [47]

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I don't have that specific number, but yes, I mean in terms of the overall working capital, slightly it is higher than June end primarily because of the longer collection cycle as we have more exports in the current quarter. Number two, the work in progress for our projects is also going up.

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Jayesh Gandhi; Harshad H Gandhi Securities Private Limited; Director, [48]

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Okay. And so say hypothetically, the current spot -- I mean the spot prices of optic fiber is $4 or $5. We would be in that case -- I mean just in case if we are selling in that market -- spot market, we would be badly doing EBITDA neutral?

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Anupam Jindal, Sterlite Technologies Limited - Group CFO [49]

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I think if you look at last 3 quarters, this discussion has been happening. The prices have gone down to $4, $4.5 below that. And we have always maintained that we carry one long-term order book, which is helping us. We also have good geographical presence with marquee customers, which are not really jumping to low price fiber just because it is available by some Chinese players; and value-added products. Fourth, we are also working on cost. So if you look at these things, our performance has been maintained, and we continue to see, going forward also how do we maintain that. So we are not really getting impacted as we have maintained in the past

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Jayesh Gandhi; Harshad H Gandhi Securities Private Limited; Director, [50]

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Okay. But in that case, sir, can you share what would be our cost of production of fiber?

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Anupam Jindal, Sterlite Technologies Limited - Group CFO [51]

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See, this information is not generally available, so I would not like to share it here. But as you can see, the EBITDA margin is reflective of what our operational efficiencies are.

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Jayesh Gandhi; Harshad H Gandhi Securities Private Limited; Director, [52]

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Okay. And one last question, sir, in one of the slides, you have compared U.S.A. and China, and it says India has huge fiberization potential. But is it fair to compare U.S. and China with India? I mean geographically U.S. and China are really large, and even if you compare fiber kilometers per capita, U.S.A. and China would be growing horizontally, and maybe India might be growing vertically.

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Anupam Jindal, Sterlite Technologies Limited - Group CFO [53]

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I think you need to also see that it all depends on the data consumption, which is also driven by the fact that population and the devices which are going to be connected affluent to the level of living standard people are going to see in the years to come. And while we have presented 1.7 -- sorry, 17x greater in U.S. and 14x greater in China, the point is that even if it becomes 4x, 5x that's kind of opportunity India has. And Sterlite is not just playing in India but also has global opportunities. So this is the point we are trying to make, that the fiber opportunity is quite large, driven by data growth; driven by technology shift in 5G; driven by fiber-to-the-home, which is going to happen; and data centers, which are getting established all over the world.

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Operator [54]

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The next question is from the line of Sangam Iyer from Consilium Investments.

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Sangameswar Iyer; Consilium Investment Management; Analyst, [55]

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Anupamji, I mean in terms of the cable capacity moving from 18 million to 33 million, can you break up in terms of how much would be the exit run rate for FY '20 and then moving on to FY '21?

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Anupam Jindal, Sterlite Technologies Limited - Group CFO [56]

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So currently, we are at 18 million, and then by end of the year, we are looking at in excess of 23 million, 24 million. And maybe -- and that also gets impacted by the high-fiber count because capacity is not just in fiber kilometer, it is route kilometer also so there is also some room for us to play, and we can see some impact coming in. But by June 2020, we are looking at entire INR 33 million coming in.

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Sangameswar Iyer; Consilium Investment Management; Analyst, [57]

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Okay. Just to follow up on what Pritesh had asked earlier, regarding the margins, how it spanned over the last 3 quarters. I think the better way to look at it could be if you can also give us how is the mix between fiber and optical fiber cable during the same period because the margin profile of both would be different and while revenue growth would be also different because of the contribution of both?

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Anupam Jindal, Sterlite Technologies Limited - Group CFO [58]

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Yes. I think if you look at both fiber and fiber cable, if you look at -- we have said 30 million capacity almost fully utilized, 18 million fully utilized, our revenues are in line with what Anand talked about realization of $7-odd and in this case $17 kind of number, but what we are also looking at is, in cable also we are seeing much more complex customer-specific designs getting built, allowing us to have better margin in that. So I think in cable also this technology element is getting built. That is helping us overall blended margin to be at a higher level.

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Sangameswar Iyer; Consilium Investment Management; Analyst, [59]

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Got it. Got it. In terms of the fiber per kilometer, when we look at the mix moving towards higher fiber count, when you say 30% is your innovative products, does that mean that the higher fiber count is kind of factored in that 30% growth?

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Anupam Jindal, Sterlite Technologies Limited - Group CFO [60]

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Yes. So...

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Anand Gopaldas Agarwal, Sterlite Technologies Limited - Group CEO & Whole-time Director [61]

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One of the products, yes.

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Operator [62]

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(Operator Instructions)

The next question is from the line of Neerav Dalal from Maybank.

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Neerav Dalal, Maybank Kim Eng Holdings Limited, Research Division - Analyst [63]

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I just had a couple of questions. One is that at the start of the year, we had given a guidance of EBITDA of 18% to 20%. Just wanted to know whether it sticks? And the other thing is the $100 million profit target?

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Anupam Jindal, Sterlite Technologies Limited - Group CFO [64]

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Yes, so Neerav, in terms of the overall EBITDA percentage, we said that looking at the kind of order booking backlog, we had mix of 50-50 at that time. And then this is that EBITDA profile, we said 18% to 20%. This quarter, it was 23% because of the shift in the mix. I think in the full year basis, I would still be saying that we will be closer to that range, maybe 20%, towards that. And I think that will be the kind of number to look at, because on quarter-on-quarter, it may have some variation. We can't really -- we are, as I -- we have been maintaining in the past also. We look at increasing absolute EBITDA and also look at maintaining ROCE in excess of 25%. So that's something -- these are the 2 things, which we try to look at when we are delivering growth.

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Neerav Dalal, Maybank Kim Eng Holdings Limited, Research Division - Analyst [65]

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Right. And the other part is regarding the order intake this quarter. Though it was still strong, but it was lower than what we've been blocking over the last, say, 7, 8 quarters. So any comments on that? How do you see it moving?

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Anupam Jindal, Sterlite Technologies Limited - Group CFO [66]

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So in terms of the order booking in the current quarter, the good part for that, it was mostly in the product side. And as you have seen in the services, at times, it can be lumpy. So again, on full year basis, we need to say it. We can't just look at one quarter in particular. So I think some of the things we need to see from annual or maybe long-term perspective. We continue to see good traction from both India and outside India. Within services, also we have got some small wins, but the large intake, we have some pipeline, let's see how that turns out in the order book.

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Neerav Dalal, Maybank Kim Eng Holdings Limited, Research Division - Analyst [67]

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Are you seeing any delay in terms of the services side?

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Anupam Jindal, Sterlite Technologies Limited - Group CFO [68]

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So I think we are not getting delayed. If you recall, in October or before October also we had this -- maybe order didn't come and people were just waiting for that, and we had low order book before that. But once it has come, it has given us a runway of more than a year, 1.5 years, and then MahaNet followed us. So I think we have enough on our plate to deliver what we have to deliver in the current year, and then we have enough time for us to get order book build for next year as well. And then we are also having good order coming in from even private telecom operators. Those orders come in small chunks but they continue to flow in.

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Operator [69]

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The next question is from the line of Mihir Manohar from CapGrow Capital.

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Mihir Manohar; CapGrow Capital Advisors; Analyst, [70]

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Just wanted to know, so on Slide #23 of your presentation. So if you look at that slide, the EBITDA margins have compressed by roughly around 500 bps. So sir, just wanted to understand, (foreign language), how should we read these numbers?

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Anupam Jindal, Sterlite Technologies Limited - Group CFO [71]

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I think if you look at FY '19 full year number, Mihir, if you look at that, it was about 23%, okay? And this quarter is also about 23%, and just before you, Neerav asked this question, and we said that it could be for full year. Depending on the mix between products and services, it could be closer to 20%.

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Mihir Manohar; CapGrow Capital Advisors; Analyst, [72]

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Okay. Okay. Great. And second thing, on the MahaNet order, so given the fact that it's a government order, so are we getting any advances for fulfilling that order? So how is it funded (foreign language)?

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Anupam Jindal, Sterlite Technologies Limited - Group CFO [73]

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So we have regular payment schedule where we deliver certain projects and once we achieve certain milestone, we raise the bill and collect that. So in MahaNet, definitely, we got advance, yes.

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Mihir Manohar; CapGrow Capital Advisors; Analyst, [74]

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Okay. For MahaNet, there was an advance, which was given?

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Anupam Jindal, Sterlite Technologies Limited - Group CFO [75]

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Yes.

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Operator [76]

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The next question is from the line of Augustya Dave from CAO Capital.

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Augustya Dave; CAO Capital; Analyst, [77]

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I really appreciate the way company stuck to the...

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[mentioned] a certain date and you did it before that. I really appreciate it, sir. I also appreciate the way we are going about executing in a fairly tough environment. I really appreciate it, sir. Sir, I had 3 broad questions. One is that we have taken an enabling resolution for fund raise. I think that was taken, but we have definitely announced it. So what's the plan there? Second, in your opening statements, sir, Dr. Agarwal, you mentioned that the pipeline is looking good. So can you elaborate a bit more on that? Any specific areas where the orders are coming in from? Also in the previous quarter, I believe you had announced very interesting hirings, I think 3 top-level people were brought in for the analytics part. That's definitely something new that we are trying to attempt. What's the long-term vision there? And how are we going about it? And finally, sir, on this China issue, I have seen certain presentations made in different forums of the industry, which are saying that the Chinese demand has actually fallen this year. I've seen total global aggregate demand of somewhere close to 600 million, which has gone down to 510 million. Can you provide some color on that? And how does that get impacted because of the licenses, which were issued recently for 5G to all the big telcos?

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Anand Gopaldas Agarwal, Sterlite Technologies Limited - Group CEO & Whole-time Director [78]

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Thanks, Augustya. Let me see if I can answer you. First, thank you for your appreciation for delivery aspect of what we've done. Your first question was on this enabling resolution. So this is an enabling resolution, which we have been taking every single year for the last, I think, 3-odd years. Currently, there is no concrete plan, but we always want to keep it as an enabling resolution at every AGM. So that provides us flexibility.

In terms of the interesting opportunities that you spoke about, so there are, as we said, there are multiple opportunities that we see as we are integrating the combined offerings, whether it is the data center interconnect opportunities, whether it is services coming in from the telecom providers, whether it is the WiFi trial orders that we are doing and whether it's some accessories orders that we are doing with some cable TV provider in the country.

So we are seeing many, many new kinds of system-based solution, which is combining the capabilities that we have as a company coming through. And as we get more volume, as we get more color, we'll be definitely providing you as we move forward. In terms of the people that we added, in terms of analytics, in terms of the people that we have added in the current quarter, each of them there is a clear part. So the -- we have launched this offering called Intellza. We have sold it to one of the telco in the country, and it is really helping them towards making real-time network and customer-targeting decision. So we are very, very clear in terms of how the combined sum of parts starts becoming an extremely strong and unique addition for our customers.

And China, you had this question about -- so the overall market globally year-on-year, I think between 2017 and 2018, grew by a few percentage points. China was largely flat, but the rest of the world grew. In the current year also at least the numbers which have been reported till Q1, the growth has been there, though muted. So we have seen that -- with the 5G licenses now getting issued and China moving forward for the 5G propagation, we believe that the demand growth will start continue to happen from 2020. China Mobile saw some changes at their executive level, et cetera, also. So 2019, we believe, will continue to be sort of a flat year in China, though growth will happen in the rest of the world. 2020, we believe China should come back to the trend.

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Augustya Dave; CAO Capital; Analyst, [79]

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Great. Dr. Agarwal, I have just one last request. In the next quarterly con call, if you can elaborate a bit more on the service part because it's getting deeper, you're attempting more and more things at more verticals. If you can take it to slightly a greater detail in your commentary, I would really appreciate it.

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Anand Gopaldas Agarwal, Sterlite Technologies Limited - Group CEO & Whole-time Director [80]

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Absolutely. Yes.

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Operator [81]

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The next question is from the line of [Priya Mehta from Anand Rathi.]

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Unidentified Analyst, [82]

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Congratulations, sir, for the good set of numbers, firstly. Secondly, I just wanted a quick update on what is the percentage completion about the major projects, the MahaNet, and the navy projects as on this quarter?

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Anand Gopaldas Agarwal, Sterlite Technologies Limited - Group CEO & Whole-time Director [83]

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So our navy project is almost 50% done and the MahaNet project is close to 30% done.

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Operator [84]

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The next question is from the line of Neelam Punjabi from Perpetuity Ventures.

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Neelam Punjabi; Perpetuity Ventures LLP; Analyst, [85]

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Sorry, I might have missed out earlier. Just wanted to know whether we are maintaining our $100 million PAT aspiration for FY '20?

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Anand Gopaldas Agarwal, Sterlite Technologies Limited - Group CEO & Whole-time Director [86]

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Yes, Neelam, directionally, we continue to be bullish in providing that sort of a number. If you see, last year, we closed entire year at about $70 million, $80 million PAT. We should be able to deliver $100 million. So directionally where said we would be, we are very comfortable with where we are right now. How that number actually turns out at the end of the year, we'll all see as we move forward.

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Operator [87]

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Ladies and gentlemen, this would be the last question for today. I now hand the conference over to Mr. Vishal Aggarwal for closing comments. Thank you, and over to you.

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Vishal Aggarwal, Sterlite Technologies Limited - Head of IR [88]

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Thank you, everyone, for being participating on this call. For any further questions that are left unanswered, please feel free to come back to the IR team and both me, Anand and Anupam all of us are available for any follow-on questions. Thank you so much.

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Operator [89]

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Thank you very much. Ladies and gentlemen, on behalf of Sterlite Technologies, that concludes today's conference. Thank you all for joining us, and you may now disconnect your lines.