Ladies and gentlemen, good day to you, and welcome to the STL Q4 and full-year FY24 earnings conference call. I'm Chetan Wani, and I'm responsible for investor relations at STL. We are joined by Ankit Agarwal, MD STL, and Tushar Shroff, Group CFO STL, to walk us through the Q4 and full-year FY24 results and to take your questions. Please note that all participant lines are in the listen-only mode as of now, and there'll be an opportunity for you to ask questions at the end of the presentation. You can also download a copy of the presentation from our website, that is www.stl.tech. Please note that this call is being recorded. Before we proceed with this call, I would like to add that some elements of today's presentation may be forward-looking in nature and must be viewed in relation to the risks pertaining to the business.
The safe harbor clauses indicated in the presentation also apply to this conference call. I now hand over the call to Ankit Agarwal for opening remarks. Over to you, Ankit.
Thank you, Chetan. Good day, everyone, and thank you for joining us for our Q4 and full-year FY24 earnings conference call. As we reflect on the financial year 2024, we have made significant progress on all of our outlined strategic priorities. Starting from the optical business, we have made significant progress on the strategic goal of increasing our optical connectivity business by securing our first large orders in the North America region. We undertook various fixed and variable cost optimization initiatives, and we optimized our cost structure to become more efficient so that we can deliver better returns from future operations. In the global services business, we improved our EBITDA margins year-over-year from 3.1% to 7.6%. We're also very happy to share that our digital services business, we have scaled the business and more than quadrupled our revenues year-over-year.
During FY24, we also completed our CAPEX cycle with the operationalization of our U.S. facility, and we are now fully set up to fulfill demands of U.S.-made optical fiber cable products. We were evaluating options for fundraise, and we worked extensively on this priority during FY24. I'm happy to share that we have successfully completed a INR 1,000 crore QIP fundraise in April 2024 by onboarding marquee institutional investors who will partner with us on an exciting journey ahead. Last but not the least, we continue our efforts on cash generation and net debt reduction. In FY24, we will be divesting our holdings in Maharashtra Transmission (MTCIL) for a value of INR 595 million. I'm glad to share that our cash generation from the business helped us reduce our net debt by INR 334 crores during FY24.
Our cash generation and debt reduction focus, aided by the QIP fundraise, will enable significant debt reduction and balance sheet rendering and propel us to achieve our strategic objectives with renewed zeal. Let us now look at our strategic priorities for FY25. FY25. As we enter FY25, our strategic direction remains the same. On optical networking business, we shall continue to grow the optical business by increasing OFC market share and connectivity attachment. We shall continue our efforts to drive our cost leadership in the optical business. On the global services business, we shall continue to build new capabilities and value-added services. We will stay focused on improving project mix to improve profitability, and we will work towards successful demerger of our services business. Lastly, on our STL Digital business, we shall continue to scale business through focused investments in building new technologies' capabilities and focus on profitable growth.
Sterlite's endeavors to be a responsible leader and ensuring a connected and inclusive world. This focus reflects in the way we have designed and implemented our ESG agenda. We have diverted 245,000+ metric tons waste away from landfills during FY2019 to FY2024. We have also reduced emissions of 30,000 tons of carbon dioxide equivalent through various initiatives in the plants during FY2021 to 2024. We have recycled 830,000 cubic meters of water during FY2019 to FY2024. I'm proud to share that we are the world's first optical manufacturer to launch externally verified eco-label methodology. We remain committed to become a carbon-neutral company by 2030. Through our various initiatives in education and empowerment, over 900,000 lives have been positively impacted during FY2024. We have also positively impacted 2.7 million+ lives through our various initiatives in healthcare during FY2024.
We are proud to share that we have won over 100+ ESG awards for our work during FY19 to FY24. In the next few slides, let's talk about our optical networking business and our efforts to be a catalyst towards becoming the top three players globally in the optical connectivity business. Before we look at the demand outlook, let us first reflect on FY24. As per the CRU estimates, latest estimates, OFC consumption for 2023 declined by 7.1% globally. This was led by a 12% decline in North American markets for the calendar year. Inventory at multiple layers played a major role during this time, and the suboptimal factory utilization was a trend across the industry. It is important to note that we observed continued fiber deployment resulting in healthy inventory digestion during FY24.
Analysts' reports suggest demand improvement for FY from 2024 onwards and robust demand scenarios from a medium- to long-term. As we look at the future projections from CRU, the medium-term demand for optical fiber cable volumes is expected to go up to 617 million fiber kilometers by 2026 and 666 million fiber kilometers by 2028, up from 536 million fiber kilometers in CY 2023. This is a healthy 4.4% annual growth rate from 2023 to 2028 and approximately 8% annual growth excluding China. The positive demand outlook by CRU, along with the continued client commitments on increasing fiber deployment and STL's order book surge in Q2 and Q4 FY24, is indicative of the recovery in the coming quarters. Let us also look at the major technology trends such as AI and its impact on the fiber demand.
As we all know, AI is shaping the technology landscape and influencing every technology theme that is unfolding, such as cloud computing, AR/VR, IoT, online video game streaming, online gaming, etc. The consumption of these technologies and their overall market size is expected to continue at a healthy pace for the foreseeable future. Moreover, we have one-third of our global population, which still remains offline and yet to be connected. AI and machine learning are gradually taking center stage and are swiftly blending in with all these technology trends. AI's role in reshaping the new digital society is unabated. No wonder various industry reports suggesting two-thirds of network traffic shall involve AI by 2030. For this high growth of AI and technology users to sustain and succeed, the technology backbone shall need massive, massive data center capacities with fiber-rich interconnections that smoothly manage the data explosion.
It is estimated that the fiber demand in AI data centers may be 5x to 8x higher than normal data centers. To access these AI data centers and applications at the front-end, users shall need reliable connectivity through FTTX or 5G or future generations like 6G, but fiber again shall be at the core of the connectivity. As we digest this further, our belief gets stronger every day that denser fiber networks will be a necessity for the success of the futuristic AI-led digital society. Apart from AI, there are, of course, three other key themes that are playing out globally on the optical connectivity product demand, mainly the global investment in 5G network creation, FTTX deployments, and new-age data center buildouts. These demand drivers are expected to bring significant growth in investments in the foreseeable future.
5G is one of the fastest-growing technologies in the world, and tower fiberization is at the core of 5G. 5G subscribers are to grow at a very fast pace in the next few years, and as we can see, 5G subscribers in all key regions such as North America, Western Europe, and India are expected to clock a CAGR of more than 30% for the next five years. With high tower fiberization required for 5G, clearly, 5G global expansion should continue to drive demand for more optical fiber. Apart from 5G, FTTX connectivity constant demand for homes and businesses globally remains strong. In the U.S. alone, approximately 100 million homes await FTTH connections. Fiber Broadband Association predicts 12 million homes to be passed in the U.S. just in 2024.
Europe FTTH passes are expected to grow at 4% at least for the next five years, and India is expected to lead the global growth in fiber installations with 26% CAGR between 2023 and 2028. Data center is another driver of optical products demand. Data center capacity in North America is expected to grow at the 10% CAGR during 2024-2029, and in Europe, expected to grow at approximately 9% CAGR for the next four years. Similarly, India data center capacity is expected to grow even faster with a CAGR of 26% over the next five years. In addition to the demand coming from these technology divisions, departments, the mega government projects such as BEAD in the U.S., BharatNet in India, and other such programs in Europe and U.K. can substantially add to the overall global demand of optical connectivity products.
The application of anti-dumping duty on Chinese products in India, Europe is expected to balance out the optical connectivity product supply and help non-Chinese players such as STL further strengthen up our global positioning. If we just zoom in to the North America region, CRU is projecting the regional optical cable demand to grow at a fast pace of 13% CAGR till 2028. More than 9 million homes were passed in 2023 alone, and as we just said, another 9-12 million homes pass addition expected just in 2024. Various telecom internet providers in North America have set aggressive ambitions on FTTX home pass targets for the next two to three years and announced these targets publicly.
For instance, in the very near term, AT&T intends to add 19 million new home passes, Lumen plans to add 9.2 million home passes, and Frontier has announced plans for another 5 million new home passes. The government spending through BEAD and other programs should only add to this fiber deployment plan by the private sector. It seems it is estimated that in North America, nearly as much fiber will be deployed to the next five years as has been deployed through its history. So, very strong demand in North America in the coming years. As we now reflect on our market share and optical connectivity attach rates, based on CRU global consumption data during FY24, we had an 8% market share on global cable demand, excluding China.
FY24 is clearly a year of challenging demand environment where inventory digestion impacted fresh procurements, and we believe that the market share shall normalize as the fresh demand steadily picks up. Our optical connectivity attach rates have increased from 13% to 10% last year. We are continuously working on new product development and commercialization in the optical connectivity space to further increase our attach rate. Coming to the financial performance of our optical business as guided Q2 24 in Q4 to FY24, revenue has declined on account of lower volumes and stood at INR 777 crores. The full year FY24 revenue stands at INR 3,830 crores. In line with the reduction in revenues, quarter four FY24 EBITDA stands at INR 60 crores, and for the full year 24, EBITDA stands at INR 621 crores.
Due to the lower absolute EBITDA, the EBITDA margins of Q4 FY24 stand at 7.7%, while the full year FY24 EBITDA margins are at 16.2%. It has been a challenging quarter, but with our strategically located manufacturing facilities globally, optimized cost structure, continued production innovation efforts, and customer approvals for our products from tier one customers across the globe, we believe that we are well positioned to capture significant market share and grow as the demand picks up. Now, let's discuss the progress in the Indian market and how we are pivoting in the global services business. In the global services business, Q4 FY24 revenues stand at INR 323 crore, and full year FY24 revenue stands at INR 1,456 crore. We have been selective in our order intake and execution, which has helped us improve our Q4 EBITDA to INR 39 crore and EBITDA margin to a healthy 12.1%.
Favorable project mix and effective execution result in improved full year FY24 EBITDA to INR 110 crores and EBITDA margins for FY24 to 7.6%. We continue to build our capability towards value-added services to improve margin profile and reduce fund involvement. We have made substantial progress on all the projects, and as you can see on our slide, among the major India public projects include our BharatNet project in the state of Telangana is now 68% complete, including all the packages. The network modernization project is 74% complete. The data center project with the PSU stands at 88% complete. And on the India private side, fiber rollout for our large telecom operator phase two is 55% complete, and fiber rollout for modern optical network for another private customer is 94% complete. Coming to STL Digital, on the STL Digital, we are continuing the growth momentum.
We are continuously working with new customers for growing our business in the U.S., Europe, and India across technology and services verticals, as observed during strong order flow during FY24. With more than 25 global customers at the end of quarter four FY24, we have 40+ active technology partnerships. We have signed strategic partnerships with SAP and Google to offer the solution jointly to our customers. We expect the growth to be driven by a robust order book of more than INR 660 crore and the right leadership as well as consultants. In line with the expectations, and despite a tough industry environment for IT services, we have achieved a quarter four FY24 revenue at INR 2,078 crore and a full year FY24 revenue of INR 298 crore. The full year FY24 revenue of INR 298 crore is more than four times the full year FY23 revenues.
The EBITDA loss of quarter four FY24 stands at INR 17 crores, and the full year FY24 EBITDA loss stands at INR 83 crores. I will now hand over to Tushar to talk about the financials.
Thanks, Ankit. Good day, ladies and gentlemen. In line with our guidance, the consolidated quarter four revenue stands at INR 1,140 crores. Full year FY24 revenue stands at INR 5,478 crores. A reduction in the revenue on year-on-year basis is mainly attributable to lower optical fiber cable sales volume in the optical network business. In quarter four, EBITDA stands at INR 67 crores. The full year FY24 EBITDA stands at INR 627 crores. While for quarter four, after-tax losses stand at INR 83 crores, and full year FY24 after-tax losses stand at INR 58 crores. In terms of new orders in the optical business, we continue to win multi-billion-dollar orders for optical fiber cable in our focus market.
We secured large orders in the UK for multiple large telecom operators. We also secured large orders in Italy from a fiber optic network operator. We secured the first large orders in North America for our optical connectivity products. In the service business, we secured a large fiber rollout order from a large private telecom operator in India for 5G deployments. On the back of our global businesses, our revenue mix was well diversified during last quarter, and we expect this to further improve towards North America and Europe as the demand for the optical products pick up in the global markets. Our open order book at the end of quarter four FY2024 is INR 10,290 crores. We are happy to share that the robust order book addition amounting to INR 2,064 crores happened during last quarter. Our order book is well diversified across our customer segments and all our businesses.
We now place a brief version of our reported numbers for your perusal. The net debt has reduced by INR 334 crore during the financial year. Now, let us understand the current status of the demerger of the service business. During the quarter, the first NCLT hearing was conducted in April 2024. NCLT has directed us to convene the meeting of the shareholders, secured and unsecured creditors, to approve the scheme of demerger, and we are working on next steps in the process. In summary, I would like to say that in the optical network business, we shall target to drive the cost leadership and pursue our ambition to be a global top three. We shall increase the sales of our focus market to grow our optical network business. We will continue to increase the optical connectivity growth and attach rate.
In the global services, we will continue to focus on select projects to improve the profitability and optimize on the working capital. In the digital business, we will continue to scale up and grow our revenue along with focused profitability. Now, I hand over this particular call to Chetan.
Thanks, Tushar. Ladies and gentlemen, with this, we come to the end of our presentation, and we shall now move towards the segment of Q&A with management. You may please note that if you want to ask a question, you can click on the raise hand button, and we shall take your questions one by one. Special request: we ask, we request all of you to limit your questions to a maximum of two questions so that the management can attend to questions from a maximum participants. The call is now open for Q&A.
We'll take the first question from the line of Nikhil Choudhary. Nikhil, please go ahead with your question.
Hey there. Hi, Ankit. Hi, Tushar. Thanks for the opportunity. This was a tough year for our optical network.
Nikhil, can you speak a bit louder, please?
Sure. Is it better now?
Not really.
Is it better now?
Just give us a minute. Maybe it's better.
Yeah. Try speaking now.
Hey, hi, Ankit. Hi, Peter. I hope you can hear me. Hear me. Yes. Yeah. So this was a tough year for industry and for us. Ankit, but I want to discuss, especially related to the market share loss which we had during the year, especially in America. We still had negative growth in quarter four, and that too when industry declined, especially when supply crisis was much lower.
One of your peers, the largest optical fiber company globally, has reported a much better result in quarter one of CY2024. So any color there?
Okay. So I think the question was a little unclear, but what I understood is, in terms of our market share in North America, and vis-à-vis some of our global competition. So I won't be able to comment on the competition, but what we can definitely say is that, you know, we have talked in the past about principally the market deployment, the fiber deployment continuing to be strong. More than 9 million homes, as we shared, have been deployed, which is one of the highest ever in history. And that is also leading to, you know, a strong reduction of the inventory, especially with our customers and end customers and distributors.
So that's where we continue to believe that we are probably 1-2 quarters away from the market normalizing. During this time, we have focused on two or three things. One is improving our product portfolio, both on cable as well as connectivity. As we shared recently, we have shared in the results. We have also started our first sale of connectivity in the North America market, which is a positive development. We're also focusing on ramping up our U.S. factory in terms of production and output. So I think these are our focused areas. And definitely, as the market rebounds, we are confident that our our volumes for the U.S. sales will improve.
Sure, Ankit. The second one is regarding the update on BEAD project. You know, there are some articles about, you know, changing timelines which generally happen with the government projects.
So any update on how the overall implementation and project allotment process is going on, and when do you expect any meaningful update in terms of contribution from BEAD, especially related to your U.S. factory? Thank you.
Yeah, thank you, Nikhil. Good question. So I think, broadly, you know, our sense is that, you know, whether I think somewhere in the time frame of probably our quarter three or Q4 is where we can see some initial demand coming in. But when we look at our discussions with, with customers and even what we see with our peers, most people are, factoring in probably meaningful demand coming in, next cal so calendar year FY25, is where they see meaningful demand for the connectivity. Again, here, we are working closely with our customers, who, you know, who we do expect would get the BEAD funding.
We're also working both on our product portfolio, as well as readiness of, and capacity readiness of our U.S. factory. And recently, we have also made a public announcement to this effect, where, you know, we are meeting the BABA compliance, for, the you know, which is important for the BEAD requirement. So that's where that's where we stand today. There is, you know, efforts, going on, locally, in in the U.S. around how the timing can be fast-tracked, but currently, the visibilities probably are Q3/Q4 of our financial year is where we can see some initial impact or benefit, and then, meaningfully from next year onwards.
Sure, Ankit. Very helpful. If I can just give you the last one related to services business. We have seen some changes in strategy this quarter where, you know, margin profiling has improved meaningfully, but at the cost of revenue growth.
Is it fair to assume that this will be our strategy going ahead where we would like to keep double-digit a bit of margin while revenue growth for now will take decades on services business? Thank you.
Yeah, absolutely. I think as we've been sharing, you know, on the services business in India, you know, and overall for the business, we've been very focused on taking on the right kind of projects with the right margins and, most importantly, the right cash profile to reduce our fund involvement. So that efforts continue. We do have strong relationships with the telecom operators. We have some interesting projects which we have and have also recently won on the system integration side. So I think that's the whole focus. We'll continue to drive towards you know the good balance between the fiber deployment and system integration.
One caveat in all of this is that we will see how the BharatNet gets played out, over the next 1-2 quarters. And, you know, definitely, that will be an interesting opportunity for STL across, you know, our fiber cable connectivity as well as deployment. So I think let's see how that gets played out. And again, as long as the terms are, you know, to our liking, that can be a good opportunity for STL.
Sure. Thanks again for giving the opportunity, and good luck for our strategy.
And sorry, one more thing to add is that, we also had, in line with what we had promised, we have been able to get our UK services nearly to break even. So I think that is also something that's positive when we see good order flow out there. Sure. Thank you.
Thank you, Nikhil.
We'll take the next question from the line of Bala Subramanian. A. Bala, you may please go ahead.
Good evening, sir. Thank you so much for taking my questions. Sir, in this quarter, we have seen more than 80% degrowth in optical networking business. How much impact from volume and realization trend? And how is the realization on optical fiber and OFC side in this quarter? Are we seeing any improvement on the prices side, or it will, like, continue to be reduced in the coming quarter?
Yeah, I think, as we've been sharing, Bala Subramaniam, primarily, if we compare to last year, the biggest delta has been lower volumes, primarily, you know, in the U.S. and then in Europe. We have increased some of our volumes, you know, in some of the other markets.
And that also reflects when you look at our geographical distribution in Slide 25, where, you know, you will see our India revenues, for example, have grown from 26%-35%. So that's something that we are mindful of. The volumes have reduced, as we have shared, in a couple of discussions in the past. You know, our utilizations have also been at sub-50% levels. So I think that's something where we do see a, you know, good opportunity for the business improving going forward, volumes improving going forward. I think on the realization part, we have seen that to be reasonably steady. And I think from our perspective, the because of the mix where typically we see lower realizations in India and Europe compared to the U.S., because of that, our average realization would have come down at the optical business level.
So I think these are the two main factors. Again, with the, as we see the U.S. demand coming back, both for cable and then eventually for connectivity, I think that will be a positive trigger both for the top line and bottom line for the company. In parallel, we have been doing a lot of work on the cost side, looking at all the elements of costs which we've shared in the past, both fixed costs, admin costs, and various other costs. So I think that will also help us once we start seeing some of the volumes coming back.
Got it, sir. Sir, what kind of products are in pipeline in optical interconnects, from 13% rate in this year to where we can see improvement over the next two to three years?
Yeah, I think, look, I can share at a macro level, this definitely remains a strategic priority for us. It's, you know, part of our strategy to provide an end-to-end solution to our customers. And certainly there is good focus from our side, from the product development side, from building the right team and capability, both for, you know, for our global markets. So I think that's, that continues as a priority. And I think certainly we are keen that we increase the attach rate as we scale up.
Got it, sir.
So. Bala, we are not able to hear you. Hello. Yeah, please go on.
Yes, sir. Sir, on the Global Services side, we have witnessed the highest ever margin at 12.1%. What are the key triggers for this improvement and where we can expect from current levels? These are my last questions.
Yeah, so I think, as I shared, I think principally, we are focused on, you know, executing the right kind of projects, you know, at the right margin. And, you know, directionally, we have shared that we want to keep this business, you know, somewhere in the range of at least 8%-10% with the right mix. So that's what we continue to believe in. There's a good discipline with the team and the business and, some, you know, good system integration opportunities that are coming up over the next 12-24 months. So there's good discipline with the team, and then we will see, as we discussed with BharatNet, that could be an interesting opportunity and upside for this business.
Okay, sir.
So my last question regarding the situation in Europe, U.S., and Indian markets, regarding about, an inventory piled up with operator levels, and, like, what are the changes are, like, going on in this quarter and coming quarters? Like, is there any order slowdown, due to elections in India and U.S. market?
No, we are not seeing any impact of the elections per se, whether in India or globally. And in fact, when you look at our own order book, you know, that has been quite high in the last quarter, overall INR 2,000 crores plus order book, and even in the optical business, very strong order book. So I think that gives us, you know, some level of confidence that, you know, the inquiry customer inquiries are increasing, you know, orders, that we are taking in from a variety of customers are increasing.
So, I would say that, you know, the deployment is strong. The inventories are continuing to get depleted, and we are 1-2 quarters away from some level of, you know, normal demand coming back.
Got it, sir. Thank you so much.
Thank you. Thank you, Bala. We'll take the next question from the line of Dashil Jhaveri. Dashil, please go ahead.
Hello. Hi. Good evening. So I hope I'm audible. Yes. Yes. Yes. Yeah. So I just wanted to, you know, ask, like, we've had, like, maybe not a stellar FY24, but so any kind of guidance that, you know, we would like to give in terms of our growth and margin in FY25?
No.
Currently, Dashil, we are not looking to give any specific guidance, because we are still in that, you know, phase, as I've been sharing, that principally, you know, in our optical business, we have made all the right investments in our capacities, in our team, product capability, but our utilization levels are still on the lower side. So once we start seeing, you know, some of the regular demand coming in, when we start seeing, especially in our focus markets, in, you know, Europe, U.S., and even in India with, you know, BharatNet kind of projects, so once we start seeing that and we're able to get some, you know, comfort on that demand, then I think we'll be able to provide a better guidance. Right now, as we are sharing, the primary driver, especially in, the U.S.
market, is the inventory drawdown, which we do expect that will lead to demand normalization in 1-2 quarters.
Oh, okay. Okay. Fair enough, sir. So, so just like from someone, like, from someone who's not currently in the business, like, a common man like us, so what could be an inflection point where, you know, we would see, that, okay, now things have come back to normal, like, something on the broader sense? Like, what would be a turning point for us?
Yeah, see, in simple terms, you know, we have added a fair bit of capacity. We are fully backward integrated from glass, fiber, cable, and now connectivity. So essentially, you know, we would like our capacities to be running at least 70%-80% plus levels.
And so really, I think once we are able to get to that level and continue at those utilization levels, I think that will be, you know, where we get that comfort, in terms of, you know, our volumes and ultimately the profitability.
Oh, oh, okay. Perfect. Perfect, sir. And is there any kind of risk?
Dashil, can I put you in queue for your next question? Yeah, yeah. Okay. Thank you. So thanks. We'll take the next question from Ashish Chopra. Ashish, you may please go ahead.
Yeah. Hi, Ankit. Hi, Tushar Shroff. I hope I'm audible.
Yes, yes, sir. Okay. Thanks.
Yeah. Ankit, could you just help us with what would have been the utilization levels in this exit quarter as compared to how much was it in the last quarter?
We won't give specific numbers, Ashish, for competitive reasons, but it was sub-50% levels. And, as I shared, I think while the volumes have been largely flattish, basically, we have seen that, you know, principally, there have been lower volumes from North America and, you know, more volumes from other markets like the Middle East and India, etc., which would have driven down the realization and profitability.
Understood. And also on the inventory levels that you've been calling out, which has been on its way down and hence the outlook turning slightly positive, any qualitative or quantitative color on how and where do these inventory levels stand today? Where were they at their peak, and how what's really the steady state, the norm for the industry in general?
I think, Ashish, it varies a little bit because there's inventory, you know, essentially in three places.
It's with the manufacturers, it's with the distributors, and with the end customers. It's across three levels. So that's the data that we're tracking closely, and in our conversations with both distributors and customers, they do see these drawdowns which we're now tracking monthly and on a quarterly basis. So that is why we get the confidence, and when we look at what is kind of a basic or bare level of inventory, they would still need to maintain. It'll never go down to zero, at which point they need to make sure that they're ordering and replenishing. That is where we are seeing that we are probably at current run rate levels of, you know, reductions.
That is where we believe that we are 1-2 quarters away from reaching those levels that that they are, you know, comfortably needing to replenish and that the whole cycle kind of picks up to a normal level. And that is where, you know, if you look at also the CRU forecasts, and other forecasts from the industry on optic fiber volumes picking up, you will see that kind of uptick, particularly, you know, towards the end of CY 2024 and into 2025 onwards, and quite meaningfully in 2025, 2026 on the back of BEAD and other projects.
Understood. And, and just the last couple of quick ones from my side. One was on the order booking. How was it from the U.S. in this quarter in in terms of contribution? Did you already see a pickup there?
And lastly, on the data center business, how much would be our exposure, and do you think that you need to build separate capabilities and/or accreditations to be a significant player in that market? Thanks.
So we had normalized, I would say, you know, normalized demand from the U.S. and probably some more orders, some good long-term orders, particularly from, you know, the Europe market, some from the India market as well. You know, typically, in, you know, our customers in Europe, in the U.S., would look at 2-3-year contracts. So as it depends on where some of those opportunities come up. So that's where we see that, and also from distributors, I think those opportunities will continue to start coming in, including in Q1, Q2, etc., for the U.S.
On the data center part, I think definitely, you know, as we shared in our slides, it's quite exciting, and I think there is more and more of an understanding for the industry and ourselves that clearly these kind of GenAI-based data centers almost, or GenAI-enabling data centers, will have fairly dense kind of fiber networks within them, much more, you know, fibers required per rack, and it could be the magnitude of, you know, 5-6x or even more. We are trying to understand that more. We are trying to understand what is our own product portfolio required, both from the literally starting from glass, fiber, cable, and even connectivity. And certainly, we would look to, you know, increase our own capability, you know, and team, to cater to this market.
But this is something which will take a little bit more time, probably over the next 2 to 3 years. We will look to build this, and make more of a presence in this market.
You got it. Thanks, and all the best.
Thanks, Ashish. We'll take the next question from the line of Vipul Shah. Vipul, you may please go ahead.
So since you are reluctant to share your absolute production and utilization levels, may I ask what percentage of capacity utilization will break even in our optical fiber business?
So, Vipul, at about 60% kind of utilization, we see that, you know, we should be 60%-65% of utilization; we should be back on track in terms of the profitability for the optical network business from EBITDA perspective.
So what was your exit rate for quarter four?
It was sub-50%.
That's what I shared. Okay.
And do you see any near-term improvement, Mr. Agarwal?
Yeah, absolutely. I mean, that's that's what I've been sharing, that, it's really a function of how we see the, you know, inventories, drawing down and and the demand coming up. And that's why we are broadly guiding that, you know, we're 1-2 quarters 1-2 quarters from that. But directionally, of course, we do believe, you know, Q1, Q2 will be better than previous quarters.
And Vipul, the good part is that what we have seen is that the kind of an order booking that we have for this particular quarter, which gives us a confidence that, you know, the this order booking will start to roll in the coming quarters, which will help us in terms of booking the revenue and facility both.
And so the last question, Ankit, if you can directionally comment the prices of, at the exit of, last quarter as compared to two years back, how much they are down?
The prices of what? Cable?
No, sir. I I think, look, it's, I don't think I'll be able to give a specific answer there because it, the the pricing really varies, by geography both on fiber and cable, quite a bit between, you know, prices locally in China, prices in India, Europe, and the U.S. as kind of distinct markets. I would at least comment that in in the, you know, last couple of quarters, the the market has been fairly stable. And, you know, we at least from our focus markets, we don't see any reduction in realization.
We are continuing to focus on our solution offering of cable plus connectivity together, which would help us increase our attach rate and profitability in the next one to two years.
Okay. Thank you, Mr. Agarwal. Thank you.
Thank you. Thank you, Vipul. We'll take the next question from the line of Krunal. Krunal, please go ahead. Krunal Shah. Krunal, can you go ahead with your question?
Yes. Yes. Hi. Hi, Ankit. This is Saral here. Ankit, great, great job on the reduction of, you know, employee cost. So one, I just wanted to understand, how much of this is coming from a reduction in, you know, contract labor or production cost or production manpower, and how much of it was some idea of, as we ramp up volumes again, how much of this cost will come back?
So, Krunal, I think, with respect to the employee cost, you know, if you see the manpower cost, it's all about the permanent employees, while the labor cost, which is generally, it's contract labor, which is not part of the manpower cost, it's getting reported as the other expenses, the part of the line item in other expenses. So, from that perspective, you've seen on a like-to-like basis, we've been able to reduce the substantial amount in terms of manpower expenses. So some part of these particular expenses, as we built up, you know, some kind of a capability on optical interconnect side, correct, that is something that we will have to keep investing to build up the entire portfolio in terms of an R&D as well as on the marketing side as well as the sales engineering support side.
So as we structurally grow that particular business, we'll see that, you know, the structural increase in this particular cost. But from the OFC perspective and for OFC perspective, whatever the cost optimization that we have done, and we continue to drive to reduce this particular cost further down for these two segments of the business.
Yeah, great. So firstly, I think it's great to hear that we made some breakthrough in the U.S., but in terms of our overall journey and in terms of capability development, whether it's the range of products or R&D or sales capability on the interconnect side for the U.S. market, you know, where are we in our journey from, you know, 0 to 100?
I think I would put it this way.
I think there's been a lot of work over the last 12 months, you know. I would say overall, both for Europe and U.S. markets, also for some of the other global markets. There's both been focus on building our intellectual property. There's been focus on product development, prioritizing it. We also look very closely at cable plus interconnect development together because of the linkages between the two. So I would say, particularly to your question on the U.S., I think we have a good, strong base of products, but one of the areas where we do see our strength is our agility to customize for our customers. And so that's something that we continue to co-create with our customers, and as those solutions get developed and put into the field, I think that will be an important driver of our business, particularly in the U.S.
We are also building some strong technical resources and capability in the region. So as those teams come on board and they help support us on the ground, I think that will also be a positive driver.
So how many would you think this would be like a, you know, 2-3-year journey or a really long-term journey for us?
No, I think a 2-3-year journey, I think that is fair. It also takes some time to build, you know, credibility in the market, to get a deep understanding of on-ground how the network behaves and network requirements. So that's the phase we're in, and typically, I think it takes 1-2 years, sometimes, you know, in that period, to even get some of the customer approvals.
Sure. And last question, Ankit.
You know, we, of course, on the IT services side, we are very close to breakeven. We had a little bit of a blip this quarter. But how is next year overall looking on IT services growth and profitability?
Yeah, I would actually mix the two as you said. We're looking at profitable growth. So I think that's really where, you know, Raman and the team are driving that, you know, while there could be many opportunities, we're really keeping that focus and discipline that while we want to grow, how do we find that balance and still make sure that we, you know, first get to breakeven as we've been discussing, and then look at profitability. So that's something that, you know, I think we are aware that probably overall IT services sector is currently a little bit challenging.
but certainly, as that also, overall environment improves over the next 1-2 quarters, the intent is certainly first to get to break even quickly, and then look at profitable growth. So, we are also mindful of our own investments into the business so far, and hence, it's important that going forward, the business, creates that profitable growth.
All right. Thank you. Thank you, Saral.
Thank you, Saral. We'll take a last question, and that would be from the lines of, Sohan Joshi. Sohan, 1 or 2 last questions from you, please.
Am I audible? Yes, yes, yes. Yes. So, hi, Ankit. When do you expect the allocation of tenders under the BharatNet project? Will we have any growth coming this year from that? Yeah, Sohan, good question.
I think, basically, there is, you know, some of the, you know, responses to the inquiries, etc.
So it's, you know, to the BharatNet tender. And so currently, it is probably expected, you know, current visibility is probably in the next, you know, 1-2 months, there could be a response to the tenders, and then, you know, there could be some more work around that. So practically, I think, you know, some work could happen towards, you know, our financial year Q3 or maybe Q4, is where there could be some impact. Again, it will vary depending on whether it's business to us on the fiber deployment side or it's business for us on cable supply, or possibly even fiber supply to other cablers. So but broadly, we do think that there would be some activity on the ground, probably by Q3 and Q4 of our financial year.
Okay. Now, second question is, how are we seeing the demand of Tower Fiberization in India?
Since India, I mean, has a rate of, say, just around 37% or tower fiberized, and with 5G rolling out very fast, do we see any big upside in demand coming from India itself with regard to tower fiberization?
Yeah, I mean, I think it will, at the least, be steady and maybe some, you know, healthy growth. Primarily, I would separate the two that, you know, probably we do see particularly, you know, the demand from at least one of the two large operators to scale up, given that they want to get to, you know, higher tower fiberization probably at 70%-80%. So I think definitely one of the two large operators will scale up. The good thing is both the large operators, you know, Jio and Airtel, have very ambitious plans for fiber to the home as well, fiber to enterprise.
So all of this is converging, I would say, Sohan. Look at it as one, you know, ubiquitous network, whether it is fiber for towers, fiber to enterprise, fiber to home, all of it is kind of getting built, including fiber for data center requirements, is all getting built at one time. So we do see this, kind of, coming together. And, definitely, on top of this, then you will have the BharatNet kind of requirements, which will be in rural India. So, we are bullish on India. It's our home market, and, you know, we do hope that the demand increases, over the next three to five years.
Okay. Thanks a lot. One small question, if I may ask, just a small question. Sure. One last one, Sohan. Yeah, yeah, sure, sure.
I mean, with this prolonged high interest rates and U.S. elections coming up, do you see any impact on the BEAD project, or it will continue irrespective of which of the political parties come into power in the U.S.?
Yeah, the BEAD project is bipartisan approved, and by both the parties, both the houses. So, to that extent, we don't see any negative impact on BEAD based on the elections. On the interest part, I think definitely it's been, at least for STL, it's been positive to the extent with our fundraise now, we'll be utilizing that for our debt reduction, and to that extent, our interest cost will come down to some amount in for the current year.
Okay. Thanks a lot, and all the best for the upcoming quarters.
Thanks a lot. Thanks, thanks, Sohan. Thank you, Sohan.
Ladies and gentlemen, with this, we come to the end of the question and answer session. Ankit, I hand over the call back to you for closing remarks.
Thanks, Saral. I would like to thank everyone for attending this call and showing interest in our company. Despite a challenging market environment, we have managed to make progress on our key strategic priorities, and we have reduced our net debt by INR 334 crore, majorly through internal accruals. We have successfully completed the QIP and onboarded marquee investors, which is a testament to our capabilities and future potential. I thank these investors for placing their trust on STL. During the last FY2024, we have worked on all factors in our control and attempted to become lean, agile, and establish an industry-leading cost model.
In this new financial year FY25, we'll continue to aggressively pursue business opportunities presented by the market on the tenets of deep customer engagement, product innovation, sustainability, and we're confident that we'll reap benefits of this into the future. We are well positioned to execute, deliver robust results, and create shareholder value as the demand normalizes. I hope we'll be able to address and clarify all your questions and comments. For any further questions and discussions, please feel free to contact the Investor Relations team, which includes myself and Tushar Shroff. We look forward to continuing the conversation with you in the future. Thank you. Jai Hind. Thank you, everyone. We close the call.