HFCL Ltd
NSE:HFCL
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HFCL Ltd
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Ladies and gentlemen, good day, and welcome to Himachal Futuristic Communications Limited Q1 FY '23 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Agarwal from HFCL. Thank you, and over to you, sir.
Good morning, ladies and gentlemen. We welcome everyone to the Q1 FY '23 Earnings Call of HFCL Limited. I'm handing over the call to Mr. Mahendra Nahata, Managing Director.
Thank you, Amit. Ladies and gentlemen, good morning, everyone, and warm welcome to HFCL's Earnings Call of Q1 of FY '23. I truly appreciate and express my gratitude for making it to HFCL's earnings call for the first quarter of FY '23. I'm sure that you got a chance to go through our financial results, press release and investor presentation, which are available on the website of the company and also the stock exchanges.
Friends, you must have observed that the performance during the quarter under review is somewhat below our expectation. Revenue this quarter got impacted due to supply chain disruptions, including shortage of semiconductors and intermittent gap in supply of optical fiber, which is a critical raw material for manufacturing of optical fiber cables. Revenue was also impacted due to spillover of some of the milestone-based service billings on account of nonavailability of certain prerequisite infrastructure from the customer end.
One of the major reasons for low margins during the quarter was fulfillment of existing orders from customers at pre-committed prices despite significant increase in price of raw materials, such as semiconductors, fiber and [ HDPE ], et cetera. The increased logistics cost also impacted our margins. However, we see the revenue and margins to restore to targeted levels soon, with gradual increase in supply chain and improvement in sales realization with easing of our input cost pressures.
We are witnessing upward correction optical fiber cable prices by 6% to 7%. Similarly, the sale prices of telecom products is also shown upward movement in every new order being received by the company. Further, with required infrastructures being made available, the unbilled revenue will also start getting converted into revenue in subsequent quarters of the current financial year.
With these positive changes coupled with vast opportunity landscape, positioning of the company, initiative taken to enhance product portfolio, ongoing optical fiber cable and optical fiber capacity expansion and creation of new capacities for telecom and defense products, we expect improved and much robust performance on quarter-to-quarter basis. Our growth strategy is right on track, with strongly built foundation that will ensure consistent performance in time to come.
Financial year '23 will be revolutionary year here for the entire telecom industry in India. There is a boost in demand because of government initiatives like upcoming 5G product auction, 5G spectrum auction, promoting design-led manufacturing and suitable modifications in PLI scheme, first on CapEx in union budget, continued network expansion under BharatNet and National Highway projects and approval of 5 megahertz 4G spectrum for Indian Railways. All these initiatives will lead to opportunities for us.
As per TRAI, the economy impact generated by rapid adoption of 5G wave is estimated to reach to USD 1 trillion by 2035. India's largest ever 5G spectrum auctions by the end of this month will be a big push for our business. The domestic optical fiber cable environment continues to be strong. And with the current market demand of optical fiber products, optical fiber cable at 35 million to 40 million fiber kilometers per annum is expected to grow significantly in next 3 years on account of higher deployment of optical fiber cable for 5G networks, increase in fiber-to-home deployment and expected start of BharatNet project, which will lead to all villages of the country being connected by optical fiber cable. There is tremendous opportunity in global markets as well.
We have witnessed that the governments of leading economies, including U.S., U.K., Germany and Europe are investing heavily on building robust fiber connectivity for deployment of 5G networks and fiber-to-home networks. The global market demand of optical fiber cable is about 500 million fiber kilometer per annum, and it is estimated to grow to 1,000 million fiber kilometer per annum over the next 5 years.
In India, BharatNet alone will lead to an opportunity of laying [ 16 ] lakh kilometers of optical fiber cable, translating in almost [ 50 ] million fiber kilometers. We also see immense opportunities for telecom and networking products across the world, especially in markets like Europe and U.S. We have identified Europe and U.S. to be the key markets of focus on further deepening our global footprint. We already have our employees in Middle East, France, Germany, U.K. and U.S.A. to reach out to the customers. We are also appointing distributors and agents in several other countries to further deepen our customer reach.
Friends, this will -- year will be a major increase in our exports, with increase by 2.5x than the last financial year. We export optic fiber cables and telecom products to 30-plus countries, serving 80-plus clients globally. We aim to build our global customer relations and also export footprint expeditiously over next 3 years and emerge as a large grower player in the space. We already have our core leadership in place for global markets and will further strengthen the global team with recruitment of sales and marketing talent.
During quarter 1 of FY '23, our exports increased by 167% compared to the corresponding quarter of the previous financial year. Innovation and R&D is our backbone to build a futuristic product portfolio, and we have heavily invested in the same to meet accelerated rate of fiberization, 5G product demand and also tap opportunities in defense and railways. It has been company's strategy to consistently increase revenue from products.
You'll be glad to know that in the first quarter of the year, our revenue from products has been 59% of our revenue, which was only 43% in the financial year of 2022. Increase in product revenue will need less working capital and, of course, quick realization of revenue. Your company is making robust progress in the path of becoming a strong technology-driven product company. Our own R&D centers in Bangalore and Gurgaon, together with our partnership in engineering companies like Wipro and Capgemini and our invested companies are designing latest generation telecom products for us.
These products include radio access network products for 5G, routers, switches, backhaul radios, Wi-Fi access points and software-defined radios. All these products are not only having large demand opportunities in India, but worldwide also. Our lower cost base and control on technology will help us in getting good market share in India and abroad. The demand of company's telecom products is also expected to be robust. We expect to increase our revenue from our own designed telecom products 100% during the current year, and this will keep on going upwards in the upcoming financial years.
You'll be glad to know that in the current financial year, we have started exporting our designed telecom products also. We have already started -- exported these to U.S.A., U.K. and Africa, though in a smaller quantities right now, but these quantities are expected to increase to a much higher level in the coming quarters. Orders have also been received from Sweden, South Africa and Russia also.
In fiber optic cable business also, we are designing new products constantly. We are opening new technology development center in the United States, apart from our own R&D center for cable and fiber in Hyderabad. We have already received approval from Telcordia in U.S.A. for our optical fiber and optical fiber cable, which will help us in exporting of optical fiber cable to U.S. market. We're also expanding our defense product portfolio with completion of design of software-defined radio during the current year. Our defense product portfolio will also get enhanced from current portfolio of electronic usage and optoelectronics.
The PLI schemes announced by government of India is also going to give boost to domestic manufacturing and attract large investments across announced sectors, including telecom. The [ restrained ] amendments related to extended time line and additional incentive aims towards incentivizing design-led manufacturing in the center will have a very positive impact on our competitiveness and profitability.
Financial year '23 will be a year of transformation for HFCL as well as we will focus on building our capabilities across all businesses and improving our organizational capability. We'll continue to build our organization for sustainable profitable growth and leveraging on the upcoming opportunities in telecom, defense and railways.
Our mission is to transform as a technology-driven enterprise that innovates and manufactures for both domestic and global markets, and we aim to become a multinational players in cable and telecom and networking products. Our strategic priorities are capacity expansion, product expansion with clear focus on margin-accretive products and expanding our global footprint.
This part also marked with HFCL [ securing ] regular purchase orders from our market customers. Anticipating the huge demand in India and globally, we are undergoing capacity expansion both for optical fiber and optical fiber cables. On completion of our ongoing capacity expansion program, our optical fiber cable capacity will increase to 34.7 million fiber kilometer from the current capacity of 24.7 million fiber kilometer per year. And optical fiber capacity will increase from 10 million fiber kilometers to 22 million fiber kilometer on annualized basis.
The phased capacity expansion will increase competitiveness, help reduce operating costs and increase margins and profitability. Our priority of product expansion is clear focus on margin-accretive products will lead to -- has led to share of products rise from 43% during FY '22 to 59% in quarter 1 of FY '23. This shift will continue with margin-accretive products followed by expanded capacity of optical fiber, optical fiber cable and FTTH segment and development of new products in telecom and defense segment.
Friends, let me now brief you on key performance metrics of quarter 1 of FY '23. Revenue in quarter 1 of FY '23 stood at INR 1,051 crores as compared to INR 1,183 crores in Q4 of FY '22 and INR 1,207 crores in Q1 of FY '22. EBITDA for the quarter stood at INR 130 crores as compared to INR 150 crores in quarter 4 of FY '22 and INR 191 crores in quarter 1 of FY '22. EBITDA margin stands at 12.37% for quarter 1 as compared to 13.02% of quarter 4 of FY '22 and stood at 15.82% in quarter 1 of FY '22.
Quarter 1 FY '23 profit after tax stands at INR 53 crores as compared to INR 68 crores of quarter 4 FY '22 and INR 91 crores in quarter 1 of FY '22. PAT margin stands at 5.04% in quarter 1 as compared to 5.75% in quarter 4 and 7.5% in quarter 1 of FY '22. Segment revenue from telecom products during the quarter stood at INR 620 crores, that is 59% of our revenue as compared to INR 585 crores, that is 49% of quarter 4 FY '22 revenue.
Finally, I would like to reiterate our business priorities for upcoming quarters. We aim to continue our strategic priorities related to business transformation, with focus on capacity expansion, expansion of product portfolio in telecom, defense and railways, focus on margin-accretive products and expanding global markets, backed by investments in innovation and R&D.
Financial year '22, '23 will transform HFCL, ensuring sustainable growth in revenue and profitability. We are already witnessing product inquiries from our customers. We leverage our core strength in new product design and strong customer relations as we plan to capitalize on the vast business opportunities present both in India and globally.
Thank you once again for your keen participation. With this, I conclude my opening remarks and open the floor for Q&A session. Thank you.
[Operator Instructions]. The first question is from the line of Hardik Vyas from ET Wealth.
Can you hear me?
Yes. Please proceed.
Okay. Sir, I would like to know how have been the optic fiber prices for the quarter and the delta between the fiber prices and OFC for the quarter? Have they...
Hardik, your voice is not clear. Can you repeat your question?
I would -- Mr. Vyas, I would request you to speak on the handset, rather than a headset.
Sir, is this clear, clearer?
Better.
Sir, what are the optic fiber prices for the quarter? And how has been the delta between optic fiber and optic fiber cable prices for the quarter?
Hardik, optical fiber prices currently hovers around INR 425 to INR 450 per fiber kilometer. In fact, they have risen sharply from the last financial year, and -- but now seems to be stabilizing, that I don't foresee any further increase in the prices. They seem to be stabilizing...
Has the optic fiber cable prices also moved up in tandem with them?
Yes, I'm coming to that. I'm coming to that. Optical fiber cable prices, if you look at, in our case, it may vary from manufacturer to manufacturer and depending upon composition of cable, how, what kind of cable people manufacture. So it is around INR 1,000 per fiber kilometer as against what used to be about INR 880 per fiber kilometer in the quarter 1 of the last financial year.
Okay. Okay. So the upward movement has been more or less the same in percentage terms for both optic fiber and fiber cable?
No, fiber has been much higher, much higher.
Much higher. Okay. That has been hampering our margins?
Yes, because first of all last year we used to purchase even at INR 260, INR 270 fiber kilometers, which has gone up to INR 425 to INR 450. So that increase has been much higher and not only that, prices of plastics also increased significantly, which is the second highest raw material required for manufacturing, cable, HDPE, LDPE, PBT. All this also increased significantly with increase in the coal prices. But again, these also started coming down now. They are seeing a downward trend. So that is also a positive factor.
So that positive factor side, look, one, fiber prices have stabilized. Cable prices have now gone up because increase or decrease in the prices of a finished product follows 2 or 3 months later than the increase or decrease in the prices of raw materials. So now the cable prices from the last quarter to this quarter, current quarter, I'm talking about ongoing quarter, that increased by 6% to 7%. So what I'm saying this 1,000 would be 6% or 7% better in the current quarter. They have already started showing increase. So they are following now. And HDPE and all these prices have also started coming down. So this quarter is expected to be better.
This quarter and going forward, it is expected to be better. Okay.
Absolutely. Absolutely.
My second question is, we have -- we are staring at a huge opportunity in terms of 5G. The spectrum auctions are slated to happen very soon and -- tomorrow, yes. So what my question was ex the spectrum fees for the telcos, what kind of opportunities are -- what kind of size are we looking at for the orders flowing in from the telcos and other things for 5G?
Look, auctions are happening tomorrow. And I think government has given good payment plan to the operators. Prices may seem to be a bit higher, but the payments are to be waiting 16 years. So if somebody buys 1 gigahertz of millimeter band and 100 megawatts of mid-band, which is almost, I think, the maximum allowed, maybe a little bit more, people will pay about INR 40,000 crores. Now INR 40,000 crores is paid in 16 years, so there would not be stress on the cash flow of the telcos as much.
However, network expansion is going to happen, and they will have to invest on CapEx. And with the investment in CapEx, I expect that the products, which we are having and which we are having under design and which are expected to be in the market in the current financial year, we would see a very good demand opportunity.
I'll tell you which segment. One, fiber optic cable. With 5G network, more and more base stations, the towers, which you see, are to be connected over fiber optic cable because the higher throughput due to the microwave radios would be less, use of fiber optic cable would be much more, and therefore, the capacity of the fiber optic network has to increase manyfold. So that would see a huge demand opportunity in fiber optic cable, and advantage that we have almost 50% market share in the company -- in the country, 5G of 50%.
So this increase in demand, a large portion of this, I believe, will be available to HFCL and that would be a major boost to our fiber optic cable business, wherein, wherein we have been increasing our revenues consistently over the year. And this current year also, we foresee increase in our revenue in fiber optic cable segment significantly. I think last year, it was, if I'm not wrong, it was about INR 1,700 crores in the last financial year, which we expect to increase to roughly about INR 2,300 crores. So last year, from INR 1,780 crores will increase to INR 2,300 crores in the current financial year.
However, that portion of this increase will come from the export market also because we see significant increase in export in our fiber optic cable business, again, because of 5G, which is happening not only in India, but have been happening worldwide. So one is the fiber optic cable. Second is the 5G products, which we are designing, which includes a radio access network, which includes routers, which includes switches, which are required not only for 5G, but other areas also.
There, again, as we have seen in our Wi-Fi and backhaul radio business, where we've got significant demand from domestic operators, we have foreseen significant demand from domestic operators for 5G products also. So this is going to be a great year in terms of demand opportunities of product, which we are manufacturing and which we are designing.
It to translate to an opportunity in terms of revenues for us immediately as and when the auctions happen and from the second half of the current financial year or for the next financial year?
Look, I would not like to give any forecast or any guidance in terms of that. But I think revenue -- sorry, order to be received would be reasonably large in number, reasonably large in number.
But that would be more or less in a year or 2, right? Or would it be very much in the future as in 3 years, 4-year status...
No, it would start from now, and it will continue over the years because network expansion does not happen in a year. It continues. Like 4G network started in 2011, '12, and it is getting expanded even now in 10 years. So this network expansion will keep on happening. So I don't see any dearth of demand for next 5 years to come, either 5G or FTTH. Some or other form of network expansion will keep on happening.
Okay. And sir, my last question is on our defense product portfolio. How is that coming along? And when do we feel that, that will translate to revenues and also for other telecom products, other than Wi-Fi and routers?
Look, one, in terms of defense, as you know, defense takes a longer time because the testing processes and all, they are so long. So I see -- as I've been constantly telling, I don't see any larger revenue coming from defense in the current financial year. We start -- we think they will start from the next financial year, not in the current financial year because defense processes and procedures are very, very long.
In terms of other products, which we -- I've described just now, 5G and all that, that I believe that from the last quarter of the current financial year and starting from the -- in a big way in the next financial year, it will start flowing in.
Okay. Okay, sir. Okay. And sir, could I get the breakup of our order book in terms of optic fiber, exports and services?
Yes. Just give me 1 moment. 1 moment. Our total order book is about INR 5,858 crores, out of which optical fiber cable is around INR 800 crores. But mind you, in optical fiber cable, we keep on -- no, sorry, it's not INR 800 crores. It's INR 974 crores, sorry, INR 974 crores. And we keep on receiving orders for fiber optic cables. We keep on receiving orders. So it's not going to be that it's INR 974 crores for the whole year. We keep on receiving -- while there is supply, we keep on receiving orders.
Defense network, which you are laying down, is about INR 2,300 crores. Then the projects, which we have undertaken for execution, for Jio, majorly Jio about INR 1,000 crores. And then some products are from railways, which is about -- which includes products and installation commissioning of them, and certain other telecom products, which we are manufacturing, all put together will be roughly about INR 500 crores.
And BharatNet, which we are doing, and certain miscellaneous is about INR 500 crores. So this all put together is INR 5,304 crores.
The next question is from the line of Pranav Kshatriya from Edelweiss.
I have 3 questions...
Mr. Kshatriya, I would request you to use your handset. You're not audible. There is a static from your line.
Okay. I would just want to know how the margins and [indiscernible] product and...
You're not audible, Mr. Kshatriya. Mr. Kshatriya, you are not audible.
[indiscernible] quarter or a last year and how [indiscernible] going forward. So you did talk about some of the cost pressure easing and the prices for the end product decreasing. So can you tell us that -- how do you see the margin going forward for [indiscernible]. Will the margin improvement will be gradual...
Mr. Kshatriya, we couldn't hear you at all.
Operator, I just -- you know, I could follow what Mr. Kshatriya was asking, somewhat, somewhat. Pranav, your line was very, very bad. So whatever I can understand, whatever I've understood from you, I would try my best to reply.
Our EBITDA margin in the current quarter has been 12.37%. Now with increase in the prices of our sales realization and some decrease in the cost, I think our EBITDA margin should go up by about anywhere around 3% and 4% in the coming quarters, 3% to 4% will be going up. And this will be happening with the increase in the product prices and also a decrease in the cost part. So in the product segment of our business, I expect 3% to 4% increase in our EBITDA margins going forward.
Okay. Sir, I also wanted to understand how the export contribution increased quite dramatically, which countries, which orders, or what exactly is contributing it and how sustainable is this? Where do you see export contribution you actually said?
Yes. Export, majorly -- you'll be glad to know that we are exporting quite a bit to all good economies and developed countries. This speaks of the product quality we do. In fiber optic cable, which is a major export revenue, because the product revenue has just started showing in the current quarter, we export to Middle East, which includes Dubai, Oman, such kind of country. We export to France, Germany, United Kingdom and some other -- several other countries, but these are some of the countries, Portugal, these are some of the countries I'm trying to mention. And we have now received approval from United States also, so we will be starting our export there also.
Our last year, we exported about INR 300 crores of -- had INR 300 crores export. This year, we are looking at making it at least INR 750 crores, at least INR 750 crores, which is going to increase further in the coming years. We are putting a huge importance on the export of our products. So this year, it will not only be fiber optic cable, but it would be our products also. Product also, we have started creating infrastructure for sales and marketing in Europe right now and recruiting a couple of people and putting up agents and distributors for certain products, like Wi-Fi and all that, they are sold by agents and distributors also in some other countries.
So we see a good opportunity for fiber optic cable and our products also. In terms of products, as I mentioned, in a small way we have started, we have started exporting to several countries, which I mentioned during my opening remarks, and this will further get strengthened in the next coming quarters, the increase in the revenue. Export, the places we have undertaken U.S.A., U.K., some in Africa. Orders are also there Sweden, South Africa, Russia for the product. And cable, as I mentioned, mainly to Europe and Middle East.
[Operator Instructions]. The next question is from the line of Sanjay Shah from KSA Securities.
It was very nice to hear your promising words and understanding about the telecom industry. So coming back to our portion of our company and growth trajectory, you have explained about the whole -- all the upcoming opportunities to us as a company and to the industry as a whole. We'd like to understand what are the challenges which you see -- foresee ahead? And how our company is going to outright that challenges and grow further from here?
Thanks, Sanjay Ji. Number one, as I said in my opening remarks, this quarter was an exceptional quarter in terms of increase in cost, which was contributed by increase in raw material costs, logistical cost, increase in -- depletion in value of rupee, which included further increase in raw material prices. And also, at the same point in time, non-billing of revenue because certain areas that customer was to create some infrastructure and then the milestone would have got completed, could not happen because it was a customer's fault that he could not create infrastructure, which is happening in the -- starting to happen this quarter.
So this all contributed for a lower performance in the last quarter. But this quarter onwards, as I mentioned, sales prices have started increasing. Costs have now stabilized, rather they have started declining. And as a result of that, next quarters are going to be better and better. So that is as far as the performance in the current quarter and the expected performance of the next 2 quarters.
Now the challenge, when we increase our capacity or fiber, fiber optic cable and also we have new products under design, which are getting completed, which would lead to require new markets, major challenge is, of course, to get new customers. Now challenge doesn't mean that is difficult. Challenge means that we have to work and create new customers in different markets. But I am pretty sure, like fiber optic cable you have seen, we almost increased our export by 2.5x last year. And this year, again, that increased base, we are going to increase by another 2.5x. Why it is happening? Because good product quality, timely delivery and good cost base.
Now same thing is going to happen in our telecom product portfolio also, which again, we have shown in Wi-Fi and backhaul radios. And in India, we've got the highest market share as an Indian company. We've got the highest market share as an Indian company, as a local manufacturer. So with this cost base, lower cost base, we will be able to find and our control of our technology, we'll be able to find good customers abroad also.
But it always remains a challenge to find customers to deliver quality as per their expectations and keep on fighting for the -- with the competition in terms of features and all that, that we are able to do with our own R&D because with own R&D, we can keep on upgrading our technology. If I was -- it was not our own R&D, then upgradation would not be possible.
I will give you an example, Wi-Fi. When we started Wi-Fi, it was based on Wi-Fi 5 standard, then came 6. So we are already producing 6. Now 7 is coming. We are already designing Wi-Fi 7. So challenge is mitigated by own R&D, better cost base and good marketing and sales infrastructure.
Yes, sir, it was really very great and helpful to understand. Sir, regarding -- as far as our export is concerned, the growth trajectory, which you have shown is very exciting. So can you explain us that how inroads we are doing and facing the competition from the Chinese and other more players? And how are our team lined up to -- and are we selling through distributors or we are selling directly to the customer? This will help us to understand the inroads into export.
Mr. Sanjay, first of all, Chinese competition has declined consistently and considerably. In India, for example, Chinese products are not allowed. U.S. has stopped buying Chinese products. Many European countries have stopped buying Chinese products. I was reading -- this is for a strategic reason because they -- all the countries expect Chinese use their telecom products for spying.
So I was reading one news article in CNN website, which they say that Chinese -- Huawei's telecom products were designed to interfere with a strategic nuclear arsenal communication of United States. You can imagine how serious it is. So worldwide in the equipment side, Chinese penetration has gone down. We can help European companies, the American companies and Indian companies because they were lowering prices, not because of competitiveness, but because of government support for other reasons, the defense kind of strategic reasons. So that competition has reduced considerably.
Number two, fiber optic cable business, there has been dumping duty imposed on Chinese vendors in Europe, which has also helped us because there is I think 22% dumping duty has been imposed on the Chinese vendors, which has also helped us because Chinese dumping of products for strategic reasons has been stopped by governments all over the world. So we don't have a problem with the Chinese at all. We are very able to successfully compete with the Chinese all over the world, and this restriction on Chinese equipment has helped considerably not only Indian companies, but companies abroad also.
So that was your question, sir, or any other question.
No, no, it was very well explained. Only the thing was our distribution done through dealer network or we are directly selling the product to the customer?
Both. It's both. It's both. We are selling directly to the operators. One of the very large operator, I cannot name like customer confidentiality, based in Europe, which has got worldwide operations. We got an order very recently, and we are working with several other customers directly. And some of the products are sold through distributors also because distributors have wider reach. So there are a number of countries, telcos buys from distributors also. The smaller telcos buy from distributors also. So we sell through distributors also. That increases our customer reach.
And we are, as I said -- for telecom products, like Wi-Fi and all this, which are sold in the common market, we are appointing distributors in all the places. And our employees, which we have recruited in England, for example, who would be taking care of Europe and MENA market, the focus is on appointment of distributors. So some products, they have wider reach distributors, rather than own sales people. So it's a mix of both.
That's great, sir. Wish you good luck and hopefully a very -- looking for a very exciting years ahead for HFCL, sir.
The next question is from the line of Neerav Dalal from MIB Maybank Securities India.
I had a couple of questions. First is, is there a difference between qualification for cables and telecom products? So what I was trying to understand is that is it faster to sell telecom products over -- in exports market or it is similar to what the optical fiber cable is done? So because what I understand is that the qualification process is slightly longer for the fiber and cables. Is it similar for telecom products, other telecom products? Or how should we look at that?
No, I think you should look at conversely. Cable would be a little easier than the equipment because cable is tested for large parameters, but equipment because -- its one instrument has hundreds of components, hundreds of components. So they are to be tested a little differently in the environmental test and optical test or the radio-related test. I would say component -- equipment side will be a little longer than cable. But more or less, there is not much of a difference, but equipment side, maybe, a little longer.
No, because what I was understanding -- so we are targeting the export markets through -- to distributors also. So that is the reason I was -- so is it same for -- we push cables and fiber also through distributors? Or how should one then look at it?
No, somewhat, some of our products are pushed through distributors also, fiber and cable, but they are already prequalified from the testing agencies. Not that every customer needs to own approval, that there are testing agencies, like I mentioned Telcordia. Now Telcordia approval is there. Now you can go to U.S. market and say, this is the Telcordia approval and not every customer would like to test it so on. Some of them may be, but not all of them.
Got that. Got that. And with regards to BharatNet Phase 2, any update on that? Anything in terms of tendering...
Look. Yes. What I understand, government has now decided to implement. It is EPC model, where contract would be given to larger parties to implement that network, including the supply of equipment. Now, whenever that happens, and I believe it's the Prime Minister has announced program very recently, last month in Bangalore also, DOT should come out with the tendering process soon. And this is, again, major, major opportunity for HFCL.
So CapEx targeted in 3 years' time frame is INR 80,000 crores. And in this segment of optical fiber cable, HFCL is the largest vendor in country. So I see a major demand opportunity for HFCL in BharatNet, whenever it happens, and it should happen soon because the Prime Minister has announced program. I mean the INR 80,000 crores CapEx, I won't get about the share which you will get, but it is going to be very significant and significantly adding company's revenue and profitability.
Got it. And third question is in terms of margins, do you see Phase 2 margins to be lower than Phase 1 or vice versa? And second question is between private and public, what would be the margin differential in terms of private and public? Because where I'm going to is that as our exports are increasing, as the private share of revenues is increasing, we have seen a decline in margins. Obviously, there is some inflation issue, but then could you comment on how do you see it?
Phase 1 and Phase 2, you mean to say BharatNet or something else?
Yes. Sorry, sorry, BharatNet.
Look, we cannot compare Phase 1 or Phase 2 as such, that how the margins would flow. That would completely depend upon a number of factors, what kind of tender, what kind of participants, what kind of products. So I won't compare Phase 1 or Phase 2 margins, but I am sure with the government's insistence on saying that they would only allow large players to participate in tenders, so as to implement the network properly and good quality.
Margins, I think, should be in a reasonable terms. But in government tenders, you can never expect margins to be very, very high because we are competing to get that. But it would be in a reasonable level without any doubt, number one. Number two, latest trends, which I have seen in private and public, private sector margins are tending to be better.
I tell you why. In telecom, in public sector, the buyer is BSNL and BSNL alone. And in fiber optic cable business, you will find there are 20 manufacturers and BSNL opens a door for everybody, so prices go down significantly. And we didn't even take any order from BSNL in the current financial year. We have not taken any order. In the last quarter when there was a tender, we did not take any order because the prices are going down significantly.
But that doesn't happen in the private sector because private sector doesn't open door for everybody. They believe in quality, they want quality, they want timely delivery and contributes to be supplied in time frame, which they require and some kind of specialized kind of cable, which everybody does not manufacture.
So of late, what I have seen private sector margins are better than the public sector margins. And export also, same trend is there. As I said in my opening remarks, prices between orders received in Q1 and what are being received in Q2, there is increase in prices by 6% to 7%. They are all from private sector.
The next question is from the line of Ankit Pande from Quant Money Managers.
Sir, if you could talk a little bit about the Reliance Jio order book kind of declining? Or is there not too much to read into it given it's been higher in the past for us?
Your question was what? Can you repeat the question?
The Jio order book, INR 1,000-odd crores that you indicated, is that kind of the low number?
It's almost -- It's not declining. It's not declining. It's almost constant, and we expect that orders from all operators. Why only Jio? All operators when the 5G starts, we have orders from all operators. And Jio orders are not declining. We're are constantly supplying to them. We are constantly supplying fiber optic cable. We are supplying unlicensed backhaul radios. We are doing installation, commissioning services for them, EPC services for them in the entire North India for fiber optic cable and FTTH.
And I believe whenever the 5G happens and whenever they buy, we've been a reliable and quality supplier, we expect them to keep on bestowing with better orders. Of course, we have to be qualified. We have to be qualified with good quality, and we have to have a reasonably good prices, competitive prices and which we have been maintaining with them since last 10 years, good quality, timely supply and competitive prices. And we should be able to do that in future also.
Great. Great. Great. Nice to hear that. Also on the continuing the theme, the 5G ordering cycle as such, have companies made inquiries of you? I would imagine there would have been some inquiries leading into the auction.
Well, as I said, our product offering for 5G would be coming around, I would say, October to December. And we will be approaching them. Now we will be starting approaching them. These are the products. These are the specification. And from then onwards, we will start having a serious discussion with them.
Okay, sir. Understood. And also, if you could -- just a couple of numbers. The CapEx for this year would be, what, the expectations would be, if you could clarify that? And if you could also give me the receivables and the inventory number, working capital number this quarter end?
Look, first question is CapEx, which is going to be about INR 450 crores this year and next year put together for optical fiber and optical fiber cable expansion. This is not only this year, this year and next year. Expenditure on R&D is going to be about INR 150 crores in the current year.
Okay. Okay. And what would be the working capital numbers this quarter? That would be all from my side.
Working capital numbers means, can you clarify what do you mean by that?
I mean, inventories, receivables, any components of the...
Okay. Receivable is 170 days. 170 days is receivable right now. And inventory is about 50 days inventory.
Okay. And nothing -- no significant movement from the March numbers as such?
Look, if you look at the number of receivable days, it has gone down. If you look at the numbers of the same quarter last year, it was 195 days. It has gone down to 174 days now. And inventory, again, hovers around the same, sometimes 45, for some time 57, 40. It all depends upon situation to situation.
Great. Great. Very nice. And just a clarification. You mentioned about the European telecom operator with the global footprint. Does that order come in, in Q1? Or has it come in the last few days in Q2?
No, it has come in Q1 and Q2 both.
And Q2 both, okay. Okay. Do we expect a significant growth or it's still early days?
We expect significant growth not only from this player, from a number of other players also. This growth only I'm talking of increasing the export from 2.5x, what was INR 300 crores and I'm saying that we'll go back to [ 0.5x ]. And that trend has started from the Q1 itself. Of course, the profitability was less because of the reasons I have mentioned to you. But now the profitability is going to [indiscernible] order book is there. Order book for -- export order book for fiber optic cable is already building up.
Our problem right now is the capacity constraint, not the order book, and that is why we are increasing our capacity. That will increase our revenue and profitability both.
All the very best.
The next question is from the line of Chetan Shah from Jeet Capital.
Congratulations, sir, on a lovely set of numbers. Just month specific clarification. You mentioned that our margin can go up by 3% to 4%. Do you mean by company as a whole or you are talking export in specific, if you can give...
No, I say that 3% or 4% can go up in the product segment, product segment.
In the product segment, okay. Got it. Got it. Got it. And sir, my next question, which is broadly to -- I know you alluded very detail in my previous colleague's questions. But I'm just trying to understand, sir, if you look at it, our segmental revenue and the breakup, our EPC business side capital employed is increasing sequentially over the last 4, 5 quarters, but our revenue is more or less flat and actually declining. So could you just kindly help us know where are we building the capacity in terms of some future opportunity, one part is that.
Second, by end of August or so, we'll have a clarity on entire 5G auction. And then all the 3 private and 1 public player will start rolling this out in the next 12 to 15 months in a major geography across India. In terms of the size of an opportunity, I'm not asking HFCL in specific, but as an outsourcing opportunity from this telecom operator, what can this quantum or a number may be? And where you think our pie will be? That would be very helpful. Just to get a sense of opportunity in the next 2 years' time.
Okay. Now what I estimate is that expenditure for -- by telcos in 5G networks and also expansion of 4G networks also. So BSNL, for example, is now going to put 4G network. And then they will go to 5G also. So new 4G network, expansion of current 4G networks, that is also going to happen. Then the 5G networks by 3 private telcos and the fourth BSNL eventually. It's all going to lead into market opportunity or the demand increase in various segments of telecom, fiber optic cable to start with, then passive infrastructure. Passive infrastructure, tower, all, they would be requested to put everything else. Small cells because of the higher coverage required and the lower coverage of 5G because of higher [indiscernible].
Equipment for 5G, the equipment, which are common equipment for 4G, 5G like switches, routers, all these are required to have a massive marketing. Minimum expenditure, which I expect, this is my expectation in the 5G network in 4 to 5 years by Indian telcos, is going to be INR 300,000 crores. And our market share, I can't have a guess on that. But I think with the products we have, fiber optic cable where we have a dominant market share, we have a good market share in execution of services for the good clients.
We received orders very recently, and Jio, we are executing -- at all point of times we have been executing network for them since last 7, 8 years. We'll keep on doing that. Our positioning in cable execution and the products, like Wi-Fi, unlicensed band radio, I think we'll continue in the same manner for 5G products also. There's no reason why it should not be happening. So I believe with this good positioning and CapEx by telcos, HFCL will gain eventually, no doubt about that.
Got it. Sir, my question about that increasing in capital employed in EPC business, but the revenue is not reflecting that. If you could give us some idea on that, please?
Capital employed has not increased, but revenue has gone down in the last quarter because of the reason I explained you. [indiscernible] services could not be built. That was a part of it.
Got it. Got it. Sir, month last question from my side. This is more of a technical understanding and pardon my ignorance on that. I'm just trying to understand, sir, sir, once this 5G rollout happens, and I'm just fast forwarding 2 years from today, do you think that this Wi-Fi and Wi-Fi-related equipment network, which we are already working in terms of R&D side, can have a major upgrade required because in India, most of the routers and equipment for the Wi-Fi, which most of the people be it in our office or home and all are using for last 5, 6, 7 years. Does the need of replacement of this equipment also creates a very different set of opportunity or that is too much you think as of now for me? Sorry, I'm not a technical guy, so just trying...
I can tell you, you are asking a technical question. You may not be technical, but you are asking technical question, which is good. Look, 5G and Wi-Fi, they have different standards, which Wi-Fi has to upgrade and to be compatible with 5G. I have been telling in my previous interactions with the shareholders also and now again. Compatible standard with 5G is Wi-Fi 7. Till now, we are working on Wi-Fi 5 and Wi-Fi 6 now, but now 5G compatibility will be Wi-Fi 7. And we are already working on Wi-Fi 7 and very soon, Wi-Fi 7 products will be out.
Compatibility means that Wi-Fi has to match the throughput of 5G. The 4G throughput are lower, you needed Wi-Fi 6. If 5G throughput is higher, you'll need Wi-Fi 7. So we are already on Wi-Fi 7. Particularly, when you see that from outside 5G signal is coming, inside how it is to be distributed. It can be distributed by 5G small cell. It can also be distributed by Wi-Fi 7. So depending upon what kind of requirement. In a home kind of a requirement, one would use Wi-Fi 7. In the enterprise kind of requirement, you'll need higher throughput and all that, you would use small cells for 5G.
At HFCL, we are designing Wi-Fi 7. We are designing indoor small cells for 5G. We are also designing outdoor small cells for 5G. So all the products we are covering, whatever customer needs, we will be able to supply.
Sir, my last question on the export business. You said that will be 2.5x of our number eventually. And, sir, just to get a sense because China is now no more a very reliable customer for a lot of people in terms of the equipment and also in terms of the rollout. And if we look at the 2 large players, Tata and Reliance, both are saying that we will be likely competitor to roll out the telecom equipment itself over a period of time on a global side. Do you think that we will also be one of the beneficiary of that thing, if at all it happens on a larger and a bigger scale, the way Huawei did in last decade or so?
Look, Chinese, as I said, are getting restricted worldwide, very restricted because of the strategic reasons for their spying through telecom networks, as I said earlier to answer one of esteemed participant. So Chinese are declining because of the reason I explained. Now Tata and Reliance, of course, it is good that more indigenous vendors comes up, but the global demand is so big. Global demand is so big, so few other more number of players would not really matter at all. And the kind of numbers we are looking to ourselves INR 1,000 crores, even if you say INR 1,000 crores, what it is in terms of billions of dollars of global demand, it is neither here, nor there.
That is why I'm saying our export, we will be able to increase significantly in the coming years because the huge global demand of cable and other equipment. So our strong push on export is precisely for this reason. This is huge demand opportunity. And till now, we have not been present in the global market with that scale, still we were having good revenues. Now to further increase in revenues, we are not depending about the Indian market, we are increasing our business in the global market. And as you see, last year, we had a 2.5x increase. Now on that 2.5x increase, we are going to have further 2.5x increase in the current year.
The next question is from the line of Pratik Singhania from SageOne Investment Managers.
Sir, my question would be with respect to the [indiscernible] scenario, given the global demand and supply of...
Pratik, your voice is very echoing, so speak from the handset.
I would -- yes. Sir, we have lost the line of Mr. Pratik.
We will take the next participant, whose name is Ashit Koti, an individual investor.
With reference to our presentation, Slide #4 -- Page #4, where we are talking about public telecommunication, we are talking at 79% of revenue, defense communication is 19% and then railway communication is 2%. Vis-a-vis Page #8, now over there, we are talking about current order book as public telecommunication INR 1,519 crores, INR 2,354 crores and INR 381 crores. So if I try to correlate both of them, there's a bit of a confusion.
No, no. The difference is revenue and the orders. Orders keep on coming. So ratio between orders and revenue would always remain different. Order is what is happening now. Revenue is which has happened in the past. So there would always be difference, they can never match.
So does that mean that defense is now heading ahead of public telecommunication, defense communication and electronics?
Say that again?
Does that mean that defense is heading ahead of public telecommunication spends or the order book, why so?
Our order book would be more from the private operators. Moving forward, new orders coming would more be from private operators. Private operators, India and globally, not only India.
Okay. And sir, with regards to overall, our revenue mix, what we have shown is 59% as product and projects as 41%. Within that, if I want to break it up into exports, product exports, project exports and local, is that possible?
I shall say, give me 1 second. Export, yes, I can say -- just 1 sec, just 1 sec. Our export revenue has been INR 184 crores in the first quarter, which is the completed products, out of 1,051 of the total revenue.
Okay. And our margins are much better off in exports, vis-a-vis local? Or we are better off in local?
No, it's not like that. It's not like that. It's all becomes order to order, and in the first quarter, as I said, what impacted us more in exports in some cases because logistical costs went much higher in the export on the CIF orders because of the container prices become high -- freight become higher. So there was higher impact on exports than the local, whereas the containers and all these were not the issues.
And going forward, how much of that...
But now, of course, we have seen, as I said, 6% to 7% in the export prices in the current quarter.
Okay. And how much we are going to take the benefit of PLI?
So PLI, we will be taking significant benefit. We have applied, but we are applying again in the newly announced scheme, and we will be taking full benefit of PLI. The numbers I can't tell you at the moment because the next 4 or 5 years, but it would be a significant amount of benefits, significant amount.
And till now how much we have bid for in tendering system, government entering projects? What is our participation in terms of value?
We have bid in the defense sector. Defense sector we have been. Then a couple of -- yes, majorly in defense sector. There is no bid in the public -- government telcos, there's no bid spending. I think maybe one bid is there in the BSNL, one bid for some router or something is there, but not...
In value terms. In value terms, sir?
Value? How the heck tell you value for the bid we have put.
I mean, we have bid for INR 5,000 crores, INR 10,000 crores, INR 2,000 crores?
Yes, it may be in the vicinity of -- what defense tenders could be in the vicinity of something like INR 5,000 crores or more. And yes, something like that you can say total.
Okay. And sir, with regards to fiber optic cables, Sterlite Technology and some other players, [indiscernible], where do they stand in terms of competition with our company?
Well, how the heck can I talk about competitor? I respect all the competitors. I respect all of them, and they also are good people, good companies, good quality, good competitors, and we respect them.
But we are way ahead in terms of our share of the market.
Domestically, yes. Domestically, yes.
The next question is from the line of Pratik Singhania from SageOne Investment Managers.
Am I clear now?
Yes, yes, you are right.
Sir, my question was with respect to near-term pricing based on the global demand and supply of fiber capacities because what I hear is China is not adding capacity. Prysmian and Corning's capacity has been fully booked for next 2, 3 years. So -- and because like your capacity would also take some time. So what is your sense on the pricing in the near term, say, around 6 to 8 months?
I think prices are going to remain same, it's not only increase, and people are adding capacity in China also. Why they are not, they are adding capacity. I think everyone is adding capacity in fiber. Not that they are not adding. Everyone is adding. And Corning, Prysmian, I don't know because Corning actually don't talk about their capacities. But in China, people are adding capacities. We are adding capacities. India and other Indian vendors, I don't know, but they must also be adding, Starlite and [ VTL ], they must also be adding capacities because capacity on fiber is being added because the demand of fiber is expected to increase in the next 5 years. In our estimation this 500 million will go to almost 1,000 million in the next 5 years.
The price, I think, is think going to hover around this currently global market price is roughly about $5 -- about $5, which is going to remain around the same. It had gone up to 5.2. And then it's depending upon manufacturing to manufactured time between 5 and 5.2 what is right now.
Okay. And sir, in the PLI scheme, of course, like you won't be able to share the exact detail. But most of the companies that we have seen that whatever is the CapEx amount, at least that they are able to recoup over next 5 years after the investment is made. So would that be a ballpark case for us?
That should be a ballpark case, yes.
[Operator Instructions]. The next question is from the line of Saket Kapoor from Kapoor & Company.
Yes. [Foreign Language] And just to sum up of what you have spoken in elaborate, just to make some good sense and correct me, this is one-off quarter, in which the impact of higher input cost in terms of logistics has played its part in lower margins. And also, with some disturbance at our client end, some deliverables, which were scheduled for this quarter will spill over to the next quarter. And going forward, we are seeing...
You are right, Mr. Kapoor. You basically summarized what I said in my presentation and question, answer. You are right.
Yes. Yes, sir. I was just trying to make good sense of that. Sir, when you spoke about the turnover for OFC cable looking at around INR 2,300 crores for this year, what have been the OFC contribution for the first quarter? OFC sales?
First quarter as in -- yes, revenue should be around, let me just -- I think it was over INR 500 crores, if I'm not wrong. It's around INR 500 crores.
Around INR 500 crores. So this is like...
INR 530 crores to be precise.
INR 530 crores. So it should be in this vicinity of INR 500 crores to INR 600 crores for the remaining quarters to reach INR 2,300 crores. That should be an adjusted number.
You can say that. Yes.
Sir, when we look at the purchase of stock and trade component, that has gone up...
One question at a time. Let others join and you can come back.
Sir, I was in the for a long time, [Foreign Language]. I'd come in the queue, sir. Just a purchase of stock and trade part component has gone up considerably for this quarter and commensurate to the turnover, if you could explain the same, and I'm coming in the queue. Thank you for all the detailed answer. It's a pleasure to hear in this call, sir, then to ask questions.
So Saket, purchase of stock and trade is nothing, but the outsourced materials, which are procured for execution of various contracts in hand. The fiber cable, we are manufacturing to wherever cable is required, that is in-house supply. But other than cable, lot of materials are being outsourced.
As that was the last question for today, I would now like to hand the conference over to Mr. Mahendra Nahata for closing comments.
Thank you, gentlemen. Thanks a lot for your keen interest in HFCL and making yourself time available for this conference, and I express my gratitude, and I can assure you, company is in good trajectory of progress with this increase in capacities, increase in product range and increase in customers, new customers, new products, new geographies. All 3 are happening at the same point of time.
And I'm sure coming quarters would be -- performance of the company would be in the expected trajectory, which we had planned for ourselves. And the pressures, which came in the quarter 1 are no longer there visible. So there should be improved performance in the coming quarters by the company.
Thank you very much. Thanks a lot for being with us. Thanks a lot for your time.
Thank you. On behalf of Himachal Futuristic Communications Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.