India Ratings and Research (Ind-Ra) has assigned an 'IND A-'/Stable rating to STL Networks Limited (STLN) proposed non-convertible debentures (NCDs) worth INR 3,000.00 million. The agency has also affirmed the 'IND A-'/Stable/IND A2+' rating for the company's bank loan facilities of INR 25,000.00 million.

Key Rating Drivers

The ratings reflect STLN's robust business profile, supported by its established track record in the telecom industry and end-to-end capabilities in executing complex and mission-critical projects. Ind-Ra expects healthy revenue growth for STLN over 2HFY26-FY27, backed by a strong order book of over INR 65,000.00 million as of end-June 2025, representing a book-to-bill ratio of over 5.5x based on FY25 revenue.

Financial Performance and Outlook

STLN's consolidated revenue declined by about 20% year-on-year to INR 11,800.00 million in FY25, primarily due to the company's selective approach in order acquisition. The EBITDA margin moderated slightly to 6.3% in FY25 from 6.7% in FY24.

Despite the current modest credit metrics, Ind-Ra anticipates gradual improvement in net leverage and interest coverage over the near to medium term. This expectation is driven by projected enhancements in profitability, moderation of the working capital cycle, and the potential release of locked-up funds.

Order Book and Industry Outlook

STLN secured a significant contract worth about INR 22,000.00 million under Bharat Net Phase III during Q1FY26, boosting its outstanding order book to over INR 65,000.00 million as of June 2025. The company is well-positioned to capitalize on India's accelerating digital transformation, with key government initiatives such as BharatNet Phase III, Smart Cities Mission, and Digital India driving large-scale connectivity and infrastructure development.

Challenges and Constraints

The rating is partially constrained by STLN's modest credit metrics, elongated working capital cycle, and significant working capital lock-up in a few projects. The company faces challenges with delays and disputes in some projects, resulting in working capital being tied up. However, management expects a significant portion of the locked-up amount to be cleared by 1HFY27.

Liquidity and Debt Profile

STLN's liquidity position is supported by adequate free cash and equivalents, undrawn working capital limits, and expected positive cash flow from operations over 2HFY26-FY27. The company had a consolidated free cash and equivalent of INR 792.00 million at end-September 2025. STLN has a term debt principal repayment obligation of INR 360.00-370.00 million each in FY26 and FY27, which Ind-Ra expects will be serviced through internal accruals and existing liquidity.

Conclusion

While STLN faces challenges in its working capital cycle and credit metrics, the company's strong order book, strategic position in the growing digital infrastructure sector, and expected improvements in financial performance provide a stable outlook. The successful execution of orders, improvement in profitability, and effective management of working capital will be crucial for maintaining and potentially improving the company's credit rating in the future.

STL Networks Limited , a prominent player in the telecommunications sector, has announced a significant modification to its Employee Stock Option Scheme (ESOS) 2025. The company is seeking shareholder approval through a postal ballot to amend the vesting conditions of its stock options, aiming to enhance employee retention and align with corporate performance goals.

Key Highlights of the Proposed Amendment

The proposed changes to the STL Networks ESOS 2025 focus on restructuring the vesting conditions for ungranted stock options. Here's a breakdown of the modifications:

Rationale Behind the Amendment

STL Networks' management believes that increasing the proportion of options vesting based on continued employment will:

1. Enhance long-term commitment of employees
2. Recognize continuous contribution to the organization's success
3. Maintain alignment with broader business goals and value creation

Voting Process and Timeline

The company has initiated a postal ballot through remote e-voting for shareholders to cast their votes on this proposal. The voting period is scheduled as follows:

Additional Details of the ESOS 2025

• Eligibility: The scheme covers employees working in India or outside India, directors (excluding promoters and independent directors), and employees of subsidiary companies.
• Vesting Period: Minimum of 1 year and maximum of 4 years from the date of grant.
• Exercise Period: Maximum of 5 years from the relevant vesting date.
• Implementation: The scheme will be implemented directly by the company and involves a new issue of equity shares.

Potential Impact on Share Capital

While the proposed amendment doesn't directly affect the company's share capital, it's worth noting that the ESOS 2025 allows for the issuance of up to 1,95,00,000 fully paid-up equity shares of ₹2 each.

Corporate Governance Considerations

The company has stated that none of the directors or key managerial personnel, including their relatives, are interested in the resolutions, except to the extent they may be lawfully granted options under the ESOS 2025.

STL Networks' move to modify its ESOS 2025 reflects a strategic approach to talent retention and performance alignment. As the e-voting process unfolds, shareholders will play a crucial role in determining the future structure of the company's employee stock option program.