Detailed Rationale

Crisil Ratings has removed its ratings on the long-term bank facilities, non-convertible debentures and commercial paper programme of Sterlite Technologies Ltd (STL) from ‘Rating Watch with Negative Implications’ and has reaffirmed the ratings at ‘Crisil AA-/Crisil A1+’ while assigned a ‘Negative’ outlook to the long term rating. Consequently, Crisil Ratings has withdrawn its rating on long-term bank facilities of Rs 1,722 crore at the request of the company and on receipt of a ‘no objection certificate’ from the bankers. The rating action is in line with the Crisil Ratings policy on withdrawal of bank loan ratings.

 

Demerger of the company’s global services business into STL Networks Ltd was completed with effect from March 31, 2025; however, the ratings were placed on watch as a portion of the rated facilities were to be moved to the demerged entity. The watch is being resolved as Crisil Ratings has received confirmation from the company’s management on the portion of the existing rated facilities of STL that will move to STL Networks Ltd, supported by requisite documentation. Consequently, Crisil Ratings has withdrawn its rating on of long-term bank facilities of Rs 1,722 crore (see Annexure: Details of rating withdrawn). The rating action is in line with the Crisil Ratings policy on withdrawal of bank loan ratings.

 

The negative outlook factors in the continued subdued operating performance. For the second quarter of fiscal 2026, STL (post demerger) reported revenue of Rs 1,034 crore and operating Ebitda (earnings before interest, tax, depreciation and amortisation) of Rs 129 crore (Ebitda margin of 12.5%), compared with Rs 1,019 crore and Rs 132 crore (Ebitda margin of 13.0%), respectively, in the first quarter of fiscal 2026. Profitability was subdued in the second quarter of fiscal 2026 on account of increase in US tariffs from 25% to 50% from September 2025.
 

The management expects strong recovery in the second half of fiscal 2026 with significant order additions in the first half of fiscal 2026. Additionally, the proportion of sales to the US has been increasing, driven by revival in demand. This is a positive development as the US market typically offers higher profitability owing to higher realisation and higher sales of value-added products. This shall lead to improvement in capacity utilization leading to better absorption of fixed costs and improved profitability such that recovery in operating margins will remain a key monitorable.

 

With the demerger of the working capital-intensive business, net leverage improved to 2.7 times in the first half of fiscal 2026 from 3.2 times as on March 31, 2025; however, interest coverage ratio has remained modest at 2.7 times in the first half of fiscal 2026 owing to subdued profitability. Crisil Ratings expects improvement in the debt protection metrics in fiscal 2026 given the improvement in operating performance. While no support from STL is expected to the demerged entity, this will remain monitorable.

 

Additionally, Crisil Ratings notes the $96.5-million jury verdict to Prysmian in a lawsuit against STL’s US subsidiary. The allegations include violation of non-compete agreements and unfair use of trade secrets to further the North America business. On August 29, 2025, the court affirmed the verdict but denied Prsymian’s motion for any pre-judgement interest. The matter is sub judice with STL pursuing post-trial legal remedies including filing for an appeal, which will take time to settle.. Any adverse impact on the business and/or financial risk profile, including any significant liabilities arising from this matter, will remain monitorable.

 

The ratings continue to reflect the leading market position of STL in the Indian optical fibre (OF) market and global markets, its healthy capabilities and growth prospects with sizeable order book. These strengths are partially offset by subdued debt protection metrics, large working capital requirement and exposure to intense competition and capital expenditure (capex) of telcos.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of STL and its subsidiaries and joint ventures. STL has significant management control over these entities, which are in the same business and are strategically important to the company.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers - Strengths 

Leading position in the Indian OF market and global markets

STL has strong reputation in the OF and optical fibre cable (OFC) segments in India and abroad driven by its technically superior products. Its global ex-China OFC market share stood at 8% in fiscal 2025, in line with fiscal 2024. The company is preferred by OFC manufacturers (for OF) and telecom operators and telecom infrastructure providers (for OFC). Furthermore, it is a one-stop shop for most clients because of its wide system integration and software services offerings. High-quality products, extensive clientele and diversified presence across the broadband infrastructure value chain should help the company sustain strong foothold in the telecom cable industry over the medium term.

 

Healthy capabilities and growth prospects with sizeable order book

STL is among the lowest-cost producers of OF and OFC because of extensive backward integration. Manufacturing OFs from the preform stage offers advantages in terms of cost and quality. The company has plants for power, nitrogen and electrolysis to meet its hydrogen and oxygen requirements. Moreover, it has facilities to produce silicon tetrachloride, the basic raw material for quartz glass manufacturing. With increase in penetration of broadband services, ongoing rollout of 5G services, massive investments towards data centres, focus of the government on rural digitisation, approval of phase 3 of BharatNet project and implementation of Smart City projects and the BEAD Program in North America, the medium-term demand outlook is healthy.

 

Orders worth ~Rs 5,200 crore as on September 30, 2025, for STL provide revenue visibility for the near term. This indicates healthy business prospects for STL despite the demerger of its global services business.

Key Rating Drivers - Weaknesses 

Subdued debt protection metrics

Net debt reduced significantly to Rs 1,312 crore as on September 30, 2025, from around Rs 2,170 crore as on September 30, 2024, owing to the demerger of the services segment effective March 31, 2025, which had large working capital requirement with stretched receivables and the services nature of the business. Given the slump in operating performance though, the debt protection metrics remained subdued in fiscal 2025. While the net leverage (net debt to Ebitda ratio) improved to 2.7 times in the first half of fiscal 2026 (based on TTM Ebitda) compared with 3.2 times in fiscal 2025. The interest coverage ratio was modest at 2.7 times in the first half of fiscal 2026, compared with 1.9 times in fiscal 2025. Turnaround in the operating performance leading to sustained improvement in the financial risk profile will be monitorable over the medium term.

 

Exposure to intense competition and capex by telcos

The company derives a large part of its revenue from overseas markets and faces intense competition in the international OF and OFC markets. In the domestic market as well, these segments are susceptible to the capex cycles of telecom service providers. Globally, most contracts are finalised through an intensely competitive bidding process, which limits the pricing power of players.

 

However, STL has the largest capacity and is a leading player in the domestic market despite competitive pressure from peers such as Himachal Futuristic Communications Ltd, Vindhya Telelinks Ltd and Finolex Cables Ltd.

 

In the past, the imposition of anti-dumping duties by India, the UK and the EU on optical fibre imports from China and other countries has mitigated the impact of low-priced and low-quality imports on domestic players, providing a competitive advantage.

Liquidity Strong

Liquidity will be strong, supported by expected net cash accrual of Rs 300-500 crore over the medium term, cash balance of around Rs 495 crore as on September 30, 2025, and healthy cushion in bank lines. Against this, the company has term debt obligation of around Rs 270 crore in fiscal 2027 which will be met through internal accrual and refinancing. Capex of Rs 100-150 crore for fiscal 2027 will be funded largely through internal accrual.

ESG Profile

Crisil Ratings believes the ESG profile of STL supports its already strong credit risk profile.

 

The telecom equipment sector is exposed to material impact on the environment as waste associated with end-of-life network equipment and hardware can pollute land resources. Optical fibres are vital for ensuring uninterrupted telecom services to society and the economy. STL is continuously focused on mitigating its environmental and social impact.

 

Key ESG highlights: 

• The company is committed to achieve net zero emissions by 2030. Also, by 2030, STL aims to become water-positive across all its manufacturing locations globally. To achieve this target, STL implemented water recycling models. All its manufacturing plants in Aurangabad are zero liquid discharge certified. Around 1.45 lakh cubic metre of water recycled in the manufacturing process and over 7,500 tonne of carbon dioxide emissions avoided through energy efficiency measures.
• All plants are zero waste to landfill certified.
• The company has started using co-processing in partnership with cement companies as one of the disposal and management solutions, which helps convert waste to energy.
• Female employees account for 16.7% of the workforce, which is higher than all its peers.
• Its governance structure is characterised by 57% of the board comprising independent directors, split in chairman and CEO positions, healthy investor grievance redressal and extensive disclosures.

There is a growing importance of ESG among investors and lenders. STL’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given its moderate share of market borrowings in overall debt and access to both domestic and foreign capital markets.

Outlook Negative

The negative outlook factors in the lower than expected recovery in operating performance.

Rating sensitivity factors

Upward factors

• Improvement in operating performance driven by recovery in volumes or realisation leading to healthy operating margin of 15-17%
• Recovery in operating profitability leading to improvement in return on capital employed or debt protection metrics

 

Downward factors

• Lower-than-expected turnaround in revenue leading to operating margin below 10%
• Continued pressure on operating profitability leading to weak debt protection metrics on a sustained basis
• Adverse impact of ongoing litigations or contingent liabilities on the financial risk profile

About the Company

STL is a leading manufacturer of OFs and OFCs. The company has global presence and manufactures in four continents with customers in more than 100 countries. Its offerings include building fifth-generation wireless technology (5G), rural, fibre to the X (FTTx), and enterprise and data centre networks. In 2018, STL acquired Mettalurgica Bresciana, an OFC manufacturer based in Italy.

Key Financial Indicators (consolidated) 

Particulars	Unit	2025*	2024
Revenue	Rs crore	3996	5,478
Profit after tax (PAT)	Rs crore	-123	-51
PAT margin	%	-3	-0.9
Debt / adjusted networth	Times	0.9	1.6
Interest coverage	Times	1.9	1.7

*Post demerger of STL Networks Ltd.

Note: These are Crisil Ratings-adjusted numbers

Any other information: Not applicable