Sterlite Technologies shares moved higher on Tuesday after Nomura began covering the stock with a 'Buy' rating. The brokerage pointed to the company's planned expansion into data center infrastructure as a key growth driver. While the outlook is optimistic, investors are also tracking the company's large spending plans and ongoing debt management efforts.
Sterlite Technologies shares climbed approximately 5% on Tuesday following a report from brokerage firm Nomura. The firm initiated coverage on the optical fibre cable manufacturer with a 'Buy' rating. The market reaction reflected investor interest in the company's strategy to capitalize on the increasing demand for data center infrastructure.
Nomura's positive outlook is largely tied to a projected shift in the company’s business mix. The brokerage expects that the company’s revenue contribution from data center operations could rise from 1% in fiscal year 2026 to 40% by fiscal year 2029. This transition is expected to be supported by rising demand for high-capacity connectivity from large global data center operators and cloud service providers.
To achieve this growth, the company has outlined a significant capital spending plan of ₹30 billion between fiscal years 2027 and 2029. The goal of this investment is to increase manufacturing capacity by 50%. The brokerage anticipates that this expansion could help the company improve its operational profit margins from 12% to 24% over the same period, driven by the shift toward higher-value products.
While the expansion plan signals a clear growth strategy, it also brings specific risks that investors often track. The primary challenge is the execution of this massive capital spending program. Large-scale expansions require consistent cash flow and efficient project management to avoid delays or cost increases. Any slowdown in global data center demand or shifts in the spending habits of large cloud providers could impact the company’s ability to meet these ambitious targets.
Furthermore, the company operates in a sector where raw material costs can be volatile, and it faces intense competition from established global players. While the company has been working on reducing its financial burden, its debt levels remain a key area of focus for market participants. The ability to maintain a healthy balance sheet while funding a ₹30 billion expansion will be crucial to its long-term stability.
The most important monitorable for shareholders will be the actual progress of the capacity expansion. Investors will likely look for updates on order book growth, the commissioning of new facilities, and any changes in debt levels in the coming quarters. The company's ability to maintain its profit margins while navigating these competitive and financial pressures will determine how effectively it can execute this multi-year growth strategy.