Sterlite Technologies Navigates US Tariffs, Eyes Growth Amidst AI Boom

Sterlite Technologies Ltd (STL) is currently experiencing a negative impact on its profitability due to a significant 50% tariff imposed on its fiber optic exports to the United States. This tariff has directly dented the company's margins. Managing Director Ankit Agarwal expressed hope that a Bilateral Trade Agreement (BTA) will be reached soon, potentially leading to a reduction in these tariffs during the current quarter, which would improve margins from the fourth quarter onwards.

Despite this short-term challenge, STL is observing robust demand and growth opportunities in its key markets, namely the US and Europe. The company's order book for the first half of FY26 has seen a substantial year-over-year increase, nearly doubling, primarily fueled by strong requirements from telecom operators and burgeoning data center clients. This growth is particularly significant in the US, which is projected to grow at a Compound Annual Growth Rate (CAGR) of 10-12% annually for the next three to four years. STL aims to capitalize on this by playing a role in the 'AI Boom' by supplying necessary infrastructure.

STL operates manufacturing facilities strategically located in India, Italy, and the US. The company plans to improve its capacity utilization to around 80% in the coming quarters, with the goal of pushing its Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margins towards 20%. To stay ahead of emerging data infrastructure needs, STL is investing over Rs 100 crore in Research and Development (R&D) this year. This investment is directed towards developing advanced optical products like multi-core and hollow-core fiber, high-capacity cables, and sophisticated connectivity solutions crucial for hyperscalers and data center companies requiring low-latency, high-bandwidth networks.

While the US remains STL's largest market for growth, the company also foresees significant momentum building in India's data center ecosystem over the next few years. STL is also involved in developing tactical cables for Indian defense and exploring new applications like fiber optics for drones, alongside supporting initiatives like BharatNet for rural connectivity.

In its latest financial results for the quarter ended September 2025, STL reported a net profit of Rs 4 crore, a notable improvement from a net loss of Rs 14 crore in the same period last year. Although revenue saw a slight decline of 4% to Rs 1,034 crore, EBITDA grew by 10.3% to Rs 129 crore, with the EBITDA margin improving to 12.5% from 10.9% year-on-year. The open order book at the end of Q2 stood at Rs 5,188 crore.

Impact: The US tariffs present a near-term headwind affecting STL's profitability. However, strong demand in the US and Europe for data infrastructure, driven by telecom and AI, coupled with R&D advancements and efforts to increase capacity utilization, are significant growth drivers. Successful reduction of tariffs and execution of large orders could lead to margin expansion and revenue growth, positively impacting the company's stock performance. The company's strategic diversification and investment in next-gen technology position it for future growth. Impact rating: 7/10

Definitions: BTA: Bilateral Trade Agreement. An agreement on trade between two countries. EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of a company's operating performance. CAGR: Compound Annual Growth Rate. The average annual growth rate of an investment over a specified period of time longer than one year. hyperscalers: Large cloud computing providers like Amazon Web Services, Microsoft Azure, and Google Cloud, which operate massive data centers. BharatNet: A government of India project to provide broadband internet access to all gram panchayats (village councils).