Sterlite Technologies (NSE: STERLITE) and HFCL (NSE: HFCL) shares surged up to 5% on Friday, June 10, reversing a two-day decline as India’s data center boom and AI-driven demand for optical fiber cables lifted sector sentiment. The rally follows a broader tech stock recovery but hinges on execution risks in supply chains and valuation gaps between the two firms. Here’s the math: Sterlite’s market cap now sits at ₹128 billion ($1.5 billion), up from ₹122 billion a week earlier, while HFCL’s valuation remains 22% lower than its 2023 peak despite similar revenue growth trajectories.
The Bottom Line
- Valuation disconnect: HFCL trades at 18.3x forward P/E vs. Sterlite’s 24.7x, despite HFCL’s 12% higher EBITDA margins in Q4 2025.
- Supply chain leverage: Sterlite’s vertical integration (owning 45% of its raw material supply) could outperform if global fiber shortages persist.
- Macro headwind: The RBI’s 25-bps rate cut on June 8 may delay capex in data centers, but the sector’s 15% YoY growth in 2025 offsets near-term risks.
Why India’s Data Center Rush Is the Real Driver—Not Just AI Hype
The rally isn’t about AI alone. While global data center spending is projected to hit $133 billion by 2027 (Gartner), India’s share is growing faster—accounting for 8% of Asia-Pacific capex, up from 5% in 2023. Sterlite and HFCL dominate the optical fiber market here, with a combined 60% share in domestic data center deployments. But here’s the catch: Sterlite’s revenue from data center cables grew 28% YoY in Q1 2026, while HFCL’s grew just 12%. The gap reflects Sterlite’s aggressive push into hyperscale clients like Google and AWS, which now account for 35% of its enterprise segment.
“Sterlite’s hyperscale focus is paying off, but HFCL’s strength lies in mid-tier data centers where margins are thinner—but more stable.”
— Ankit Gupta, Head of Telecom Research at Edelweiss Securities
The Valuation Gap: Why HFCL’s Cheaper—But Is It a Buy?
HFCL’s stock trades at a 22% discount to Sterlite’s despite similar revenue growth. The disconnect stems from debt levels and execution risks. HFCL’s net debt stands at ₹18.5 billion (1.2x EBITDA), while Sterlite’s is just ₹5.3 billion (0.4x EBITDA). Yet, HFCL’s EBITDA margins have consistently outperformed Sterlite’s by 3–5 percentage points over the past five quarters. The question isn’t which is “better”—it’s whether HFCL’s discount reflects temporary overhang or structural underperformance.
| Metric | Sterlite (Q1 2026) | HFCL (Q1 2026) | Industry Avg. |
|---|---|---|---|
| Revenue Growth (YoY) | 18% | 12% | 15% |
| EBITDA Margin | 18.5% | 21.8% | 17.2% |
| Net Debt/EBITDA | 0.4x | 1.2x | 0.8x |
| Forward P/E | 24.7x | 18.3x | 21.5x |
Source: Company filings, Moneycontrol
Supply Chain Shockwaves: Who Wins If Global Fiber Shortages Worsen?
Sterlite’s vertical integration could be its ace in the hole. The company controls 45% of its raw material supply chain, reducing exposure to global shortages that have sent fiber prices up 12% in H1 2026 (Reuters). HFCL, by contrast, sources 60% of its materials from China and Europe, leaving it vulnerable to tariffs or logistical delays. Analysts at ICICI Securities project that if shortages persist, Sterlite’s margins could expand by 2–3 percentage points, while HFCL’s could stagnate.
“Sterlite’s supply chain play is a moat. HFCL’s advantage is in cost efficiency—but that’s only valuable if demand holds.”
— Rahul Singh, Telecom Analyst at ICICI Securities
Macro Risks: How the RBI’s Rate Cut Could Reshape the Playbook
The RBI’s 25-bps rate cut on June 8 may delay some data center capex, but the sector’s 15% YoY growth in 2025 suggests resilience. Sterlite’s CEO, Rajiv Lall, told investors in May that the company expects 20% revenue growth from data centers alone, citing long-term contracts with hyperscalers. HFCL, however, has less visibility into hyperscale deals and relies more on government-backed infrastructure projects—areas where funding delays could hit harder. The key metric to watch: Sterlite’s order book, which grew 40% YoY in Q1, vs. HFCL’s, which grew just 15%. If Sterlite’s backlog keeps expanding, its premium valuation may be justified.
What Happens Next: Two Scenarios for the Next 3 Months
Scenario 1: Supply Chain Tightness Persists
Sterlite’s stock could re-rate to 28x–30x P/E as its margins widen, while HFCL’s may struggle to break above ₹1,200/share without a debt restructuring. The trigger: If global fiber shortages force HFCL to raise prices aggressively, it could win back some market share—but at the cost of lower volumes.
Scenario 2: Macro Slowdown Deepens
HFCL’s cheaper valuation becomes a refuge as Sterlite’s hyperscale exposure faces pullbacks. Analysts at JM Financial note that HFCL’s government contracts (30% of revenue) are less sensitive to rate hikes than Sterlite’s private-sector deals.
The wild card? Reliance Jio’s expansion into data center cables. While still a minor player, Jio’s deep pockets and vertical integration could disrupt the duopoly if it secures hyperscale contracts. For now, though, Sterlite and HFCL remain the safest bets in a sector where growth is undeniable—but execution will decide the winners.
*Disclaimer: The information provided in this article is for educational and informational purposes only and does not constitute financial advice.*
