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Bullish prices, demand, revive optical fibre stocks

NetScribes/Ganesh Ramamoorthy

Shares of optical fibre companies are staging a comeback, thanks to expectations of a recovery in the global prices of optical fibre and a pick-up in demand. The stocks had earlier come in for some harsh treatment in the wake of the tech meltdown.

Aksh Optifibre, a B group scrip on the Bombay Stock Exchange, has gained around 75 per cent over the past two weeks on the back of a $170-million export order for optical fibre cables. Sterlite Optical Technologies has risen 30 per cent ever since it got listed on the BSE on October 26 at Rs 825. On November 7, it closed at Rs 1,077.20.

Though Shyam Telecom's gains are not as impressive, it has managed a 15 per cent rise to Tuesday's close of Rs 254.35 from its October 16 close of Rs 223.40. Similarly, Finolex Cables, which was doing badly all through October, ended Tuesday at Rs 225.15 against Friday's close of Rs 215.25.

Analysts say the growing interest in these scrips is mainly due to an expected growth in demand and bullish price trends for optic fibre cable over the next three months. They also expect a strong export demand from multinationals like Lucent and Alcatel. In 1999, the total demand for optic fibre grew 38 per cent to 70 million fkm (fibre kilometre).

Domestic demand is seen picking up following the revision of the Ninth Plan and the various broadband projects announced by corporates and utility companies. The government recently revised its Ninth Plan target for optic fibre cables to 270,000 fkm from 108,000 fkm.

The Indian telecom network is expected to grow four times its current size by 2005 and almost 10 times in 2010. This opens up plenty of opportunities for optical fibre manufacturers to increase capacities in order to meet the rise in demand.

"Companies that manufacture optical fibre cables are bound to benefit from this," said an analyst with a Mumbai-based securities firm.

With various companies announcing broadband projects on optical fibre cable backbones, analysts say the demand for these products is set to grow. Companies like the Gas Authority of India Ltd, RailTel, Reliance and BSES have announced plans to lay nation-wide optic fibre cable backbones. Reliance, for example, is rolling out an all-optic IP-based broadbrand network that will cover 115 cities.

Moreover, an expected 35-40 per cent growth in the global demand for fibre optic cables and a firming up of the prices for these products also mean good news for the sector. Global optic fibre prices are currently ruling at $65 per fkm, up from an average of $30 per fkm last year. Analysts expect prices to remain steady over the next few months. This, despite plans by global players like Corning, Alcatel, Lucent and JDS Uniphase to expand capacities in the coming months.

"Prices have remained firm due to an acute shortage in supplies over the past one year. This demand-supply scenario is not expected to change till September 2001," said an analyst at SSKI Securities.

All this provides enough reasons for local optical fibre cable scrips to firm up during the next three months. A report released last week by the Mumbai-based SSKI Securities predicts that the Sterlite Optical scrip will touch Rs 1,400 over the next two months. Similarly, Aksh and Shyam Telcom are also expected to firm up at higher levels.

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