HFCL Ltd
NSE:HFCL
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
66.45
161.61
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
C
|
C3.ai Inc
NYSE:AI
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
HFCL Ltd
Earnings Call Analysis
Q1-2025 Analysis
HFCL Ltd
HFCL has begun the current fiscal year amidst a global slowdown in the optical fiber cable (OFC) market, impacting its revenues. Still, management has deployed a proactive strategy by diversifying its offerings. In particular, revenue from telecom products is on track to surge from INR 143 crores last year to an impressive INR 2,000 crores this fiscal year. This shift is primarily driven by increased sales to private operators and Bharat Sanchar Nigam Limited (BSNL). The company foresees revenue growth between 25% to 30% for this fiscal year, despite the challenges facing the optical fiber market.
In Q1 FY '25, HFCL reported revenues of INR 1,158 crores, slightly down from INR 1,326 crores in Q4 FY '24 but impressively up from INR 995 crores in Q1 FY '24. The EBITDA for this quarter stood at INR 185 crores, which corresponds to a margin of 16%—demonstrating resilience as compared to margins of 15.78% in Q4 FY '24. Notably, the profit after tax has seen a modest increase, reaching INR 111 crores, yielding a PAT margin of 9.55%.
HFCL is keenly advancing its defense segment, particularly electronic fuzes. Although the company is awaiting domestic tenders, it aims to secure export orders soon. Furthermore, new product initiatives, such as AI-powered networking solutions and optical fiber cables tailored for data centers, signify progressive diversification aimed at reassuring growth amidst market fluctuations.
The anticipated BharatNet Phase III project, which allocates approximately INR 60,000 crores of government funding, presents a lucrative opportunity for HFCL. As the company endeavors to provide end-to-end solutions in this space, it expects to capture significant market share due to its robust manufacturing capabilities. The company also stands to benefit from a production-linked incentive (PLI) program, anticipating approximately INR 650 crores, starting in the current fiscal year, enhancing its competitive landscape.
HFCL's current capacity for fiber production is projected to double from 12 million fiber kilometers to 25 million. While production levels have dipped due to the slowdown in demand, the management is optimistic that demand will stabilize by Q3 of FY '25. They have also noted that operational efficacy will be enhanced by a potential establishment of an in-house preform plant, subject to economic viability assessments.
Looking ahead, HFCL's management projects a favorable outlook fueled by their expanded product array, ongoing R&D initiatives, and strong order book of INR 6,776 crores. While the company expects profitability margins between 8-10%, they recognize strategic flexibilities may allow for adjustments based on market conditions. Emphasizing operational governance, HFCL remains committed to ESG (Environmental, Social, and Governance) principals, demonstrating their commitment to sustainable corporate practices.
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to Q1 FY '25 results conference call of HFCL Limited hosted by ICICI Securities.
Before we begin, I will also like to read the disclaimer statement. Statements made during this call may be forward-looking in nature based on management's current beliefs and expectations. They must be viewed in relation to the risk that HFCL's business faces that could cause its future results, performance or achievements to differ significantly from what is expressed or implied by such forward-looking statements. Investors are therefore requested to check the information independently before making any investment or other decisions. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Mohit Lohia. Thank you, and over to you, sir.
Yes. Hi, good afternoon, everyone. Thank you, Sumit, and thank you for joining us today for Q1 FY '25 earnings call of HFCL Limited. First of all, I would like to thank management for giving us opportunity to host this call.
From the management side, we have Mr. Mahendra Nahata, Promoter and Managing Director; Mr. Vijay Raj Jain, Chief Financial Officer; Mr. Manoj Baid, Company Secretary; and Mr. Amit Agarwal, Head of Investor Relations.
So without further delay, I would now hand over the call to Mr. Mahendra Nahata for opening remarks. Thank you, and over to you, sir.
Thanks, Mohit, and good evening, ladies and gentlemen. I'm delighted to welcome you all to HFCL's earning call for the first quarter of financial year '25. I trust that you got a chance to go through our financial results, press release and earning presentation, which are all available on the website of the company and also on the website of stock exchanges.
For achieving the vision of Viksit Bharat by 2047, technology and the telecom sector are [ poised ] to play a vital role. The growing demand of reliable high-speed internet connectivity, increased smartphone adoption, 5G network expansion, hyperscaling of data centers, advancement in artificial intelligence and machine learning promises large opportunities, both in domestic and global markets. Implementation of Fiber to Home globally, BharatNet Phase III and the PLI scheme, alongside initiatives for promoting semiconductor manufacturing in India, will fuel long-term growth and encourage indigenous manufacturing.
In last few years, HFCL has relentlessly focused on R&D and innovation. The company has entered into strategic partnerships with global tech giants and also invested in enhancing capacities and capabilities, thereby making your company future ready.
Our comprehensive new cutting edge products, such as first Indian [ IPR ] owned and made in India, 5G fixed wireless access customer premises equipment, unlicensed band backhaul radios, switches, MPLS routers, open source Wi-Fi 7 access points, new-generation defense products such as electronic fuzes, thermal weapon sights for assault rifles, light machine guns and rocket launchers, grounds and coastal surveillance radars for various range and applications, Ti cores for thermal sights, next-generation optical fiber and optical fiber cable, amongst others, will drive sustainable and profitable growth. We strongly believe that our investment in R&D leading to innovative telecom and defense products, coupled with global expansion, will reap dividends in near future.
Having ended FY '24 at a pivotal note, we have commenced the current fiscal with a significant positive decision from European Commission. In a landmark verdict on 14 June, 2024, the European Commission has decided not to impose anti-dumping duty on optical fiber cables manufactured by HFCL and its subsidiary, HTL, whereas provisional anti-dumping duty has already been imposed on all other Indian optical fiber cable manufacturers. This significant verdict by European Commission places HFCL in a formidable position to tap growth opportunities in European market and this also speaks of fair business practices followed by HFCL.
The demand for our designed communication equipment has also shown strong growth. We are witnessing strong demand for 5G fixed wireless access customer premises equipment, which presents an important use case for telecom operators for enhanced revenue from 5G networks. HFCL has developed biggest made-in-India fixed wireless access customer premise equipment variants to meet diverse country-specific needs, positioning it to supply both to domestic and international markets. HFCL has already received an order worth INR 623 crores for this equipment.
Friends, HFCL has made remarkable advancements in wireless technology by designing new generation point-to-point, unlicensed band backhaul radios. HFCL has developed radios that can transmit data much faster than traditional methods in unlicensed frequencies, reaching speeds up to 4 gigabits per second already, with plans to hit 4 gigabits per second soon.
These systems can maintain speed over distances ranging from 10 kilometers to 20 kilometers. HFCL's UBRs are also more affordable compared to competing technologies like E-band radios and traditional microwave radios, making them a product of choice for telecom operators for backhauling their traffic of 4G and 5G networks.
These radios are also being used extensively for highly reliable enterprise connectivity. Our UBRs have tackled the challenge of interference in unlicensed bands with smart algorithms that cancel out noise, ensuring that mobile calls and data stay clear even in noisy wireless environments. Apart from being of lower cost, our UBRs also save significant spectrum cost for telecom operators by operating over long distances at significantly high data rates in unlicensed bands.
HFCL has become the largest supplier of UBRs in India and one of the prominent global suppliers, having delivered over 5 lakhs units globally. HFCL now dominates over 70% of the UBR market in India. Major private telecom companies have already installed over one lakh radios in just last 1 year itself to handle their 5G network traffic.
Bharat Sanchar Nigam Limited has also placed order for 30,000 of these radios on HFCL to backhaul their 4G network traffic. The BSNL radios are currently under installation. With HFCL's innovation in UBRs, the telecom operators are now able to provide high-speed, reliable wireless connectivity at lower CapEx and OpEx. HFCL expects large opportunities from this product in near future.
HFCL is now also developing point-to-multipoint unlicensed band radios which will have even higher market opportunity globally. With the introduction of new products and markets, our revenue from Telecom Equipment segment is expected to rise substantially. We expect the revenue from this segment during financial year '25 to reach approximately INR 2,000 crores from just INR 143 crores in financial year '24. I'm happy to share that during first quarter itself, the company has already achieved a revenue of [ this ] INR 401 crores from the sale of telecom and networking products.
As the transition to 5G continues and newer technological standards gain traction, global telcos are [ predicted ] to invest USD 342 billion in their networks in 2027 alone, according to PwC report. This kind of large CapEx will support HFCL's effort to get higher revenue.
In addition to the continued focus on the traditional telcos market, HFCL has also put strong focus on enterprise market. A dedicated sales organization has been created to serve enterprise customers, which includes bank, hospital industry, educational institutions and other bulk consumers of such equipment. As part of our strategy to deeply engage with both these segments, that is Telcos and Enterprises, we are constantly working to add new products and cutting edge technologies like artificial intelligence to our existing portfolio products with rigorous R&D initiatives.
On the defense side, India's defense exports have reached an all-time high to INR 21,000 crores in financial year '24. Our honorable Prime Minister has declared his intent of making India a net exporter of defense products over next 5 years. The focus on indigenization of defense products is creating significant opportunities for Indian companies like HFCL.
HFCL is extensively working on development of defense products for domestic and global markets. We have introduced a comprehensive range of defense products, both for domestic and global markets. The domestic market size alone for HFCL's current products is expected to be in excess of USD 25 billion in the next 6 to 7 years.
Our comprehensive defense portfolio products include different types of electronic fuzes, thermal weapon sights, Ti core for thermal sights, ground and coastal surveillance radars for various range and applications, high-capacity radio relay, among others. Our electronic fuzes for artillery ammunition have already undergone extensive trials and testing. HFCL has already started receiving inquiries from several countries, and discussions are underway for export of these fuzes. We are confident to build sizable order book of export for electronic fuzes during the current fiscal year.
HFCL has also participated in tenders for thermal weapon sights for assault rifles with its indigenously developed products. These products are currently in various stage of trials. Inquiries have also been received from international markets for these products.
We are pleased to share that inquiries have also been received for development of technologically highly advanced components of defense equipment related subsystems from globally renowned companies. This shows confidence of such companies in our capability to develop advanced technologies. Quotations have already been submitted against these inquiries.
HFCL, through its subsidiary, Raddef Private Limited, has been at the forefront of designing and developing a range of cutting edge surveillance radars to meet diverse operational needs. Raddef has specialization in development of advanced radars and RF solution. It has developed ground and coastal surveillance radars using frequency modulated continuous wave technology. This technology offers numerous advantages, including high accuracy, low power consumption, less weight and resistance interference, making our radars highly reliable and efficient.
Our surveillance radars have undergone extensive trials. They have participated in RFP issued by ISRO for their coastal surveillance radars requirement. Recently, senior officers of Indian Navy visited our R&D facility in Bangalore and expressed their appreciation for the progress we have made in development of coastal surveillance radars. This acknowledgement itself is a testament to the quality and reliability of our technology. Our ground surveillance radars are also under trial by the army, paramilitary forces and border security force.
Our drone detection radar is also in advanced stage of development. Its field trial is expected to start by the end of quarter 2 of FY '25. As already informed, HFCL has successfully cleared the User Trial Readiness Review for the Armament Upgradation Project of the Indian Army's BMP-2 Infantry Combat Vehicles. The RFP for this project is expected soon.
The Wire Harness business unit of HTL, [ a ] subsidiary company, has been consistently performing well by supplying harnesses for power distribution units, auxiliary power supply units and wire harness assemblies for various defense programs, like fighter aircrafts, battle tanks, armored personal carriers, missile launchers, towed gun systems, military radar systems and military communication systems.
Friends, optical fiber and optical fiber cable business remains substantial and important part of our company's business. Presently, the global optical fiber cable market is going through a relatively slowdown phase. Geopolitical situation throughout the world and its impact on important aspects of business, that is cost of raising capital, cost of logistics, large inventory build with operators, and delay in major government-funded programs, have resulted in this temporary slowdown.
Global operators have delayed their plans of expansion, waiting for the situation to get better. It is expected that globally, optical fiber cable market will start witnessing growth again from the last quarter of financial year 2024-'25.
HFCL has taken steps to offset this slowdown by increasing its business and market share from passive connectivity solutions for optical fiber cable networks. This is a global market opportunity worth USD 6 billion to USD 8 billion.
Explosion of data centers around the world will further contribute to expansion of this market. HFCL is concentrated in [ resources ] to increase its penetration in passive connectivity solution market, both for Telcos and Data Center segments. HFCL expects revenue of INR 250 crores in passive connectivity solution business in the current financial year, showing substantial increase from last financial year's revenue of only INR 66 crores from this segment. Looking at its growth potential, HFCL expects to grow this business to INR 750 crores in next 2 to 3 years.
HFCL has also channelized its R&D resources to develop several type of new optical fiber cables, including tactical cable for defense requirements. These initiatives, coupled with upcoming BharatNet Phase III project, will lead to substantial market opportunity for HFCL.
BharatNet is one of the most anticipated opportunity under which government has already floated approximately INR 60,000 crore tender for CapEx to be incurred in next 3 years, followed by additional O&M opportunity worth approximately INR 40,000 crores over a period of 10 years. This entire funding for this project is being provided by the Government of India for Universal Service Obligation Fund.
The BharatNet Phase III project and tender presents a huge opportunity to HFCL, as it will strengthen the demand for optical fiber cables, telecom and networking products, system integration services and annuity revenue through O&M, all of which are in alignment with HFCL's core strengths.
HFCL is uniquely positioned to offer end-to-end solutions that meet BharatNet's stringent requirements. We foresee good prospects for us given our vertically and horizontally integrated manufacturing capabilities in optical fiber cables, its accessories, telecom equipment and SMPS through one of our group company, coupled with vast experience of laying more than 2 lakh kilometers of optical fiber cable for various telecom operators. We are optimistically looking forward to securing a substantial pie of this opportunity.
In order to optimize operational efficiencies, better utilize resources and to focus more on passive connectivity solution, HTL Limited, a subsidiary company, has decided to discontinue the manufacturing of polymer compounds, which are now available from large Indian and international manufacturers at relatively lower prices.
We also plan to integrate artificial intelligence to our telecom and networking products, which will enhance the experience for network services providers as well as end users. The AI-powered equipment will help build resilient network for people worldwide in all kinds of deployments. We believe that AI-based networking will provide more reliability and security to the end users.
Our total order book today stands at INR 6,776 crores as on Q1 of financial year '25. While our order book has been stable, revenue mix has favorably changed our products business. The revenue from private customers and international business stands at 51% and 9.82%, respectively.
HFCL is eligible to avail production-linked incentives for telecom and networking products. We expect to start receiving PLI benefits for the current fiscal year on production of these products.
Our company is focused on ESG initiatives and deeply committed to fostering workplace diversity and inclusion through various initiatives, fostering an equitable and inclusive environment.
Friends, let me now brief you on the key performance metrics for quarter 1 of financial year '25. Revenue for quarter 1 FY '25 stood at INR 1,158 crores, as compared to INR 1,326 crores in Q4 of FY '24 and INR 995 crores in Q1 of FY '24. EBITDA for the quarter stood at INR 185 crores as compared to INR 209 crores in quarter 4 of FY '24 and INR 160 crores in quarter 1 of FY '24.
EBITDA margin stands at 16% for quarter 1 FY '25 as compared to 15.78% for quarter 4 FY '24, and it stood at 16.04% in quarter 1 of FY '24. For quarter 1 FY '25, profit after tax stands at INR 111 crores as compared to INR 109 crores in quarter 4 FY '24 and INR 76 crores in quarter 1 of FY '24.
PAT margin stands at 9.55% in quarter 1 of FY '25 as compared to 8.25% in quarter 4 FY '24 and 7.59% in quarter 1 of FY '24. Segment revenue for telecom products during the quarter stood at 61.42% as compared to 27.33% in quarter 4 FY '24 and 66.56% in quarter 1 of FY '24.
As I mentioned, the demand for optical fiber cables is in temporary slowdown phase, which has impacted our revenues for optical fiber cable business in FY '24 and also in quarter 1 FY '25. We anticipate that optical fiber cable demand will be restored from quarter 3 or quarter 4 of FY '25 onwards, both in India and key global markets.
However, I'm happy to share that with our diversified product portfolio in telecom, optical fiber cable and passive connectivity solution, the company has been able to sustain and grow its performance. We are confident that our focused efforts in increasing our product portfolio in telecom, optical fiber cables, passive connectivity solutions and defense products, along with capacity expansion, rapid integration, expansion of customer base and entering new geographies, are set to drive revenue growth, margin expansion and optimum usage of working capital resources. We are upbeat about tapping opportunities ahead and look forward to a strong year with great optimism. Thank you once again for your keen participation.
With this, I conclude my opening remarks and open the floor for question-and-answer session. Thank you very much.
[Operator Instructions] The first question is from the line of Balasubramanian from Arihant Capital.
First question, HFCL has decided [ to ] [ discontinue ] the manufacturing of polymer compounds. So what is the revenue and margin in that business? And what kind of impact we can see for these discontinuations?
Yes. First of all, there was no revenue for polymer compound. It was being used internally as a backward integration for manufacture of optical fiber cable. So it was remaining within the company. So there was no revenue.
The reason we have discontinued manufacturing, so worldwide, the major refineries like [ Burrow ] or Reliance and all such refineries, they have increased their production of this component and they're manufacturing huge quantities. So their cost of production is much lower. And what we are now seeing that these compounds are available at a lower price from these refineries rather than we manufacturing ourselves.
The price difference has gone roughly about INR 6 per kg. The -- if you buy from market, they are cheaper by about INR 6 per kg. So there was no point in continuing to manufacture this compound once we have -- ourselves being able to buy it from outside the market. That's why we have closed it. So there was no -- There is no loss of revenue in this case.
Sir, like you have mentioned about electronic fuzes, like which are the regions you are witnessing order inquiries for electronic fuzes?
Yes. We have received inquiries and we are advanced stage of discussion, mainly from European region, and we expect good results very soon.
Sir, in this army project side, like we have cleared User Trial Readiness Review. So [ what is ] the next step for this project [ as ] business opportunity?
Look, UTRR has been cleared up. Next step is flotation of RFP, that is the tender, which is expected soon now, maybe 1 or 2 months, which is expected soon. Only 5 companies have been shortlisted, as I might have informed you earlier, Tata, L&T, HFCL, government's own factory, and I think one more company, I don't remember the name, but only 5 companies have been shortlisted. And HFCL has cleared all kind of user trial readiness, night firing, missile firing, gun firing. I think we have been the most successful in UTRR.
Sir, the final question regarding -- you have mentioned that slowdown has continued on optical fiber and optical fiber cable side. So what is the realization point of -- in this quarter? And CapEx -- any changes in the CapEx, what is the progress? And is there any changes in the funding mix? And you have mentioned about this Noida plant eligible for PLI. What kind of PLIs we can expect? And for -- now for...
Balasubramanian, if you ask me 10 questions in one row, then I would not be able to answer.
Okay. Got it. Sir, I'll come back in queue.
So -- no, no, you can ask me a question on optical fiber cable, but you asked 10 questions in that same question, so it is very difficult to be precise. So ask one by one.
Okay. Sir, you can...
[ So ] first of all, we are seeing the slowdown in the optical fiber cable market. Yes, there is a slowdown globally, which I've been very transparent about and reasons also I've shared in my opening remarks. But one thing needs to be appreciated that we have taken steps to see that this slowdown does not impact our business on overall basis.
One, it includes that, as I said, passive connectivity solutions where we are increasing our revenue to INR 250 crores from something like INR 60 crores, INR 70 crores from last year, and we expect in 2 to 3 years to grow to INR 750 crores. And in any case, by that time optical fiber cable market in next 2 to 3 quarters would have picked up in any case. So this will add up to our revenue.
Moreover, overall company [indiscernible], as I mentioned, huge increase is there in the revenue of telecom products. From last year it's about INR 140 crores. This year we will be going to INR 2,000 crores. So within the various diversified product range of the company, these ups and downs happen in different segments.
But the important point is that the management has foreseen this, taken adequate steps to have such a product range that the company's revenue is sustained and also growth. This year, for example, you will see a reasonable increase in the revenue of the company from 25% to 30%, so which has been possible despite of this slowdown in optical fiber cable business because revenue from other segments is increasing substantially.
Sir, on the price realization side --
Sorry to interrupt, Balasubramanian, sir, but we request you to return to the question queue for the follow-up question.
Sure, sir.
The next question is from the line of Siddhant Singh from Green Portfolio.
Sir, so, my first question is regarding ammunition fuzes. Like in last quarter you told us you are into the trial zone, like within a few months you will start -- the Indian Army will start trialing the ammunition fuzes. So what is an update regarding that?
Look, fuze, as I said, we are concentrating right now on the export market. And while Indian Army is expected to float some more tenders and which we will definitely participate, but export market has given us a good traction. And soon we expect to receive reasonable size orders from the export market. So our concentration right now is more on the export market because Indian Army's tenders will come, they will be decided, it will take time -- some amount of time, but export market order booking may start much sooner.
So we can expect in this financial year itself we will start generating revenue from the ammunition fuzes from export market?
Look, we will definitely start having good orders soon. Revenue, I would say that they would -- they may start from the first quarter of the next year because building of infrastructure and all that, we may take a little bit of time. We may be able to start at the end of this current financial year or maybe in the first quarter of the next financial year. But there will be substantial revenues coming from the defense segment.
And sir, my second question is regarding like in the recent budget allocation, BSNL has got around INR 83,000 crores of allocation from budget. So sir, as we are getting many orders from BSNL, so what you are expecting? This huge amount of budget will get benefited to our company? And how we can like expect -- how much order we can expect from the BSNL side for this financial year?
Look, I can't quantify what kind of orders we will receive, but we have good hope from BSNL. Reason being, one, government is making full effort to revive them and a good amount of budgetary support is being given to BSNL apart from their own revenue.
Moreover, with this improved financial position, BSNL's payment situation for their own tenders have improved substantially. What we earlier had a situation where payments were not coming from BSNL, now BSNL is releasing payment twice a month, which is a very -- much improved situation what we had experienced last year or even in the beginning of the current year.
So we have good expectations on BSNL, not only from their own requirement, but from the BharatNet Phase III also, which is the tender which has been floated through BSNL, where it's approximately INR 60,000 crores of CapEx. And the entire funding -- this is no BSNL funding. The entire funding is coming from Government of India through USO fund, which has got a substantial amount of money already with them. So payment would not be a problem in BharatNet Phase III.
So BSNL, yes, it presents a good market opportunity and it is really beneficial to companies like us because BSNL always buy indigenously manufactured products [ through ] indigenous manufacturer. And that is a great advantage to us because with the preferential market [ axis ] [ weaving ] where indigenous manufacturing is preferred. And also at the same point of time, improved payment position of BSNL, I'm sure HFCL will be able to get good order book from BSNL in the current financial year and following years also. It's just not possible to quantify exactly the amount, but I am sure that market opportunity with BSNL would be reasonable for telecom equipment as well as fiber optic cable.
Sir, I have one last question regarding like optical fiber. Sir, as we are expanding our manufacturing capacity in optical fiber, do we have any future plan to install our in-house preform plant? Like if we will have our own in-house preform plant, then our operational efficiency will increase. So do we have any plan for installing that?
Look, we are under discussions for this because it involves a reasonably large CapEx. So we are discussing at this point of time the capacity which we should install and the CapEx per ton or per kg, whatever you call it, of plant, which should be there to make it economically viable against the purchases. So it's a make versus buy decision, which is under evaluation at this point of a time.
And whenever this evolution is completed, which we expect should be near future, 1 or 2 months, we will definitely be working on this. And if we find it economically more viable to manufacture -- substantially viable to manufacture, we will definitely do that.
And moreover, it's not only economic viability, there's also the sustainability of raw material supply in the situation where the market demand goes very high, and we have seen in the past that the price of preform also goes very high, reducing the margin for the manufacturers of fiber and cable. This plant kind of a backward integration offers more sustainability also.
So all these things are being under discussion very actively. And maybe in next 1 or 2 months' time we will take a final decision. Once we reach to our expected CapEx per ton and also -- the sustainability aspect is also well understood, and then we will take the final decision. But I can tell you, this is under active consideration at this point of time.
Sir, can you like give any ballpark number on likely how much of CapEx we will need per ton, like, any ballpark number?
I would not really go ahead on that at this point of time. Let us wait for next call where I would be able to be in a better situation to tell that. Right now if I tell you any CapEx number, it's not good to divulge our position to our suppliers.
The next question is from the line of Aryan Oswal from Finterest Capital.
Sir, what is the scope of margin uptake as we are anticipating the revenue to grow from INR 143 crores to INR 2,000 crores?
What was your first part of question?
Sir, what is the scope of margin uptake as we are anticipating the revenue to grow from INR 143 crore to INR 2,000 crore?
Look, this revenue growth is INR 143 crores from INR 2,000 crores in the current financial year is majorly coming from the equipment of telecom products, which we are selling to private operators and BSNL both.
And generally, the margin -- net margin is around 8% to 10%, as you know. Added to that would be some benefit from PLI also. So this will definitely result in increase in the margin with the increase of revenue. Percentage and revenue you can calculate. These are my best estimate at this point of time. So it will be increasing profitability as the net profit before tax remains around 8% to 10% and some benefit from PLI would result in this.
And sir, are there any plans or time lines in place to reduce the percentage of pledged shares in the near future?
Please say that again?
Sir, are there any plans or time lines in place to reduce the percentage of pledged shares in the near future? [indiscernible]
There is no pledge and there is no plan to pledge. There is no pledge [ of ] company share.
Sir, it is showing a [ 44.5 ]...
No, no. Yes, there is a misnomer at that and we have brought in the notice of the stock exchanges and the [ depository ] also. When the shares are -- we have given a nondisposable undertaking to financial institutions as -- against loans taken by us. They are shown under pledge column. So there's no separate column for nondisposable undertaking. So it is a [ nondisposable ] undertaking by promoters rather than any pledge. This is a completely wrong format by the stock exchanges and depositories.
This format needs to improve, and we have made several representations that this gives a completely misleading information to the shareholders that there is a pledge of shares. There is not a single share of the HFCL which is pledged anywhere, let me be very clear. This is only nondisposable undertaking. There is no pledge.
One last question from my side, sir. Sir, as we have a strong order book of INR 6,700-odd crores, what is the order execution time line?
This is different in different orders. They range from immediate 1 month kind of a supply and they range for a 1-year supply also. So -- not 1 year. In most cases it is something like 6 months to products. In the case of turnkey projects about 9 months to 1 year. And for O&M, operation and maintenance, that may be 5 to 6 years or maybe 7 years also. So it's different. For the product and the turnkey ranges from 1 month to 1 year. For the O&M, of course, it's a continuous stream of revenue, which goes from 6 to 7 years.
And sir, can you throw some light on the status of capacity expansion?
Yes, capacity expansion is continuing for fiber. In Hyderabad, the plant is under construction. Civil construction has already happened. Equipment installation is under progress. And for fiber optic cable also, it continues in each of the plants, of course, but we are also now working on, as you have seen our announcement, to produce internationally also. In Poland, for example, where roughly about 3.5 million kilometers of fiber optic cable capacity we are looking to create. So that is a separate decision, but yes, it is under progress.
The next question is from the line of Ketan Athavale from RoboCapital.
Sir, out of our total BharatNet tender of INR 60,000 crores, INR 65,000 crores, how much will be the OFC component? How much will be EPC component?
OFC component, we are expecting a total -- it is being under some bit of a revision by government itself. But assuming certain numbers, we expect about something like 10 lakh fiber -- 10 lakh kilometers of optical fiber cable.
So if you take a price of roughly about INR 50,000 per kilometer, so it's roughly about INR 5,000 crores to INR 6,000 crores of fiber optic cable opportunity, INR 5,000 crores to INR 6,000 crores, I would say. Double that amount would be EPC part of that, double or maybe a little more than that. And then there will be equipment, like routers and optical equipment and all those kind of things. They would also be there.
So for cable itself, I would say roughly about INR 6,000 crores -- INR 5,000 crores to INR 6,000 crores. Similarly about the routers, routers and those kind of equipment would be similar numbers, and then the EPC portion. And also, certain equipment or products to be outsourced from other suppliers like ducts, which we don't manufacture, really sourcing from others, they will also have INR 5,000 cores to INR 6,000 crores. So INR 60,000 crores is roughly divided in these kind of numbers, roughly.
And I just wanted to confirm, you expect 25% to 30% revenue growth this year. Is that correct?
Yes. I -- We very much expect that. That is our best estimate at this point of time, looking at the products we have and the market opportunities we have, tenders we have participated and orders we expect.
And sir, can you have revenue guidance for the next 2 years as well, so FY '26, '27?
So I will not give any guidance, but I can say, the way we are planning our products, and the way we are planning diversification into defense and those areas, our products have now shown a lot of maturity, we expect that every year we should be able to grow by some 20% to 30%. In 3 years' timeframe, our telecom equipment business should be around INR 3,000 crores. Similar number would be the fiber optic cables. Similar number would be the EPC business. So this is the kind of estimation -- best estimation we have, looking at the market and our product portfolio and the market opportunities we see in front of us.
And how much margin are we targeting?
So generally, as I said, profit before tax is 8% to 10%. But now, if you ask me any guidance, there is no guidance. This is our best expectation.
And just one last thing. So what is our current capacity and how much are we expanding?
Current capacity for fiber is about 12 million fiber kilometers, which is getting into 25 million. Cable was [ 25 million ], which is getting into [ 33 million ].
The next question is from the line of Hardik Vyas from ET.
I had a couple of questions. The first one being, sir, what is the status of the 2 orders that we had of INR 623 crores on the FWA and the second one of INR 1,100-odd crores? What is the execution in this quarter?
What was the second question? One is the FWA. What was the second one?
The other order that we had received of INR 1,100-odd crores, what is the status of it? [indiscernible]
Okay. I can tell you. The FWA order, I expect the supply to start either end of this month or may not be end of this month, then August itself. The product is under final stage of some software changes as desired by the customer, some small application-related changes, which is being done right now. Production line has already been set up, which has been approved by the customers, and we expect the bulk production to start maybe another 1 or 2 weeks, maybe 2 weeks. That is our best expectation, in 2 weeks bulk production will be starting, and we will be commencing our supplies from month of August itself. [indiscernible] Yes, go ahead.
So some part of this quarter will see some revenue coming in from that FWA order?
Absolutely, we will see.
Okay. And we have not had any execution on the FWA order in the June quarter that we have seen?
Say that again?
In the June quarter we have not seen anything from the FWA coming?
No. Nothing in June quarter. That's why I very clearly told you that we will start mass production from July end or August beginning, and next 2 weeks' time I expect the bulk production to start.
Okay. And do we expect that to get over in this financial year, or will it be stretched?
Our best effort is to supply the entire quantity before the end of the financial year so we can get more orders.
Okay, sir. And out of the INR 400 crores of telecom equipment orders that we have had, could you split it up in Wi-Fi and other telecom equipment products?
I don't have exact split available now. If you send your query in writing, I will give you the exact bifurcation of this number. But yes, there are orders from -- I can tell you which are the items we have ordered. Orders are for Wi-Fi access points. A lot of orders for UBR.
As I said, UBR has got a lot of traction. We have developed such unique applications, usage -- use cases for this UBR that all the operators are preferring it. BSNL earlier had no plan to install UBR for backhaul in their 4G traffic. But once they saw commercial benefit and reduced CapEx and OpEx, they are now demanding more UBRs and much earlier than what they had asked us to supply.
Our supply position -- supply program was, let us say, by November, they have taken those supply by June, July itself, and they want more. So we can even [ see ] that there is requirement for UBR, there is requirement for optical equipment, there is requirement was Wi-Fi access points. Those all orders are there.
Okay. Sir, my second question is on the services. We have seen healthy margins of roughly 20% range for our services orders. So is this a sustainable kind of margin or -- because we have booked our cost in the previous quarter?
No. Look, there's no booking of anything. This is only -- as they accrue, it happens, as they accrue. So this is -- this may vary depending upon contract to contract. Some cases where there is a contract with highly manpower intensive or product intensive, in some cases, margin is much higher. Some cases margin is just 8% to 10%. Some cases it is 20%, 25%. Depending upon contract to contract, it varies.
But on a longer term -- in a longer term, if you ask me that what's going to be the overall margin on turnkey contract, I will keep it around 10%. And it may change. Sometimes it will be more, sometimes it will be less, but generally, you should take it at PBT of 10%.
Okay. And sir, I think we had stopped taking any lower margin orders to -- on the services side. I mean...
You are absolutely right. We don't take any lower margin orders of EPC. We have left away a number of these contracts because we are not interested in wasting our resources, manpower -- trained manpower as well as working capital on contracts which are of a lower margin.
Okay. Sir, my last question. Why are our product margins so less? I think they are in mid-single digits, and what happened to our consolidated numbers? I think that is because of the optic fiber cable business being a little slow, because I think on the consol basis, we are a little less EBIT than the standalone?
Look, basically, I tell you, the lower margin in the product business, in some cases it is mostly because of -- it happens product to product and time to time depending upon competition. Sometimes strategically you like to take orders in the beginning of a particular product at a lower margin also because -- strategic reasons.
So it differs from product to product and time to time. There is no long-term particular margin you can predict that this would be the margin. As I said, generally, you can say the 8% to 10%, and margin has been lower in OFC business definitively because of the reduced revenue and also decrease in the prices of the products globally. Because of less demand, the prices will go down. So there has been lower margin on OFC business also, which I said is a temporary phase. We expect it to improve in next 2 quarters.
Okay. And are export...
Sorry to interrupt, Mr. Hardik...
Last one. Export [ thing ] is INR 1,500 crores revenue target this year?
No, it would not happen this year because, as I said, the global demand has gone down. So it will be considerably lower. And overall revenue from fiber optic cable business is expected in India and abroad both about INR 2,000 crores, we had about INR 2,800 crores 2 years back because of the lower revenue in the global market. But as I said, we have compensated it by increasing the passive connectivity solution market, which is part of optical fiber cable business only and we have also compensated it by increasing our revenue from the equipment market substantially, so INR 140 crores to INR 2,000 crores.
I think company's working management, my product heads and business heads deserved a great appreciation for diversifying the product range, which in spite of lower revenue -- because of global circumstances, one of the major product areas, still the company will grow its revenue and profitability both in the current year.
[Operator Instructions] The next question is from the line of Hitesh K. Patil from [ Krish ] Associates.
Sir, my question is regarding that in the last month the European Union has exempted HFCL from any kind of anti-dumping duties. And HFCL is the only company from the India that has been given this exemption. So how can you capitalize on these things?
Look -- this is a very good question. HFCL and HTL, both these companies, both are our companies only, they have been exempted from anti-dumping duty by European Commission. There was a very extensive inquiry from European Commission. I think hundreds of pages of documentation we had to send them.
Then their teams came down to India from European Commission. European Commission teams, they came down to India, sat in our factories in Hyderabad for maybe 10 days, around 7 to 10 days in HTL in Chennai, examined every piece of paper we had send them by going into our [ step ] system to see that every information we have given is authentic and correct. Documents were verified, including suppliers, their invoices, our invoices to the customers.
Finally, they came to the conclusion that HFCL has followed absolutely fair trade practices, HFCL and HTL both, and they have not dumped any material into European market, which means we have not sold at a lower price than what we are selling in our local market. And also, we have not sold below cost. And therefore, there cannot be any anti-dumping duty on us.
Whereas on every other Indian manufacturer, anti-dumping duty has been imposed from 8% to 11%. So this opens possibility for us for a better competitive price to that percentages, as has been imposed on others, in the European market, in competing with our Indian competitors and also Chinese competitors who already faced a much higher anti-dumping duty in the European market.
Sir, my question is still that in the monetary term, how much of the benefits can we expect from the revenue from that European Union because of this anti-dumping exemption benefit?
You have to look at -- this question has 2 aspects. Benefit, one, comes from competition. Second, it is the market position which is also very important, that what is the kind of consumption is there in fiber optic cable. Right now, there is a slowdown in the market on an overall basis. So it will be very difficult to tell you in a quantitative term that how much would be the benefit in the current fiscal year or the next fiscal year.
But yes, at least I can expect increase in profitability to the extent the anti-dumping duty has been imposed on others. Maybe some competitiveness, half of the percentage of that 10% or 11% goes in increased competitiveness, and half of it comes as a profitability. So it will all depend how much is the demand in a particular year, but it will result in increase in profitability and competitiveness both.
Okay. And my last question is about that -- sir, this PLI scheme announced by the government. Sir, how much of the money will we be getting from that PLI and from when it will be started, tentative dates or amount, if you can...?
The total is about INR 650 crores we'll get, and it is expected to -- not expected definitely. We will start getting it from the current financial year itself because our is not PLI, but DLI. It is design-linked incentive, which is 1% higher than the PLI. Ours is 6% whereas others is 5% on average. So we will start getting it from this year itself.
The next question is from the line of Saket Kapoor from Kapoor & Company.
Sir, firstly, out of the total revenue from the telecom product of INR 615 crores, what would be the contribution from OFC, sir?
Yes, we can answer this. Where this INR 615 crores number is coming up or...
Around 44% is coming from optic fiber cable and related businesses and 56% from telecom and networking products.
So Jain [ sir ], the lower margins are attributed because of this higher percentage of -- or even a competitively higher percentage of OFC, that is the reason why we have higher margins?
No, margins are -- I mean, on overall basis, it looks low because there has been extremely low revenue out of this optic fiber cable business. So that has a lot of pressure on the margin. So capacity utilization is just 45%, 50% this quarter. So that is impacting the overall margin of this product segment.
In the OFC segment, we have 45% to 50% total capacity utilization levels for the first quarter?
Yes, 45%. Yes, roughly 45%.
Yes, 45%, and as I said, it is because of globally the market has slowed down. And it is not only HFCL. It will be every Indian company or every global company, this is the kind of slowdown is there. And looking at this slowdown, what we have done, as I said, one, increased our business on passive connectivity solutions, which will have multifold increase this year and multifold increase in years to come, at the same point of time, developing products with data centers and concentrating on data center market.
So what we are losing in optical fiber cable revenue can be compensated by these 2 areas. Optical fiber cable revenue from telcos to be compensated from PCS, passive connectivity solutions, and data centers.
But in any case, the demand for optical fiber cable from telcos is also expected to come back to its original situation within next -- by next 2 quarters, because spending, which has gone down because of various reasons as I explained, is -- possibly would pick up by the beginning of the financial year '25. It is very well expected.
All over the world, it will pick up because of higher FTTH deployment, higher disbursement of government subsidies. U.S. alone, the government subsidies for fiber optic cable to home is $61 billion, which has slowed down because of the current political situation, elections and all that, which is expected to again pick up from going from the first quarter of the new calendar year.
So demand will pick up for fiber optic cable [ at this time ] and our revenue from that will also increase. Capacity utilization will increase, but also at the same point of time, our data center revenue and passive connectivity solution revenue will also go up. So in long-term, it is -- this diversification and increase in product range is going to be highly beneficial to the company.
Sir, as you are [ harping ] on the point for passive connectivity solution and data center addressable market, what are our products which will be catering to these 2 segments sir, if you could elaborate?
For passive connectivity solutions, all products which are required to install fiber optic cable, either underground or over ground, all products, except the duct. Duct we don't manufacture. Distribution boxes, couplers, splitters, joint [ in ] boxes, all these kind of products which are required for installation of fiber optic cable, number one.
When I talk of data centers, again, this kind of installation materials which are of a different level of quality because of high-quality requirements of data centers and high capacity fiber optic cables. In telcos, you mostly require fiber optic cables starting from 2 fiber going up to 288 fiber mostly, mostly. Nowadays, some demand is there for higher count of fibers also for FTTH solutions by large telcos internationally. For India, mostly it is limited up to 288 fibers.
But in data centers, the demand is for more than 1,700 fiber per cable in each cable, going up to 3,400, 3,800 fibers in the same cable. So these are very, very high technology and high count of fibers in the same cable, which we are developing. From 1,764 fiber cable we have already developed. [ Some ] 3,400 fiber cable is under development and under trial also. So these would be the equipment for data centers.
But again, as I said, this would be used by some telcos also. So telcos as well as data centers would use this. PCS connections -- connectivity solutions, there will be a different grade of quality for data centers than the telcos which use for underground and over ground [ project ].
[indiscernible]
Sorry to interrupt, Mr. Kapoor. We request that you return to the question queue for follow-up question as there are several participants waiting for their turn.
The next question is from the line of Purva Shah from Perfect Research.
Congratulation for the good set of numbers, sir. I just had 2 questions. One, looking at the numbers for the quarter, we see that the tax rates have fallen. What is the reason behind that, sir?
Our CFO would like to explain that. Maybe Mr. Vijay Jain, you can explain.
Tax rate has...?
Tax [ rate ] [ has ] fallen quarter-over-quarter, sir. What could be the reason behind that?
So we had some long-term carried forward losses in past. And because of this, some [indiscernible] income on some of these investments which got listed recently, so we had to create that deferred tax asset. So that is why it is bit low relatively.
Okay. And my second question was about the Poland CapEx that we are doing. What could be the completion guideline for that?
Look, we are right now working on acquisition of land and all that which is in advanced stage. The total CapEx anticipated from that facility for about 3 million fiber kilometer -- 3.5 million fiber kilometers equivalent cable is about INR 170 crores.
Okay. Sir, I wanted a time line about when could that CapEx be actually commercialized?
Project, we would expect this to be commercialized in -- within the calendar year '25.
So in about 6, 7 months, it could be commercialized and...?
No, a little more than that. I would say a little more than that, 9 months, something like that.
The next question is from the line of Dipesh Sancheti from Manya Finance.
Most of my questions have been answered, but I just had a query regarding this recently what happened with CloudFirst all over the world. Do we see an opportunity here with our networking products?
No. This is a different thing which happened. Unfortunately, there is no opportunity lost or opportunity gained by us because of this, because this is a failure of a cloud system, which was Microsoft, as we all know. Either there is no loss of opportunity or no gain of opportunity because of this for us. Unfortunate, which happened.
I was in U.S. I had to go to some place. Flight just didn’t go. There are thousands and thousands of people in the airport. No place even [ to ] put your foot. So you had all to come back. It's very, very -- this is one thing which tells you how good technologies are, but how bad technologies can be. One person acting in one company got down whole word on the knees. Can you imagine that? But no impact on us either way.
Ladies and gentlemen, we will take this as the last question. As there are no -- I would like to hand the conference over to management for closing comments.
Should I give my closing comments if there are no questions?
Yes, sir.
Good. So friends, I have outlined our performance of quarter 1, our expectation for future. Most important point I would again try to reemphasize to all of you, that company is very optimistic about its growth in near term and longer term. And the basic reason of that is we have concentrated on developing products ourselves, with our own IPR, which results in lower cost. Though it needs a lot of effort, a lot of hard work, but with our own IPR, it's not only the lower cost, we can modify the products as required by the customer.
As I just now said before a few minutes, fixed wireless access customer wanted some modifications to be done to suit their installation practices and applications, we have been able to do that. If I was taking technology from somebody else, it would not have been possible to make sure of that.
Now, most important point is that we have created a diversified product portfolio within our product area, not that we have gone into products which are not related to us. All are either telecom or like different electronic products. Now, in fiber optic cable business, interval slowdown, we have taken steps to go into passive connectivity solution and data centers. We have created good product range of different products, good product range of telecom products.
So with this kind of a diversified product range, we are insulated from any downtrend in any particular segment. Downtrends can happen on any of the segments at any point of time. That’s a phenomenon in every business. But the good part is that management should be able to foresee all that and take steps to broaden the product range so that any downtrend in any particular segment does not impact the overall performance of the company and the growth keeps on happening. So those are the steps we have taken in the last couple of years, and now they are showing results.
As an example, INR 143 crores of revenue last year in telecom products is going to be INR 2,000 crores this year. So in spite of slowdown in cable market, our revenue performance would not be impacted.
So these are the steps we have taken to make sure that our growth is sustainable as well as -- it's rather profitability and revenue both increasing.
Now another important point is the defense products. We spent a lot of efforts and money also to create a defense product portfolio, which is now showing results. I may be able to give some good news very, very soon in terms of acquisition of orders for defense products.
So what I'm trying to say, we look to our future a very good optimistical manner because of diversified product portfolio, because of increased product range, our R&D and increase in customer base indigenously and geographically worldwide.
Moreover, projects like BharatNet Phase III is also expected to give us much increased revenue in the next few years. Though that tender is yet to be built and finalized, but we expect good opportunity from that also. So good future lies for the company as the management best expects in near future and longer term. And we will keep on -- our [ stress ] on R&D, development of a diversified product portfolio within our range of products so that revenue and profitability growth both are sustained. Thank you very much, friends, and see you all again next quarter. Thank you very much.
On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you.