Ladies and gentlemen, good day to you and welcome to the STL Q2 FY 2025 Earnings Conference Call. I'm Chetan Wani, and I'm responsible for investor relations at STL.
We are joined by Ankit Agarwal, Managing Director and CEO, Optical Networking Business, STL, and Tushar Shroff, Group CFO, STL, to walk us through the Q2 FY 2025 results and to answer your questions. Please note that all participant lines are in listen-only mode as of now, and there will 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 may be based on management's belief and must be viewed in relation to the risk 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. Thank you for joining us for our Q2 FY 2025 earnings conference call, and we wish all of you had a wonderful Diwali celebration over the last few days. As we advance to Q2 of FY 2025, directionally, our strategic priorities remain the same as we've been discussing. On the Optical Networking business, we shall continue to grow on driving growth by increasing optical fiber cable market share as well as our connectivity attach rate. To achieve our ambition of delivering significant revenue through Data Center and Enterprise segments, we will focus on rapidly building data center suite of products to tap the huge potential in that area. We shall also continue to focus on driving our technology and cost leadership in our optical business.
On our Global Services business, we shall continue to build new capabilities for value-added services while we stay focused on improving project mix and improving our profitability. We will also work towards completing the demerger of our services business. Lastly, on our STL Digital business, we shall continue to scale the business through conscious investments in building new technology and domain capabilities while keeping our focus on achieving profitability intact. STL has always endeavored to be a responsible leader in ensuring a connected and inclusive world. Through our various initiatives in education, women empowerment, and healthcare, we have positively impacted millions of lives since FY 2019. To highlight some of the achievements, some of the initiatives include, through our RoboEdge program, we intend to empower students with next-gen skills on robotics and enable their career growth.
We have covered more than 11 schools and more than 5,000 students till quarter two of FY 2025. We're proud to share that two teams from RoboEdge secured positions in the Robotex's National Championships, and 12 qualifying students from Aurangabad and Silvassa will represent India in the international championships in Estonia in December 2024. Next to the right is our flagship Jeewan Jyoti Program, founded by Ms. Jyoti Agarwal, which intends to empower underprivileged women by training them in various vocational skills to make them financially independent. We celebrated Jeewan Jyoti's 10th anniversary recently. So far, 5,100 women artisans have benefited from this program. The program recently collaborated with the ONDC network, and Jeewan Jyoti class will now be marketed under the new A'JAI brand.
We also feel proud to share that we have now benefited more than 25 lakh lives through the hybrid healthcare programs we started during COVID for providing primary healthcare as well as telehealth facilities to marginalized communities in the rural parts of select districts of Maharashtra. We will continue to make meaningful contributions to environmental preservation through our forestation and water replenishment programs. A part of our social responsibility, we sincerely continue to drive such initiatives in the coming future. On the ESG front, we are committed to our goal of being net zero emission organization by 2030. We present here some of our accomplishments on landfill waste removal, reduction of carbon dioxide emissions, and water recycling efforts. We are proud to share that we now have won 100+ ESG awards for our work.
We take pride in being the world's first optical fiber manufacturer to be Zero Liquid Discharge certified and first optical products manufacturer to launch externally verified Eco-labelled methodology. When compared to standard products, these Eco-labelled products utilize 52% less energy, carry 75% less global warming potential, and use 18% more recycled content, 25% more recycled package material. These products also reuse and recover almost 20% more waste and enhance the longevity of the network by 13 years, thereby benefiting both clients as well as the environment. In the next few slides, we will cover our Optical Networking business, highlight some of our efforts towards becoming the top three players in the optical connectivity business globally.
As we reflect on the last quarter and half year, as per CRU's latest estimates, global OFC demand till September 2024 contracted marginally. This was led by demand contraction in China and European markets and slower than expected demand pickup from North America. As per latest estimates released by CRU, calendar year 2024 remains projected to stay flattish or marginally contract. Despite the lower fresh demand during the last few quarters, we observed steady fiber deployment and continued client commitments towards fiber network creation. Various analyst reports estimate that demand improvement from 2025 and a robust demand growth for medium to long term.
As for latest CRU projections, the medium-term demand in the optical fiber cable volumes is to go up steadily to 652 million fiber kilometers by 2028. This projects a healthy 4.3% annual growth in annual demand and a strong 7% annual demand growth for ex-China during 2023 to 2028. STL's focus markets of North America and India are projected to grow faster.
The positive mid-term demand outlook by CRU, along with continuous client commitments on increasing fiber deployments, suggests steady recovery in the coming quarters. We have discussed AI and anticipated impact on the fiber demand previously last quarter, and the sheer scale of data center capacity additions planned in India presents a great opportunity for your company. As AI and machine learning take stage with mega technology trends, the need for massive data center capacities is unabated. Experts are unanimous that the overall optical connections and fiber requirements in AI data centers will be significantly higher than traditional CPU-based data centers.
As per initial estimates, India is expected to boost its GPU-based server capability in these AI-led data centers to INR 5.2 lakh GPUs by 2026. These GPU-heavy data centers will require 36 x more fiber than CPU racks, driven by an increase in server density and higher bandwidth requirements. We will also require compact high-density optical fiber cables with up to 70% more fiber in the cables compared to traditional data centers. The data center capacity itself is reaching almost double, and the AI data center capacity is expected to be more than one and a half times in the coming three years.
The need for fiber as the core of connectivity within and outside data centers, which is leading to a fiber explosion, and the massive data center capacity presents an unprecedented opportunity for STL. Progressing towards our ambition of achieving significant revenues from data center enterprise segment in the medium term, we launched our AI- DC portfolio in the recently concluded India Mobile Congress 2024. Our Made in India Data Center portfolio is also a big boost for the Make in India initiative by the government.
As we have been sharing with you, globally, the fund infusion in the 5G network creation, FTTx deployments, and cloud data center continues to be strong. The investments in these technologies continue to have healthy demand for optical connectivity products. 5G today is one of the fastest-growing technologies in the world, and tower fiberization is critical to enable this 5G network growth. 5G subscribers are expected to grow rapidly, and as we can see, 5G subscriber growth in North America, Western Europe, and India is expected to be robust all the way up to 2029. As per the last report of analysts mentioned, the blended average fiberization of mobile sites of total mobile sites stands at 38% in India in 2024, which is expected to reach 63% by 2029.
With higher 5G subscribers leading to a higher number of 5G towers requiring fiberization, 5G expansion should continue to drive demand for more optic fiber globally. FTTx connectivity enhancement efforts remain strong globally. In the U.S. alone, approximately 100 million homes await FTTx connections. Europe FTTx passes are now expected to grow over 4% over the next five years, and India is expected to lead the global growth in FTTx installations with a whopping 26% CAGR between 2023 and 2028. As we discussed, data center capacity additions will continue attracting strong investments in India and the world. North American data center capacity is expected to grow more than 10% CAGR during 2024 and 2029, and Europe data center capacity is expected to grow 8.5% CAGR between now and 2027.
Adding to the above technology trends, improving telecom tariffs in India and the mega government projects such as BEAD in the U.S., BharatNet in India, NBN in Australia, and various other projects in Europe are expected to substantially add to the overall demand of optical connectivity products, both cable as well as connectivity. We have built significant technology capability across the optical fiber value chain in the past three decades, from creating ultra-pure preform to optical fiber drawing to optical fiber cable, and most recently, the optical connectivity. We offer truly a glass-to-gigabit connectivity. We are amongst very, very few companies in the world who offer this end-to-end connectivity. Our high-tech and new-age products offering are backed by a strong patent portfolio of 730 filed and granted patents.
We take pride in advanced fiber solutions, and many of our products are first in the world or first in India, such as India's first multi-core fiber, which is Multiverse. This product should consist of ultra-thin fiber with seven and four cores instead of having a single core, and along with multi-core fibers drawn from the indigenous developed multi-core preform technology. At the recently concluded India Mobile Congress 2024, we showcased the power of optical fiber innovation through a live 4G network transmission with real-time traffic simulation. We are also among the first global companies to develop miniaturized advanced fibers with diameters of 180 microns and 160 microns versus the conventional 240 microns, which is the world's slimmest optical fiber. Our Make in India innovations are laying the groundwork for scale-up and advanced technologies like quantum computing and silicon photonics.
At the India Mobile Congress 2024, we also marked entry into the AI data center portfolio segment with full-fledged demonstrations of our integrated optical fiber cable connectivity and interconnect solutions. Our Honorable Telecom Minister Shri Jyotiraditya Scindia inaugurated this Make in India AI- DC portfolio, and in his words, "STL's AI-led Data Center portfolio is a significant innovation for the AI ecosystem and will also strengthen India's data center capabilities." As we reflect on our market share on cable as well as connectivity attached rates, based on the CRU global consumption data H1 calendar year, we had 8% market share on optical cable ex-China. On H1 calendar year 2024, market share however seems to be 6% amidst a challenging demand environment.
Our quarter two FY24 market share has come back closer to 8%, and we believe that our market share should normalize as demand grows steadily and picks up. Our intensive sales development efforts have started showing results. Our optical connectivity product line continues to demonstrate strong growth momentum as we noted our highest-ever quarterly revenue for optical connectivity products and attached rate of 22% during the last quarter. We are continuously working on new product development and commercialization in the optical connectivity space to further grow our attached rate. As we reflect on our financial performance for the optical business, in line with our guidance of quarter two FY 2025, revenue stands at INR 1,027 crores, which showed a healthy improvement on quarter-on-quarter basis. EBITDA for the quarter stands at INR 133 crores, at 12.9% of revenues.
EBITDA margin reflects substantial improvement on quarter-on-quarter basis and stands lower on YoY basis because of lower OFC volumes and change in product mix. The quarter-on-quarter EBITDA improvement also indicates the success of various cost optimization measures undertaken by the company. As we've been sharing with you, our strategically located manufacturing facilities completed capacity expansions and CapEx cycle, and our continuous focus on cost structure optimization, product development and innovation, emphasis on data center portfolio, and tier-one customer approvals. We are very well placed in India and international markets to capture significant market share as the demand picks up in the coming quarters.
Now, let us reflect on our Global Services business. In the Global Services business, quarter two FY 2025, revenue stands steady on quarter-on-quarter basis at INR 356 crores. Our selective order intake and execution focus has helped us achieve quarter two FY 2025 EBITDA of INR 24 crores and EBITDA margin of 6.7%. We continue to build our capability towards value-added services and improve margins and reduce our fund involvement. On the large projects execution in Global Services business, we have made steady progress on some of the key projects during this quarter. We are very excited about the opportunity that the large announced and contemplated programs, such as BharatNet phase III and NHAI nationwide fiber rollout, present with our extensive large project experience. We are well positioned to tap into such opportunities in the coming quarters.
Let us now discuss about STL Digital and its business performance. In our STL Digital business, despite the challenging business environment, we observed robust new deal flow for marquee customers across the U.S. and India. We acquired a large and strategic global customer in Europe as well. We continue to work with our customers for growing our business in the US, Europe, and India across technology and service verticals and expect the future growth to be driven by a robust order book of more than INR 336 crores, a healthy order pipeline, and execution strength backed by the right team of leadership and consultants.
In line with our expectations and tough industry environment, with a focus on profitable growth, we have achieved a quarter two revenue of INR 64 crores. The EBITDA losses for quarter two stand at INR 15 crores. Despite the lower revenues, EBITDA losses are trending downwards year-on-year and quarter-on-quarter basis. I now hand over to Tushar Shroff, our CFO, to talk about the consolidated financials.
Thanks, Ankit. Good day, ladies and gentlemen. The consolidated quarter two FY 2025 revenue stands at INR 1,413 crores, showing healthy improvement on quarter-on-quarter basis. The year-on-year basis drop in revenue is mainly attributable to lower OFC volumes in optical network business. The quarter two FY 2025 EBITDA stands at INR 1,551 crores, and EBITDA margin stands at 10.7%, in line with our guidance. Our EBITDA margins have improved on a quarter-on-quarter basis. For quarter two , after-tax losses stand at INR 1,313 crores. The after-tax losses have reduced on quarter-on-quarter basis.
As we look at STL first half FY 2025 performance, first half FY 2025 revenue stands at INR 2,631 crores, 2,631 crores. EBITDA stands at INR 2,444 crores, and H1 FY 2025 after-tax loss stands at INR 60 crores. We observed the new orders additions during the last quarter and secured several important orders from our marquee customers. To highlight the few key events, we won the new orders from a leading American customer and from a leading UK telecom operator for optical connectivity and fiber solutions. We have received new orders in Italy for optical fiber cable and specialty cable products. In India, we won the new orders from an Indian private telecom player for enabling their FWA, fixed wireless access, deployment.
We also secured long-term orders from other large Indian telecom companies for fiber cable supply and deployment. On the back of our global business, our revenue mix has been diversified during quarter two FY 2025. We expect the revenue mix to improve towards North America and Europe as the demand for optical products picks up in the global market. Despite increased quarter-on-quarter revenue and significant order descoping, our open order book stands at INR 8,630 crores, INR 8,630 crores at the end of Q2 FY 2025, backed by steady order events. Our order book is well diversified across the customer segment and all our businesses. We placed the abridged versions of our reported numbers for your perusal. The net debt of the business stands at INR 2,169 crores.
Let us go through the updates. Let us go through the updates and statuses on our global service demerger. We are progressing steadily on a demerger process. The shareholders and creditors of STL India have approved the scheme of arrangement in a meeting dated 10th July 2024. Based on said approval, demerger petition has been filed with the NCLT, and the hearing was conducted on 11 October 2024 with NCLT. We are awaiting the order from this particular hearing from NCLT. The date for the final petition is pending with NCLT Mumbai Bench. The final NCLT order is expected in an indicative timeline of the next three to four months, that is Q3, Q4 of FY 2025. Resulting companies expect to get listed in a stock exchange. However, we remain dependent on NCLT progressing on the hearing of our matter.
In summary, our focus areas for our business are clearly identified as: in optical network business, we shall target to drive the technology and cost leadership and pursue our ambition to be a global top three. We will increase the sales in our focus market to grow our optical network business and fill the volume gap. We will continue to increase the optical connectivity business growth and attach rate. We will focus on rapidly building our data center product portfolio. In our global service business, we will continue to focus on select projects in tech to improve profitability and optimize the net fund involvement. In STL Digital, we continue to scale the business and grow our revenue along with focused profitability. With this, now I hand over the call back to Chetan.
Thank you, Tushar. Ladies and gentlemen, we have now come to the end of our presentation, and we shall take questions from the audience. Please note that if you want to ask your question, you can click on the raise hand button, and we shall take your questions one by one. We request you to keep your questions brief and limit the number of questions to a maximum of two so that we can attend to maximum questions from the maximum participants. Please also share your organization's name for the transcripts as you state your question. The call is now open for questions. Okay, we'll take the first question from Nikhil Choudhary. Nikhil, please go ahead with your question.
Yeah, this is Nikhil from Nuvama. Good quarter, Ankit. Finally, we have seen very strong growth on a quarterly basis, especially on optical business. So the first thing is around the growth looks like is driven by U.S. and Europe geography, especially the Europe business. So I just want to understand and get more clarity about what was the driver for this quarter, such as a strong spike in growth, and how sustainable is this revenue number? And just in addition to it, I just want to get some color around BEAD and BharatNet program.
Sure. Yeah, thank you, Nikhil. So I think definitely the whole thought process has been that we've been well established in terms of our capacities. We've touched about how all our investments have happened over the last two, three years in terms of glass fiber cable, including our capacities in Italy and most recently in the U.S. So that has set up that kind of technology and manufacturing capacity platform for us. And really, then what we've been talking about is how do we keep on looking to improve our utilization of the facilities.
So that's really what's happened to a large extent between quarter one and quarter two , where we've seen an improvement in our optical fiber cable and, to some extent, improvement in our accessories, our connectivity portfolio. And that's something that we want to continue to see: how do we drive these utilizations up from this current 50% odd levels and take this really back to that 75%-80% levels where then we have meaningful EBITDA performance. So that's really the thought process. In terms of BEAD, probably versus where we were four to six months ago, we do see that the larger volumes of BEAD-related cable demand and connectivity demand have probably got pushed out by a few months.
So while we have started winning a few initial projects linked to BEAD, the main significant volumes are now expected probably in the second half of calendar year 2025, and then with it peaking in 2026 and 2027 calendar years. So that's really what is the general industry understanding. The second part we had spoken about in the U.S. was the inventory levels. That continues to come down. So in a positive way, the execution of fiber for 5G, for fixed wireless, data center, fiber to the home, all of that continues to accelerate in the U.S., and that is leading to some of these inventories coming down. And again, there I believe that we are probably one or two quarters away from those inventory levels normalizing.
BharatNet, I believe, is a project that will get probably decided during this quarter in terms of the results, and then it's probably anywhere between three- to four-year, maybe even five-year execution period, depending on the complexity of the projects. So that is something that, as the results come out, will have an impact on our services business from an EPC perspective, but equally then from a cable and fiber business from a supply perspective.
Sure, Ankit. So the second one is especially regarding the U.S. geography. Corning, in its last call, mentioned that the buying and deployment rate is now completely in sync for them. So is it fair to say that we'll see further improvement in U.S. contribution in our geography going ahead, given they are the tier one and benefit from the long-term contracts, and now the player like Sterlite should benefit?
Yeah, I mean, I would say broadly that's true. If I look at the next, say, 12-month window or 12- to 15-month window, I would have to call out that particularly this period, November-December kind of period, typically in Europe, North America, things do slow down because of winter months, deployments do slow down, etc. And then they run their budgets on calendar year, so then they start typically on quarter four on a stronger note, which is our quarter four and their quarter one . But I think thematically, what you mentioned in terms of demand in North America, we do see all of those sectoral themes play out as we get over the next 12 to 15 months. And of course, from a longer-term perspective as well, North America continues to be probably the most positive growth territory globally, where anywhere between 12%-15% annual growth is expected.
Sure, Ankit. Makes sense. Next one is on margin, Ankit. While we have seen improvement in margin on Q2 to 13%, but our revenue is now more than INR 1,000 crore. And at this scale, we have delivered a much better margin compared to what we delivered this quarter, despite having higher optical interconnect business, right? So I just want to understand what happened and why we haven't seen such an improvement in margin compared to what we used to deliver at this scale.
Okay. So I think it's linked to the previous view as well. Largely, we typically enjoy better realizations in the North America market. And so since those volumes have come down, as you would have seen last few quarters, our average realization at company level would have come down compared to maybe last year or two years ago. So that's predominantly what you would have seen.
Also, Europe, as we would have seen, it's been flattish or marginal. There also, our realizations have been flattish or slight decline. So that's really what's been driving it. Again, as we start moving to increasing our value-added products, our products for segments like data centers, as well as our accessory, our connectivity portfolio, that should start driving the realization up. Plus, of course, as a share of North America sales itself starts coming back, that should drive the improvement in our realizations.
Sure, Ankit. The last one from my side, I just want to understand the impact of anti-dumping duty, which is introduced in Europe. So any impact on your financials this quarter?
Nikhil, Tushar here. S o from the supply chain perspective, absolutely, there is no impact because whatever the customer orders have been placed, we have been able to serve all of them without any kind of disruption, which is very, very positive. However, we have seen that in terms of, as we scale up our European facility, we are able to bring down the overall manufacturing cost, and we are able to see the higher profitability coming from the European market as compared to the kind of profitability that we used to enjoy from the European manufacturing side. So I think the two positive levers are that there is no disruption with respect to the supplies that we make to the customers, European customers.
And second, with the kind of volume and kind of the leverage that we are able to take, operational efficiency that we are able to bring at the Italy side, which is also helping us in terms of improving the overall profitability of the site as well as for the O&B business.
Yep. Sure. Understood. Thanks, Ankit. Thanks, Tushar. Good luck for coming period.
Thank you.
Thank you.
We'll take the next question from Sunny Gosar. Sunny, please go ahead. Yes.
Can you hear me?
Yeah. Yes, sir. Yes, sir.
Yeah. Thanks for taking my question, and congratulations on an improved set of numbers after many quarters of a basically sluggish period. So my first question is on the optical interconnect. We have seen very good performance in optical interconnect with attach rate improving to 22%. And some rough calculations indicate that the quarterly revenue run rate should be closer to INR 150 crores or plus minus of that. So a couple of questions here, like what has driven this improvement? Is it more customers in Europe, or have we been able to penetrate better in the U.S.? And the second question is, going forward, how should we look at the growth outlook, and how should we look at the revenue trajectory going forward in the optical interconnect space?
Yeah. Sure. Thanks. So, Sunny, essentially, it's important to remember that the interconnect business is very closely linked to, essentially, fiber to the home connections. So what we've clearly seen is, globally, especially Europe, U.K., which are strong markets for this business. And of course, in the U.S., there are very, very strong and aggressive targets for the fiber to the home.
And some of our customers, which we have talked about, like British Telecom, Netomnia, some of the other customers that we have been very, very active with, they continue to push forward on not only passing the homes but also taking the fiber all the way inside the home. And that's really where the strength of our interconnect portfolio comes through. And something that we've been very proud of doing very well is being very, very agile in our product portfolio, very, very rapid product development, and at the same time, being competitive and creating value for the customer. So that's something that has served us well. We continue to expand both in the U.K. and in Europe, and we are starting to make some initial inroads in the U.S. market as well.
But certainly, as this momentum continues, the whole thought process is for us to continue to sell it as a solution of the cable and the connectivity together to our customers. And then going forward over the next, say, two to three years, we would also look to build a portfolio for the data center segment.
Right. And any outlook in terms of the revenue trajectory or the attach rate? Does this keep improving at a steady pace in terms of percentage points? How should we look at the next few quarters or, say, next two years?
Yeah. I wouldn't comment on the immediate quarters, etc. As I said, again, this November-December, for example, is a slower month for, so I won't get into specific quarters, but generally, the whole ambition for us has always been to scale up the interconnect business meaningfully and make it a substantial part of our optical business overall. So that vision continues. We continue to invest in our product portfolio, in our IP, as well as the team. And so we continue to be quite bullish about this.
Sure. And while 22% is the average attach rate over the entire optical sales, have there been customers where we have already reached 100% kind of or closer to 100% attach rate, which basically will signify that our product has very strong acceptance in the base customers or the base markets?
No, absolutely. That's absolutely true. As you can imagine, as you can do the math, we are disproportionately selling our interconnect in U.K. and Europe markets. So you can imagine in some of those customers, our attach rate would be close to 100% or even more than 100%.
That's good to hear. My next question is basically on the U.S. business. So U.S. quarterly revenue run rate has come closer to like INR 250 crores in this quarter versus a peak of, I think, INR 600 crores-INR 800 crores in a few quarters before. So once BEAD demand starts kicking in and some of the other new customer wins and all of the initiatives that we are trying to drive come through, basically, can we go back to that INR 600 crores-INR 800 crores quarterly revenue run rate? And basically, is there a time frame we can attach like four quarters, six quarters within which this is possible?
No, sir, I won't comment on a specific revenue target because I'm not keen to give a specific forecast right now. But directionally, definitely, the whole intent is for us to scale up globally. North America remains our biggest growth opportunity. And as you suggested, we have done significant numbers in the past in the market. So the whole thought process is, as new demand, as inventories come down, and the new demand is there, the whole market itself is supposed to go actively from, say, anywhere between 80 million fiber kilometers-90 million fiber kilometers to 130 million kilometers-150 million kilometers. So the whole thought process is that we should be part of that growth and continue to take good market share from our current customers as well as new customers.
And then on top of that would be a growth of these connectivity products that we spoke about, which should start scaling up in the next two to three years. So that's the whole thought process that both combination of cable and connectivity, we should start improving. I think time frame is a little tough given that projects do get pushed out, etc. Plus, it will also be a function of how the interest rate cycles play out, etc. But broadly, the whole thought process is that within one to two quarters, markets should start seeing some improvement for STL. And certainly, over the next 12- 15 months, we do see that improvement.
Got it. Got it. That's helpful. And I have one last question before I join back. It's related to the debt level. So post the fundraise, in the first half, we have been able to bring down the debt by about INR 600 crores at a net debt level. So there are two questions in this. One is, when the demerger of the service business happens, I understand the capital employed in the service business, which is your segment assets minus segment liabilities, is about INR 1,650 crores. So at the time of demerger, what is the likely debt that could move with that demerged entity?
And second question is, apart from the operating cash flow generated, are there any further levers in terms of any non-core assets or any basically sticky receivables which can come back in terms of accelerating the debt repayment?
Yeah. Yeah. So, Sunny, I think a couple of questions with reference to the debt. As you have rightly mentioned, we raised about INR 1,000 crores in quarter one, which has been used to repay the debt and successfully repaid the major part of the debt from the proceeds that we have received. The current debt level that we have is about INR 2,169 crores. Net debt that we have been talking about is INR 2,169 crores. And our debt-to-equity ratio is about 0.74% at this point in time. The idea is to ensure that some of the funds which we have which are involved in terms of the execution of some of the large projects, mainly from a T-Fiber, MahaNet, we continue to see how we can liquidate that. That itself is, I would say, that almost INR 1,000 crores kind of a level.
So I mean, we are pursuing at various levels to see how best we can liquidate this unbilled and the debt that we have with some of these particular customers, mainly for BharatNet phase II projects. So structurally, we are trying to work with the customers to see how do we get the necessary right-of-way approval so that the central government should be able to provide the right-of-way to the customer, and we should be able to initiate the work which is pending for the right-of-way, and we should be able to complete the project and liquidate the cash. So that's the priority for us, topmost priority for us. Of the total capital employed that you talk about of service business, we expect as of September, we were expecting the net debt to be in the range of INR 550 crores-INR 600 crores.
That is what, based on the current capital employed, that is something that we are looking at, which will get transferred to the service business. So these are the things, these are the levers that we have been working on so that we have been able to generate cash. And structurally, because this particular demerger is a tax-neutral process, and from a tax-neutral process perspective, we need to allocate debt in a certain proportion, in a certain way, in a certain manner, which has been prescribed under the Income Tax Act. So whatever the cash gets generated till the time of demerger will help both the businesses in terms of improving the respective balance sheet of the respective business.
So our all focus and the entire commitment from the management team is to liquidate the working capital that we have blocked in the service business.
Got it. The interest cost. Sunny, can I just please join back? It is related to the debt, and then I'll basically go back to the queue. The interest cost in Q1 came down to about 70 crores, which saw an increase again in Q2 to about INR 84 crores. Is there any one-off element in the Q2 interest cost? And since we have already repaid a significant portion of debt through the QIP proceeds, what should be the quarterly interest outflow or interest expense going forward?
So yes, in Q2, I think we have incurred one-off expenditure for the necessary approval that we have received from the bank for a demerger and the expenses or charges from the bank for giving the NOC that we have received. Those are the one-off charges. The run rate, I think, is absolute run rate should be anything between, I would say, the interest cost should be in the range of, I would say, that between INR 75 crores-INR 80 crores is something that we have been working on, saying that it should not go beyond INR 75 crores-INR 80 crores in terms of a run rate of the interest cost.
Got it. Thank you for the detailed responses and all the best for the coming quarters.
Thank you.
Thank you. We'll take next question from Saket Kapoor. Saket, please go ahead and ask your question.
Yeah. Namaskar, sir. You can hear me?
Yes. Yes?
Yeah. Namaskar to the team. Thank you.
Saket, we are unable to hear you clearly. Just a second.
Sir, you can hear me now? Hello?
Yes.
Yes. Yeah, yeah. Thanks. Sorry for the same. Firstly, sir, you mentioned about interest cost to be ranging in the band of INR 75 crores-INR 80 crores, so I think we paid a large chunk of the money for this quarter. So won't that be a very conservative number, or what are you factoring in terms of the higher working capital requirement?
So Saket, as you know, that the two large projects that we have been talking about, if we are even able to liquidate at least 50% of that in the next two quarters, I think substantially we should be able to reduce our interest cost, and that is what we are driving. What I've said is that with respect to the kind of interest cost that we are looking at or targeting is assuming on a conservative basis that probably whatever the challenges that we have, and because of any reason we have not been able to liquidate, then what will be the kind of a trend that what will be the run rate that we should be expecting? That is what is the plan.
But having said, we are targeting to collect the substantial part of the money in the next two quarter, having said that demerger is closure. So structurally, we are working to see that the benefit of reduction in the working capital and the reduction in our debt overall should help us in terms of bringing down the consolidated interest expenses for both the businesses.
But, sir, just to get more clarity, the fiber rollout project for Telangana, I think so the completion percentage is stuck somewhere in the 69% mark. So how much have we invested here or what is the amount stuck, if you could just allude? And what is the thought process now going ahead? When can we achieve the next milestone and then the release of funds for this T-Fiber project?
Please. Saket, I think on a previous call also, we had mentioned that the current project of T-Fiber that we have been executing has a requirement of a right-of-way for a forest area to complete certain part of the activity to complete the execution, which has been defined as per the tender contract. Correct? We need to complete the rollout of the laying of the cable and to ensure that we are able to connect the entire network in Telangana, which is impacted because of the right-of-way in a forest area in Telangana, which requires a necessary approval from the central government as well as from the state government, which is pending, and this obligation is on the customer.
We have been pursuing regularly with the customers in terms of ensuring that we have a right-of-way, but because of their internal or whatever the complexity that they have, probably they have not been at this point in time, there are some challenges which they are trying to solve with the central government to provide us with a right-of-way.
But yes, we have been continuously pursuing with the customer to ensure that they are able to fulfill their obligation with respect to the terms and conditions provided in the contract of providing us with a right-of-way so that we can complete and execute the contract. With respect to your specific questions on the fund involvement for this particular project, at this point in time, fund involvement is almost to the extent of INR 700 crores for this particular project.
And sir, secondly, Ankit Ji, for the digital and the technology part, I think so we have seen a degrowth in the revenue for this quarter. And also, we are flattish on the H1. So have we kept our process is, sir, this segment here? Is the lower business has resulted in lower EBITDA losses or what's the way forward ahead? I think order book you have mentioned like INR 298 crore something closer to that. Your thoughts?
So I think, Saket, we maintain the same focus that essentially what we want in this business is profitable growth. That's really very, very clear. So we've been very focused on what kind of orders we take in with which kinds of customers and really want to make sure that we start driving our EBITDA upwards and start getting into break-even. So that's a clear mandate for the leadership of this business to get this to EBITDA break-even ASAP and then look at growth from there in a measured way. Of course, I think the industry tailwinds itself have been tough in the last one year or so. I think that should also start improving in terms of new orders coming in and new opportunities.
But I would say broadly, Saket, there is a lot of discipline with this team. The new CEO, Naveen, who's come in has done fairly significant cost-cutting as well to really make sure that that focus is there on getting to EBITDA break-even.
So sir, H2 here, h ow should H2 be for this segment only in particular? Because we were flattish here and the losses have been reduced. Definitely, we are on trend. But how should we close since we have the blueprint ready for how H2 will behave?
Yeah. As I said, there's nothing different. Saket, the single priority for the business is to get to EBITDA break-even. So that's what we're expecting.
Okay. No guidance on how the volume, that revenue growth will be?
No. As I said, more than revenue growth, we're targeting on the bottom line. So that's just looking at deal by deal and making sure that it's at the right margins.
Right. And last point, sir, I think so in the presentation, in your press release part, you did allude to the fact of our cable's intent of entering the AI-DC segment and garnering 25% share. These are very exciting phrases and I think so what we are eyeing. So if you could give us some color on how our OFC will play a major role in getting to this 25% market share, what is the size of the market? So how have we arrived at this number, firstly, in terms of that, if you could just give some more color to it, sir?
Sure. Sure. So I think, see, from a simple perspective, today, a lot of our focus has been on the telecom segment, internet service providers, as well as large government projects like BharatNet or others. And the whole thought process is that clearly we see that data center itself will be a much larger user of fiber, consumer of fiber going forward compared to the past. That is something that we see because of this change of AI. What you're seeing is the processors are going from CPU-based to GPU-based, as you would have heard of NVIDIA and other companies. What happens in this scenario is that you need a very high fiber connectivity from each GPU to another GPU. And so this is a very big change in the data centers that's happening in India and globally.
This will lead to a very large increase in fiber requirement within data centers and to connect large data centers with each other as well as edge data centers. Looking at this requirement, which we believe will be a build-out over next eight, 10 years, there will be continuous fiber build-out and data center build-out. We have taken a target that 25% of our optical business revenue should come from this segment in the medium term. That's the whole thought process. We also looked at our benchmarks of our global peers where we do see that some of our global peers have anywhere between 30%-40% of their revenue coming from Data Center segment.
Correct. The pricing front, sir, I will join the queue. How differentiated are the pricing for the OFC in terms of that goes into this?
Its pricing is definitely better, but it's also because the products are much more technologically advanced. Then the approval cycles themselves are very, very long. Anywhere between two years, three years is quite typical. So that is the work that we have kickstarted. We have launched some products, and we will undergo approval cycles with some of these large customers, and we'll update you quarter on quarter.
Yes, sir. Thank you, sir. Thank you, sir, and all the best to the team, sir. [Foreign language] to the team. Happy [Foreign language]
We'll take next question from Rohan Vora. Rohan, please go ahead and ask your question.
Hello. Am I audible? Yes. Yes. Yeah. Thank you for the opportunity. So the first question was around BharatNet. We wanted to understand your addressable market across fiber optic cable, your Global Services business, and the fiber that you'll supply to other players. You might supply to the other players. And then adding to this, the interconnect product. So what could be the addressable market that you are looking at in the BharatNet project?
So there are overall 16 packages, and we have participated across the packages, some directly, some with a partner. Those results are expected within this quarter itself. And in terms of the opportunity, of course, overall is INR 65,000 crores on the CapEx and other INR 40,000 crores-INR 45,000 crores on the OpEx. So it's north of INR 1 lakh crore opportunity. Of that, it's a little tough to say what we expect to win, but logically, we would want us to be one of the winners in the packages. So it depends on the size of package that we become as L1. So let the results come out. We'll see where we are placed.
And then on the cable part, the cable and connectivity part is roughly in the range of INR 4,000 crores-INR 5,000 crores overall. And so again, depending on who the winners of the packages are and our partnership with them, we would take a certain market share of the cable and connectivity.
Okay. Okay. So broadly, this INR 4,000 crores-INR 5,000 crores is our addressable market size. Is this right to assume?
For the cable and connectivity, yes.
And then for global services, there will be additional market, addressable market that will be there?
Correct. There is one caveat to this. There are some EPC players who also make their own cable and connectivity. So to that extent, probably that opportunity may not come to us.
Understood. Understood. And then about the interconnect products, how big is our addressable market in that as far as BharatNet goes?
It's part of that INR 5,000 crores. Typically in India, the interconnect attach rate, etc., spend on that, etc., is on the lower side. That's why our focus on our portfolio is much more on Europe and North America.
Understood. Understood. Second question was on the order inflow. So you also, I think, spoke about descoping that happened in the first half. So year-on, how do you see the order inflow in the second half?
So I think that this is an important period. As I said, if our focus markets are in talking of optical business to begin with, there we definitely see that as the budgets get frozen, typically between, say, December period and start getting released in January timeframe. So definitely for our focus markets, probably we should see an order uptake in our quarter four time period.
And then equally for our services business, we have seen an improvement in our pipeline of bids that we are participating apart from BharatNet. So again, we do expect that we should see an improvement in our order booking in the quarter four timeframe.
Okay. So quarter three, we might expect to remain slightly sluggish. Is that correct?
Largely because of what I explained that in November, December is typically quite slow and not much of decision-making in this period.
Right. Right. Also, just one last thing, if I can squeeze in. So on the non-U.S., non-India demand, so the other regions, what is the outlook on that? And also, along with that, on the fiber prices. So any color on that would be helpful.
Yeah. I think we are looking at, of course, apart from the two you mentioned, Europe has remained flattish, but where we are focused, like UK market in certain parts of Italy, which is also where we have large manufacturing. We are also looking at some growth in the Middle East markets where we have been quite active. I think these markets remain steady for us. Going forward, we do expect very strong growth in Germany market over the next three to five years, as well as Eastern Europe like Poland, etc. These are two, three areas we are watching very carefully and building our product portfolio.
In terms of fiber prices, I think they have been flattish or slight decline in these markets. But again, as demand picks up, we do expect them to normalize. That should probably happen in their quarter four timeframe.
Thanks, Ankit.
Ladies and gentlemen, we have come to the close of the planned time. So we'll come to the end of this Q&A session now. Ankit, I hand over the call back to you for giving your closing remarks.
Sure. Thank you. I'd like to thank everyone again for attending this call and showing the interest in our company. Despite the challenging market environment that we spoke about, we have managed to make progress on key strategic priorities. We continue to focus on all the factors in our control. We look at driving our customer focus, becoming lean and agile, and also driving growth based on our technology leadership. And I also touched upon our growth and our IP portfolio that we've been having now.
We continue to aggressively pursue business opportunities presented to us in our focused regions and based on our high technology manufacturing, innovation, as well as industry-leading products. We are very well positioned to execute and deliver robust results going forward and create shareholder value as the demand normalizes.
I hope that we were able to address and clarify all your queries and comments. For any further questions and discussions, please feel free to contact the investor relations team, which includes myself and Tushar. We really look forward to continuing the conversation with you in the near future. Thank you. Jai Hind.
Thank you, everyone. You may disconnect from the call now.
Recording stopped.