STL's Q2 FY26: Navigating Tariffs and Powering Digital Infrastructure

Sterlite Technologies Limited (STL), a global leader in digital connectivity infrastructure, has reported a steady performance for the second quarter of fiscal year 2026 (Q2 FY26), demonstrating resilience amidst a dynamic market landscape. The company's consolidated revenue for the quarter stood at INR 1,034 crores, with a robust EBITDA margin of 13.6%. This performance reflects consistent execution across its business segments and a strategic focus on cost optimization, even as it navigated prevailing tariff headwinds.

The Optical Networking business, STL's core segment, delivered revenues of INR 980 crores in Q2 FY26. This segment is experiencing a multi-year super-cycle driven by the coinciding demands of Fiber-to-the-Home (FTTH) rollouts, Data Center expansion, and 5G densification. STL is strategically positioned to capitalize on these trends, with its end-to-end optical fiber and cable manufacturing capabilities. The company's commitment to innovation is evident in its recent product launches, including the world's slimmest 864F Intermittent Bonded Ribbon (IBR) cable, designed for hyperscalers, and India's first multi-core fiber, Multiverse, which significantly enhances data capacity. These innovations are crucial for meeting the escalating bandwidth demands of AI-driven data centers and next-generation networks. The company's order intake for Q2 FY26 saw a remarkable ~2x growth year-on-year, reaching INR 1,340 crores, underscoring strong market confidence and robust demand.

STL Digital, the company's Digital & Technology Solutions segment, continued its growth momentum, reporting revenues of INR 65 crores in Q2 FY26. This segment achieved EBITDA positivity, a significant milestone reflecting its sharp focus on profitable growth. STL Digital expanded its customer base by adding three new logos in the quarter, bringing the total to 33. A notable achievement was securing a multimillion, multi-year contract from a global information solutions company for its Cloud-based Client Connectivity platform. The segment's strategy involves conscious investment in building technology and domain capabilities, laying a strong foundation for long-term differentiation and sustained profitable growth.

Geographically, STL maintains a well-balanced global portfolio. For H1 FY26, Europe remained the largest market, contributing 42% of the revenue, followed by North America at 33%, which saw a significant increase from 25% last year. The rest of the world accounted for 25%. This diversified geographical spread helps mitigate concentration risks and supports the company's growth strategy. The company's strong order book, standing at INR 5,188 crores in Q2 FY26, provides robust revenue visibility, with INR 820 crores slated for execution in Q3 FY26 and INR 4,368 crores for FY26 and beyond.

Despite the positive performance, STL faced challenges, particularly from the US tariffs. A mid-quarter reset of these tariffs temporarily impacted reported EBITDA margins by approximately 300 basis points in Q2 FY26. Management acknowledged that the majority of this burden was absorbed by STL on existing contracts to maintain long-term customer partnerships. The company is actively engaged in discussions regarding the USA-India Bilateral Trade Agreement, hoping for a resolution that could provide tariff relief. Additionally, an ongoing legal dispute involving a US court verdict of nearly 96.5 million USD is being appealed, with management expressing strong confidence in its legal position.

STL's financial health remains a key focus. Net Debt stood at INR 1,313 crores, with a Net Debt to Equity ratio of 0.64 and Net Debt to EBITDA at 2.33x. The management is committed to bringing the Net Debt to EBITDA ratio below 2x going forward, reflecting disciplined capital allocation. The company's operational EBITDA percentage improved sequentially from 11.2% in Q2 FY25 to 16.7% in Q2 FY26, driven by a higher-margin product mix and increased contribution from the US market. This highlights the effectiveness of its strategic initiatives and operational efficiencies.

In conclusion, Sterlite Technologies Limited's Q2 FY26 results underscore its strategic clarity and disciplined execution in a rapidly evolving digital infrastructure landscape. With a strong focus on innovation, expanding market share in key geographies, and a commitment to profitable growth in its Digital segment, STL is well-positioned to capitalize on the multi-year upcycle in global fiber demand. The company's proactive approach to managing challenges and its robust order book provide a confident outlook for sustained performance and value creation in the quarters ahead.