Institute of Chartered Financial Analysts of India (ICFAI) University 2006 Certification Finance Security Analysis - II - Question Paper

· Sterlite Optical Technologies produces its Core Preform Rods and Vapor Deposited Cladding through an efficient ‘External Vapor Deposition’ Technology, which Sterlite developed through in-house Research and Development. Manufacture of Optical Fibers through this process provide Sterlite Optical Technologies an unmatched advantage in cost and technology.

Weakness

· Product obsolescence risks are inherent in the optical fiber business.

· Company has foreign currency exposure and fluctuation in exchange rate can hinder the profit of the company.

Opportunity

· The company has also made strong inroads into the Chinese optical fiber cables and has captured seven per cent market share there. Company can further explore the market in china.

· It is expected to make a significant breakthrough in Taiwan and Indonesia shortly.

· Wireline is optimized to give high-speed data applications as against wireless, which has limitations in terms of bandwidth and spectrum, when it comes to high-speed data.

· Indian Government’s policy of deregulation will support to build and optimally manage fast and efficient networks, which in turn help in expanding Telecom Cables production.

· There is also an increasing adoption of fiber-based networks by the Cable TV Segment, Multi-Service Operators (MSOs) and E-Governance State Initiatives.

Threats

· The fiber optical industry can be substituted through the wireless technology and can be a threat to the further growth of the wireline industry.

· Lower quantities and prices in the domestic and global markets will have an impact on the Company's revenues and profits.

· Government may change its policy towards the optical fiber industry and thus affect the company.

b. Ratio Analysis

Profitability ratios
2004-05
2003-04
2002-03

Operating profit margin (%)
13.27
-38.66
-29.36

Net Profit margin (%)
2.42
-76.37
-73.67

Return on Net worth (%)
3.01
-27.47
-27.94

Return On Total Assets (%)
1.26
-12.24
-11.11

Turnover ratios




Fixed assets Turnover
1.04
0.27
0.29

Total asset Turnover
0.52
0.16
0.15

Liquidity ratios




Current ratio
1.37
1.47
1.93

Leverage ratios




Debt-equity

Earning:   Approval pending.